From the scenarios, upon reviewing their financial statement, Erica and Chris de

Question

• From the scenarios, upon reviewing their financial statement, Erica and Chris determined that the restaurant is not as profitable as they thought mainly because of overages related to labor cost. Discuss the proposed ways to reduce labor costs that Lena recommended, and explain why you believe the two (2) suggested approaches would be effective in resolving the problem.
• From the case study, discuss three (3) approaches you would use to fund a startup business. Consider the disadvantages and explain why you think your plan would be effective.

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

Lena recommended that the staff schedules should be monitored. If the business is not as per the expectations on a particular day, Erica and Chris should terminate the staff to reduce the operating costs (in the form of labor costs). It is important for Erica and Chris to gain an understanding on the days and at what times, there is slow business. Similarly, they should identify the times when there is heavy business. Based on this information, Erica and Chris can prepare proper staff schedules. This information would further help them in budgeting their labor costs (through the preparation of labor budget). A proper control over staff costs will help Erica and Chris in focussing their attention on the overall costs of operation and the profits generated by the restaurant. Both of them should be involved in making the financial decisions related to the company. Financial statements should be reviewed by both on a consistent basis so that they can work out different ways of improving or increasing profits.

Part B:

A start up business is generally financed through self funding. Therefore, I would prefer withdrawing funds from my personal savings, selling any valuable items that I may be having and taking loan (may be from a friend or from any financial institution, if willing to provide). The pros and cons of each source of finance should be studied. While self funding may seem to be the most appropriate, there is a risk of losing all the money if the business fails or doesn't perform as per the expectations. Similarly, borrowing money from a friend can affect your personal relationships (if you are not able to refund money as and when demanded). Borrowing money from a financial institution would attract interest rate which would be a fixed obligation. A delay in payment of interest or prinicpal amount of loan can attract further penalty or legal course of action. It will further affect the credibility of the company and may make it difficult to raise funds in future. Selling personal valuables can bring in good amount of profits provided people are interestes in buying your valuable items.

Thanks.

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