Chapter 40 — Self-Check Quiz
Twenty-six questions. Answer key in the collapsed block at the bottom — write your answers before you
open it.
Multiple choice
1. Bellwether's Year-1 COGS is \$430,280 on \$1,550,000 of sales. If labor lands at the lawfully
classified \$597,461 (38.5%), prime cost is:
- A. 60.0%
- B. 63.1%
- C. 64.6%
- D. 66.3%
2. With annual debt service of \$69,500, a 1.25× DSCR covenant is tripped when operating profit
falls to:
- A. \$55,600
- B. \$69,500
- C. \$86,875
- D. \$104,250
3. Which transition does the chapter describe as the single largest change in job content anywhere
on either ladder?
- A. Prep cook to line cook
- B. Line cook to sous chef
- C. Server to assistant general manager
- D. Chef de cuisine to executive chef
4. Phantom equity gives its recipient:
- A. A minority ownership interest with voting rights
- B. A contractual right to a payment tied to value or profits, with no ownership interest
- C. Ownership that vests only if the business is sold to a third party
- D. A tax-advantaged retirement account funded by the employer
5. Which of the lender's five conditions exists because of Finding 2?
- A. The 1.25× DSCR covenant
- B. The personal guarantees and lien on business assets
- C. The \$40,000 working-capital reserve held in a controlled account
- D. The landlord collateral-access agreement
6. Pre-opening was budgeted at \$35,000 and honestly costs \$71,300. Against a \$45,000
working-capital reserve, the amount surviving to opening day is:
- A. \$8,700
- B. \$10,000
- C. \$36,300
- D. \$45,000
7. Against monthly fixed obligations of \$48,933, that surviving reserve represents approximately:
- A. 5.3 days of cover
- B. 2.6 weeks of cover
- C. 1.8 months of cover
- D. One full payroll cycle
8. In the re-run 13-week forecast, the operating account crosses zero in:
- A. Week 4 — the week of January 22
- B. Week 6 — the week of February 5
- C. Week 8 — the week of February 19
- D. Week 12 — the week of March 19
9. Under the credit memorandum's own labor sensitivity (35.3%), Bellwether's annual DSCR is:
- A. 1.25×
- B. 2.23×
- C. 3.08×
- D. 3.76×
10. After the lender's first condition, the owner injection of \$150,000 represents what share of
the \$620,000 project cost?
- A. 10.0%
- B. 19.4%
- C. 24.2%
- D. 32.3%
11. The most aggressive defensible quarter-by-quarter labor ramp in §40.9 blends to a Year-1
figure of:
- A. 32.3%
- B. 33.0%
- C. 35.9%
- D. 38.5%
12. Which of the following is generally not a legal requirement in most U.S. jurisdictions?
- A. A food-handler card for most employees who touch food
- B. At least one certified food protection manager per establishment
- C. Alcohol server training where the state or locality mandates it
- D. The Foodservice Management Professional (FMP) credential
13. A chef takes \$18,000 a year below market for three years in exchange for 5% of the business.
For that trade to break even, the business must be worth:
- A. \$540,000
- B. \$600,000
- C. \$1,080,000
- D. \$1,350,000
14. The credit memorandum estimates the labor line is optimistic by "approximately three points."
Which chapter's work proved the gap between the plan and the bottom-up roster was actually 4.5 points?
- A. Chapter 17
- B. Chapter 19
- C. Chapter 31
- D. Chapter 33
15. A prime-cost bonus without gates is dangerous primarily because a manager can hit the number
by:
- A. Raising menu prices without re-costing
- B. Cutting labor into the guest experience and burning the team
- C. Delaying vendor payments past terms
- D. Reclassifying hourly staff as salaried
16. According to the published failure research Chapter 1 cited, the share of restaurants that do
not reach their first anniversary is closest to:
- A. One in ten
- B. One in four
- C. Six in ten
- D. Nine in ten
Short answer
17. Name the four crossings between the back-of-house and front-of-house ladders.
18. State the difference between time in grade and the minimum time before someone will give
you the title, and say why that gap widens in a labor-short industry.
19. Give the three gates a prime-cost bonus needs, and the bad behavior each one prevents.
20. In one sentence each, state the nature of the error in Finding 1 and Finding 2.
21. Explain, in two sentences, how a restaurant can report an annual DSCR of 3.08× and still go
negative in its operating account in February.
22. Why does the chapter say that a defense of 32.3% "cannot be written"? What is the most an
operator can honestly claim about that number?
23. Name three careers in foodservice that are not ownership, and for each, one specific skill from
this book that makes an operator unusually good at it.
24. What is a good-guy clause, and what does it do to the \$952,000 lease line in Figure 40.6?
25. Chapter 1 established that failure clusters in years two and three rather than year one.
Explain in two sentences why that pattern makes the two findings in the credit memorandum more
serious rather than less.
26. State the book's closing claim about what a business plan is, and what its value actually is.
Answer key
**1. D — 66.3%.** \$430,280 + \$597,461 = \$1,027,741; ÷ \$1,550,000 = 66.31%.
**2. C — \$86,875.** 1.25 × \$69,500 = \$86,875.
**3. C — Server to assistant general manager.** It is also the transition most often made with no
training at all, and usually at a pay cut in year one.
**4. B.** Phantom equity is a contract, not ownership: no shares, no vote, no capital account, and it
pays only if the agreement's triggering event occurs.
