Case Study #1: Chapter 4 Business Analysis Ed Perez has always wanted to run his own restaurant. He worked part-time in the food service business during high school and college and has worked for a large restaurant chain since graduating from college four years ago. He's now ready to open a franchised family style restaurant. However, to get started, a large investment is required. Ed has saved some money, but will also have to secure a substantial loan. Fortunately, Ed's old college roommate, Joe Dixon, is now a loan officer with the local bank. Besides being a good friend, Joe knows that Ed is a stable, hard-working businessman and an excellent credit risk. Ed is now meeting with Joe to apply for the loan. After exchanging pleasantries, Joe asks to see Ed's business plan. In response, Ed tells him all about the idea and shows him the written information from the franchisor, which Joe glances at briefly. Joe listens politely, leans back in his chair, and says, "Ed, I've known you for years. I'm sure this is a great idea, and that you'll make a terrific restaurateur, but we can't even begin to consider a loan until we see a fully developed business plan that looks at least five years into the future." Why is Joe (the bank) insisting that Ed prepare a business plan? What will it show the bank? List some specific concerns that the bank might have that a plan would answer outside of the financial section. List several concerns that the financial plan might answer for the bank. Why is the bank insisting on such a long planning horizon? Does that imply the bank is looking for a strategic plan? What will preparing a business plan do for Ed? Before he gets started. After he gets started. What will he learn by doing the financial plan? What kind of thinking is the bank looking for in Ed's plan? That is, should the plan be strategic or operational or very short term?

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter2: Financial Statements And The Annual Report

Section: Chapter Questions

Problem 2.6DC

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Case Study #1: Chapter 4 Business Analysis

Ed Perez has always wanted to run his own restaurant. He worked part-time in the food service business during high school and college and has worked for a large restaurant chain since graduating from college four years ago. He's now ready to open a franchised family style restaurant. However, to get started, a large investment is required. Ed has saved some money, but will also have to secure a substantial loan.

Fortunately, Ed's old college roommate, Joe Dixon, is now a loan officer with the local bank. Besides being a good friend, Joe knows that Ed is a stable, hard-working businessman and an excellent credit risk. Ed is now meeting with Joe to apply for the loan. After exchanging pleasantries, Joe asks to see Ed's business plan. In response, Ed tells him all about the idea and shows him the written information from the franchisor, which Joe glances at briefly.

Joe listens politely, leans back in his chair, and says, "Ed, I've known you for years. I'm sure this is a great idea, and that you'll make a terrific restaurateur, but we can't even begin to consider a loan until we see a fully developed business plan that looks at least five years into the future."

Why is Joe (the bank) insisting that Ed prepare a business plan?
- What will it show the bank?
- List some specific concerns that the bank might have that a plan would answer outside of the financial section.
- List several concerns that the financial plan might answer for the bank.
- Why is the bank insisting on such a long planning horizon? Does that imply the bank is looking for a strategic plan?
What will preparing a business plan do for Ed?
- Before he gets started.
- After he gets started.
- What will he learn by doing the financial plan?
What kind of thinking is the bank looking for in Ed's plan? That is, should the plan be strategic or operational or very short term?

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