Question

William is a restaurant owner. He has 5 restaurants in Virginia, Maryland and DC. He is going through an extremely tough time due to Coronavirus crisis.

He had to shut down his restaurants, as ordered by authorities.
His restaurants are allowed to serve “take away” orders, however the revenue is very low to cover his costs.

William’s restaurants are located within a 45 minutes radius. Financial information is shown below;

Restaurant	Locations
1	DC- Business Distric
2	Bethesda
3	Arlington
4	National Harbor
5	Tysons Corner

A typical Profit & Loss Statement of one of his restaurants, before the crisis, is shown below;

Sales	1,430,000	100.00%
Cost of Goods Sold	490,000	34.27%
Gross profit	940,000	65.73%
Labor	312,000	21.82%
Rent	130,000	9.09%
Other expenses	212,000	14.93%
Profit Before Tax	286,000	20.00%

Before the crisis, monthly revenue per restaurant was around $120,000. Now, with take-out only, revenue is down to $10,000 per month per restaurant.

William is aware that his business is rapidly burning cash and he will run out of cash in about 3 months.

William is still very young, therefore retiring or selling the business is not an option for him.

William needs help to make tough decisions. He has heard about you, a bright business professional and you agreed to consult him.

Your Task

Your task is to help William to take the following decisions.

Please provide an answer to each of them and explain why.

1. Should William close restaurants? If yes, for how long? And what should he do after that? Why?

If not, should he continue take away only? Why?

2. Before the crisis, the fair market value for each of his restaurants would be about $1 million. An investor, who is trying to make advantage of the crisis, offered to buy his restaurant in DC for only $100,000.

Would you recommend William to sell or not? Why?

3. Just before the crisis, William was making expansion plans. He was about to sign a lease agreement for a new restaurant near Tysons Corner, which is a booming area with many residential units being developed. It is almost certain, in 2 years’ time, this area will be a hot spot for a restaurant.

Should William sign the lease agreement? What should he do? Why?

4.William is aware if does nothing, he will run out of cash in 3 months. What actions should he immediately take? List your recommendations.

Think as if this is your family business.

Your answers should include numbers.

Answer 1

Sol.

1)No, Williams should not close restaurants, he should continue with take aways only. Based on information given his revenue for each restaurant will be $1,20,000per year which can be used to cover his fixed expenses like rent. (As fixed expenses are incurred irrespective of he shuts down his business or runs it)

2) I would recommend him to sell the restaurant. Even though the value offered by the investor is too less and based on information he'll will be running out of money in 3 months of time he can sell this restaurant and use that money to run his other 4 restaurants .

3)yes, he should sign the lease agreement. He should get loan from a bank as the restaurant is in a booming area and considering the crisis will be over in few months and revenue from other restaurants can be used to repay this loan

4) Recommendtions:

1) Getting financial aid from banks

2) selling one of the restaurants will be help full as the revenue is less than cost each restaurant is making huge losses and in this crisis more no. of restaurants will contribute to more loss. Selling one of the resutarnts will help it will also provide financial assistance to run other restaurants