Chapter 39 — Exercises

Items marked † have worked solutions in the answers appendix. All figures are constructed teaching examples unless stated otherwise. Where an exercise touches a legal obligation, the correct answer always includes verifying the rule in your own jurisdiction — say so explicitly in your response.

Work these with a calculator and a blank page. The arithmetic is the point; a diagnosis you cannot compute is a mood.

Part A — Recall and orientation

39.1 Name the three diagnoses in the turnaround diagnostic, and state the single distinguishing test for each one in a sentence apiece.

39.2 What are the two facts you must establish in Step 0 before the diagnostic can be run at all, and why is the second one specified by day of week rather than as an average?

39.3† A restaurant does \$1,100,000 in annual sales, serves dinner five nights a week, and earns a marginal contribution of \$24.00 per dinner cover. Compute how many dinner covers a night the break-even point rises by for each single point of prime cost the operation loses. Show the arithmetic.

39.4 Explain, in two sentences, why the statement "options are a decreasing function of time and cash" is a statement about negotiating counterparties and not about morale.

39.5† A restaurant's six-week cash forecast is below. Opening balance \$12,000.

Compute the closing balance each week. State (a) the week of first breach, (b) the deepest point and its amount, and (c) the size of the bridge required to get through the six weeks.

39.6 What does the automatic stay reach, and what does it not reach? Answer in two sentences, and name the specific structural reason for the second.

39.7† A restaurant runs 110 dinner covers at a \$38 average check, six nights a week. Product cost is \$11.40 a cover; genuinely variable other operating cost is 4.5% of revenue. The operator raises the weighted average check to \$41 and expects to lose six covers a night.

(a) Compute contribution per service before and after. (b) Compute the annual gain or loss over 312 services. (c) Compute the maximum number of covers a night the operator could lose and still be ahead.

39.8 Why does this chapter insist that a business bankruptcy filing does nothing to a personal guaranty, and why do operators consistently believe otherwise?

39.9† An operator considers adding lunch five services a week: 36 covers at a \$21 average check. Product cost runs 29.0%, genuinely variable other operating 6.0%, and incremental labor is \$395 a service.

(a) Compute the contribution per service and the annual contribution. (b) Compute the break-even lunch covers per service. (c) State the margin of safety in covers, and say in one sentence whether you would do it.

39.10 List the eight instruments of lease relief from §39.5 and, for each, name what the landlord receives in exchange. Which two of the eight end the tenancy entirely?

Part B — Diagnosis and computation

39.11† Build a closure floor for a 24-employee restaurant from these components: biweekly payroll all-in \$14,900; accrued paid time off payout \$5,200; vendor balances \$22,400; sales tax due \$4,800; final utility and service settle-ups \$3,600; equipment removal and surrender \$7,200; attorney and accountant \$8,000.

(a) Compute the closure floor. (b) The restaurant's monthly fixed obligations are \$41,200. Express the floor in days. (c) The restaurant has \$19,000 in the bank. State the implication in one sentence.

39.12 Your restaurant's best service of the week is Saturday, which runs 118 covers against a cash break-even of 96. Prime cost has run 61–62% for eleven weeks against a 60% plan. The average service across the week is 84 covers. Run the diagnostic and state your diagnosis, your route, and your first three actions with dates.

39.13† A landlord holds a 2,400 sq ft restaurant space leased at \$6,400 a month. Compute their cost of replacing the tenant from: seven months of vacancy; a \$28,000 leasing commission; a \$55,000 tenant-improvement allowance for the next tenant; two months of free rent as a concession; and \$7,000 of legal and carrying costs.

(a) Compute the total. (b) The tenant needs \$1,800 a month of rent abatement for eight months. Express the ask as a percentage of the landlord's replacement cost. (c) Write the one-sentence version of this ask that you would actually say out loud.

39.14 Explain why a turnaround board should show both an annualized column and a ninety-day column, and which one belongs in a thirteen-week cash plan. Then explain why every turnaround presentation you will ever see quotes the other one.

