Chapter 18, Problem 3VC

Summary Introduction

To determine: The reason that bank financing is unavailable for T&E startup.

Case summary: T&E is a hamburger restaurant in Chicago area started in 2009 at the time of great recession. They financed its operations by themselves and with the help of third partner VN. Both the partners have work experience in McD as executives. Recognizing the need of finance function, they hired Brian as a CFO who is a former executive of McD.

According to CFO cash flow is an important element in starting up a restaurant because of the known costs such as rent, payroll, inventory, taxes and utilities as these are recurring and relative costs incurred on weekly or monthly basis. T&E uses a technological inventory management and control system for the perishable nature of foodstuffs associated with the restaurant business.

CFO explains that the restaurant has net 14 credit terms with its food vendors. This means that the invoice is to be paid within 14 days after the receipt of the goods. It is a form of financing which allows company to turn the inventory once or twice during the 14 day period. According to Eddie, the goal is to increase the stores by 10 and then look at franchising the operation.

Characters in the case: The characters that in the case are T&E, VN and BG.

Adequate information: According to Eddie, the goal is to increase the number of stores by 10 and then look at franchising the operation. When considering the location where to open a new operation. He indicates that the careful consideration is to give demographics of area like average income of people, age and population.