Finance & Business | Accounting Principles

Executive summary

by on Nov.13, 2009, under Business

For several years, Peter and Elinda Rossi have saved and planned for the opportunity to start or acquire a family based fast food shop. Circumstances permit the purchase of an operating business at a good location and negotiations have established a fair price. The location is valuable as it provides for office, some industrial and passing trade. It is a 7 day business location which is suitable for a family operation.

Peter Rossi works in his family’s fast food shop during and after his school years and is acquainted with the personal involvement and many tasks. Elinda Rossi has retail experience the children, ages 13 and 15, can assist with the business when not in school. Casual assistance will be needed during peak hours and for occasional work relief.

The business purchase price of $95,000 includes sale of the equipment which is two years old, the goodwill and the location lease which is registered. It is proposed that the Rossi’s savings of $25,000 be combined with the $30,000 given to them by parents and a bank loan of $40,000 over 5 year to buy the business. Rossi’s have a further $10,000 which will be used for operating funds during startup as some additional equipment is needed.

The forecast revenue and costs indicate that the bank loan can be re-paid on a $1,000 per month basis leaving sufficient income for the family and wages for casual labor. The goal of the venture is to build the business over a 5 year period and sell it with increased goodwill before the present 10 year lease is too close to re-negotiation; 8 years remain on the lease at present. It is estimated that the value for re-sale in 5 years will be substantially in excess of the $95,000 purchase price, the bank loan will be paid off and a modest income will have been obtained by the family during the period. At this point, a new enterprise will be considered possibly a local restaurant or retail venture.

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