39.15† An operator surrenders a space with 84 months remaining on a lease at \$7,500 a month. The landlord re-lets after six months at \$7,100 a month and spends \$46,000 on re-tenanting.

(a) Compute the landlord's likely damages claim: vacancy, re-tenanting, and rent shortfall over the remaining term after re-letting. (b) Compute the face remaining obligation. (c) Express the claim as a percentage of the face, and state in one sentence what mechanism produced the difference. (d) Name two things that could make (a) much larger, and say what document you would read first.

39.16 Chapter 34 quantified a leak exposure at \$53,122 on \$1,550,000 of plan sales. In the downside case, sales are \$1,258,920. Compute the exposure as a percentage of each, and explain in three sentences why the exposure does not fall proportionally with sales.

39.17† A restaurant does \$31,500 a week in sales at a 30.5% product cost, buying on net-21 terms. Its broadline distributor moves the account to cash on delivery.

(a) Compute the weekly product cost. (b) Compute the working capital the terms had been providing. (c) Explain in two sentences why this is listed in §39.2 as an immediate-action trigger rather than a warning sign.

39.18 Give three concrete reasons — each with a date attached — that justify keeping a restaurant open after the diagnostic has returned a terminal answer. Then give three reasons that sound like the first three but are not.

39.19† A ninety-day turnaround board totals \$96,000 of annualized run-rate improvement. Assume 22% of the annualized figure is realized as cash inside the ninety days. The thirteen-week cash forecast shows a trough of \$24,600.

(a) Compute the cash realized in ninety days if the program starts in week 1, and state whether it covers the trough. (b) The operator instead starts in week 5, capturing 8 of the 13 weeks. Compute the realized cash and the shortfall. (c) State, in one sentence, what actually failed in (b).

39.20 Explain why a pivot is the wrong response to a cost problem, and why it makes a cash problem worse before it makes it better. Use the daypart example from §39.4 to illustrate.

39.21† A note has a balance of \$412,000 at 9.25% with a fully amortizing payment of \$5,190 a month. The lender offers nine months of interest-only.

(a) Compute the monthly interest-only payment. (b) Compute the total cash preserved over the nine months. (c) State two costs of accepting it that do not appear in (b).

39.22 Why does this chapter say that Chapter 11 bankruptcy is usually not an independent's tool, while acknowledging that the 2020 wave of restaurant Chapter 11 bankruptcy filings was entirely rational for the companies that filed? Answer in a paragraph, and make the argument about fixed cost.

39.23† Closing today costs \$71,000. The restaurant burns \$6,300 of cash a month and its vendor balances grow \$2,100 a month while it stretches payables.

(a) Compute the total cash consumed by closing today. (b) Compute the total cash consumed by closing in five months. (c) Compute the difference, and state what the five months bought. (d) Name the one thing that genuinely improves during the five months, and explain why it does not change the answer.

39.24 A manager tells you the restaurant "just needs a better marketing push." Write the four questions you would ask, in order, before agreeing or disagreeing — and say what each answer would tell you.

Part C — Read this P&L and find the leak

39.25† Diagnose the following full-year statement. It is a 96-seat full-service restaurant, dinner six nights, full bar, in year three of a ten-year lease.

(a) Run the diagnostic as far as this statement allows, and say what additional single artifact you would need to finish it. (b) State the diagnosis and defend it against the two rival diagnoses. (c) Compute the effect of bringing prime cost to 62.0%, on operating profit and on net. (d) Name the three most likely places the eight points are hiding, and the first measurement you would take on Monday.

39.26† The same restaurant's owner proposes three responses: (i) a re-concept to a lower price point, (ii) cutting two dishwasher shifts and one prep shift, (iii) a weekly inventory and a comp/void authorization policy. Rank them by expected value and by risk, and say which one you would do first and why. Be specific about what (ii) costs that does not appear on the P&L.

