MAIN ISSUES

The first issue which needs to be addressed is to perform a monthly cash flow analysis for the fiscal year ending December 31st, 1990. Robert & Alex would like to open up their own restaurant/brew pub with $200,000 of their own money and with the use of external financing to finance the rest of the company until excess cash flows remain stable and positive.

The second issue is to identify the key variables in this analysis. With every company, there are certain variables which affect cash flow significantly more than others. How would changes in these key variables which are identified for this particular business affect the cash flow for Kellers' Freehouse? Is there anything that can be done to fix these variables or …show more content…

The interest payments are based on 15% of the outstanding principal a at the end of the previous month. If the firm feels sales and expenses are too volatile and they do not want to risk running short on cash, they may want to delay repayment of the principal of the loan until cash flows are more consistent and accurate. If sales end up being $750,000 for the first year of operations, the firm will find themselves with an excess cash flow of $234,900. In this case, the firm will probably find that is in their best interest to repay more of the principal of the loan in the first year in order to further reduce interest payments for the future.

One important thing to note when taking a look at the cash budget, is that when sales for the month are low in the $550,000 sales projection, the firm has a difficult time meeting cash obligations and end up running a slight deficit for a few of the months. This implies that if sales are below the $550,000 minimum projection, the company may start to run into trouble meeting its cash obligations. This is due to the fact that at sales levels under $44,000 such as in the first cash budget in May when sales are only at 70% of the projected monthly sales, the firm's fixed costs such as the Lease, the other restaurant cost, promotion, and fixed labor are quite high. The company must ensure that their minimum sales expectations of $550,000 are met, otherwise