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… Several businesses fail due to a failure to meet cash obligations in the first two years. Taking a look at how interest on loans and loan repayments will affect cash flow are also important in this scenario. One of the key variables in this case is the loan. In this case we selected a loan of $200,000 because we felt it was a reasonable amount for a loan for a new business and it was enough money to keep the business cash positive through its first year of operations. If a loan cannot be secured, or if a loan of only $100,000 or less could be secured, Robert & Alex may need to look into alternative forms of financing such as angel investors or specialized banks set up by the government to help with new business developments in Canada.
It is clear at first glance of the cash budgets that if the projections prove to be accurate, the firm will remain in good shape. It is important to note that the cash budgets provided assume a loan from the bank of $200,000 at 15%. A loan of $200,000 was chosen because it is always better to over-finance the business than to under-finance it especially in its first year of operations where sales and expenses are so volatile and could prove to be quite inaccurate. If a loan of only $150,000 or even $100,000 is secured by Robert & Alex, they should still be able to stay afloat, although they will have a harder time paying off some of the principal of the loan in the opening