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 to control them better to secure a more positive cash flow?
RECOMMENDATIONS
Creating a cash flow budget for the fiscal year ending 1990 will help to project cash disbursements and receipts and will inform Robert & Alex of the size of the loan that they must request in order to make it through the first fiscal year of operation with a positive cash flow. Creating five separate cash budgets projecting for sales of $550,000, $600,000, $650,000, $700,000 and $750,000 will help to view the bigger picture. Due to the fact that projected sales are perceived to be anywhere from $550,000-$750,000, projecting the cash budget for several different sales levels is a quick and easy way to perform a type of sensitivity analysis. We are checking to see how changes in sales will affect the cash flow (receipts, disbursements and total available cash).
In order to identify key variables, in depth analysis of the cash budget must be completed. At first glance, it seems that variable costs for this business are quite high. Taking a look at exactly how much of your sales is being eaten up by variable costs is a good way to identify key