39.27† Build a week's labor budget for a turnaround. Forecast sales are \$21,000. The all-in labor target is 32.0%. Salaried and other fixed labor runs \$1,850 all-in for the week. The payroll tax and benefit burden is 14% of wages. The blended hourly wage is \$16.50.

(a) Compute the all-in labor budget. (b) Compute the variable all-in budget available. (c) Compute the hourly wage budget and the hours it buys. (d) Spread the hours across five dinner services and two brunches, and state one thing you would protect at all costs.

39.28 Take the schedule you built in 39.27. The forecast comes in 9% light. Describe exactly what you cut, in what order, and name the cut you would not make even though it is the largest single number on the sheet.

Part D — Price this, engineer this

39.29† A restaurant runs 78 dinner covers a night, five nights a week, at a \$44.00 weighted average check. Product cost is \$12.76 a cover and genuinely variable other operating cost is 4.5% of revenue. The turnaround board needs \$14,000 of additional annual contribution from a menu re-price.

(a) Compute the required increase in the weighted average check, to the cent. (b) Explain why the required increase is larger than \$14,000 ÷ annual covers, and name the cost line responsible. (c) Name three items on a menu you would not touch, and say why.

39.30 You must find \$28,000 of annual contribution and you may use only two of the four pivot axes (price, daypart, channel, service model). Choose two, quantify each with your own stated assumptions, and defend the pair against the two you rejected. State the compliance question each of your choices raises.

Part E — Write it

39.31 Write the letter to your landlord requesting a six-month rent deferral. Maximum 350 words. It must contain: the specific ask, the repayment schedule, the trough figure from your cash forecast, and one paragraph on their alternatives. Do not apologize, do not blame the market, and do not use the word "hopefully."

39.32† Write the first ninety seconds of the all-staff announcement. Thirty-one people, ten days before the final service. It must state the final date, the final pay date, what each person is owed, and what you will do to help them land — in that order, before any explanation of why. Then write the three questions you expect first and your answers to them.

39.33 Write the 150-word public notice to guests. No blame, no melodrama, no excuses. It must include what happens to gift cards and to existing event bookings.

39.34 Write a one-page trigger-point policy for a restaurant you are planning or working in. Six triggers maximum. Each needs a numeric threshold, an action, a deadline, and a named owner. One of the six must be a closure floor.

Part F — Judgment

39.35 An advisor tells you to inform the staff on the final day so they don't quit early. Write your response to the advisor — and then write the operational plan that makes telling them at T−10 survivable.

39.36 Your partner suggests repaying the \$40,000 they personally loaned the business out of the last of the cash, ahead of the produce company and the fishmonger, on the grounds that "it was our money to begin with." Respond. Name the specific legal concept and say what you would do instead.

39.37 You have \$40,000 left. You can (a) fund the final payroll and close in three weeks, or (b) run five more weeks on a credible but unsigned expression of interest from a buyer. Make the decision, state your conditions, and name the single piece of paper that would change your answer.

39.38 Your restaurant sells gift cards through the holidays. In the first week of January you decide to close in March. State your policy on gift cards sold in December, on gift cards sold in January, and on event deposits already taken for April. Justify each.

39.39 A neighboring operator asks whether they should hire your sous chef, who has not yet been told the restaurant is closing. What do you say, and when?

Part G — Business Plan extension

39.40 Write the complete Risk & Contingency section for your own plan, in three parts:

(a) The downside case. Restate your revenue, prime cost, and net with each of your three most load-bearing assumptions moved by the amount they are routinely wrong by. Show the resulting cushion in covers a night, not in dollars. (b) Trigger points. Six maximum, each with threshold, action, deadline, and owner. Include a closure floor computed from your own cost structure. (c) The orderly-exit plan. The sequence, the staff commitments, the guest and vendor commitments, the asset reality, and the personal exposure disclosed in full — including whether your guaranty is full-term or limited, and what that is worth.

39.41 Read backward. Identify the single provision in your lease — or in the letter of intent you are about to sign — that would most change part (c) of exercise 39.40. Compute the difference in dollars, and write the three sentences you will say to the landlord's broker.