**5. C — the \$40,000 working-capital reserve.** Finding 2 established that only \$8,700 of the
budgeted \$45,000 reserve survives pre-opening — 5.3 days of cover. The controlled account is the
lender's answer to that, and the memorandum says so explicitly: *"the working-capital condition, not
the covenant, is what protects this credit."*
**6. A — \$8,700.** \$71,300 − \$35,000 = \$36,300 shortfall; \$45,000 − \$36,300 = \$8,700.
**7. A — 5.3 days.** \$8,700 ÷ \$48,933 = 0.178 months ≈ 5.3 days.
**8. C — Week 8, the week of February 19.** Balance moves from \$13,608 to −\$2,924, a single-week
swing of −\$16,532: a biweekly payroll of \$18,965 covering a busy Valentine's week, the quarterly
workers' compensation installment, and the annual license renewals, all landing against the lowest
revenue week of the year (\$18,900).
**9. C — 3.08×.** \$213,870 ÷ \$69,500 = 3.077.
**10. C — 24.2%.** \$150,000 ÷ \$620,000 = 24.19%. The first submission of \$120,000 was 19.4%.
**11. C — 35.9%.** Q1 39.0% (\$140,400) + Q2 37.0% (\$146,150) + Q3 35.0% (\$143,500) + Q4 33.0%
(\$127,050) = \$557,100 on \$1,550,000 = 35.94%. Which is worse than the analyst's 35.3% — the point
of the exercise.
**12. D — the FMP.** It is a valuable optional management credential, not a legal requirement. Note
that everything on the required list varies by state, county, and city, including which certifying
bodies are accepted.
**13. C — \$1,080,000.** \$18,000 × 3 = \$54,000 invested; \$54,000 ÷ 0.05 = \$1,080,000.
**14. B — Chapter 19,** which built the roster bottom-up and produced \$570,461 (36.8%), a 4.5-point
gap. Chapter 20 then corrected the sous chef's exempt classification and produced \$597,461 (38.5%),
a 6.3-point gap.
**15. B.** Cutting the floor short saves labor dollars this week and loses second visits that never
appear on any report — which is why the bonus needs a sales floor, a quality gate, and a people gate.
**16. B — one in four,** roughly 26–27%, with close to six in ten gone within three years. The 90%
figure is folklore and has never been demonstrated.
**17.** (a) **Expo** — the one station both sides have to work. (b) **Sous chef into purchasing,
beverage, or operations**, on the strength of ordering and cost control. (c) **Server or bartender
into assistant general manager and then general manager** — the dominant front-of-house route to a
P&L. (d) **Either ladder into ownership**, both incomplete in opposite directions, which is why
Bellwether is structured as a chef partner plus a front-of-house partner.
**18.** Time in grade is how long a person genuinely needs at a rung to be ready for the next one; the
minimum time before someone hands over the title is a staffing decision. In a labor-short industry the
second number collapses toward zero while the first does not move — so a cook is made sous at nineteen
months because the last one quit, arrives untrained, and the failure gets attributed to the person
rather than to the promotion.
**19.** (a) **A sales floor** — otherwise closing the dining room early is a winning strategy.
(b) **A quality gate** — otherwise the manager runs Saturday two servers short and loses second visits
nobody counts. (c) **A people gate** (retention or turnover) — otherwise you can hit the labor number
for one quarter by burning the team.
**20.** **Finding 1:** a year-two number claimed in year one — 32.3% labor reflects a stabilized
operation, not one with a new team, a new kitchen, and a training ramp. **Finding 2:** a year-one need
budgeted at half — \$35,000 of pre-opening against a real cost of \$71,300.
**21.** DSCR is an annual solvency measure computed on twelve months of operating profit, and a
restaurant with a fixed labor floor, 40% seasonal revenue swing, biweekly payroll, and license
renewals clustered in the first quarter can be comfortably solvent across a year and short of cash in
a specific week. Only the second condition misses a payroll, and the covenant never tests for it —
which is exactly what the analyst wrote into the bank's own file.
**22.** Because the defense has to be built from a quarter-by-quarter ramp, and the most aggressive
defensible ramp blends to 35.9% — worse than the analyst's estimate. The most an operator can honestly
claim is that 32.3% is a **fourth-quarter exit rate** the business is building toward, not a Year-1
figure, and even 33.0% in Q4 requires everything to go right.
**23.** Answers vary. Examples: **multi-unit operations** (Chapter 37's skill of writing down what
good looks like precisely enough that it happens where you are not standing); **distributor sales**
(Chapter 11 and 13 — a rep who can genuinely fix an operator's food cost is worth far more than one
who reads a catalog); **restaurant technology** (Chapters 26, 31, and 34 — the person who has closed a
drawer at midnight sells and implements a POS better); also corporate culinary R&D, consulting,
education, hotels, and contract foodservice.
**24.** A lease provision limiting the tenant's personal guarantee if the space is surrendered in good
order and current on rent, typically capping exposure at a defined number of months. It converts the
\$952,000 ten-year lease guarantee into a bounded number — the single highest-value negotiation in the
whole capital stack, and it costs nothing but the asking.
**25.** A business that dies in month four was probably wrong from the start; a business that dies in
month twenty-nine was working and then bled. Both findings are slow-bleed errors — three points of
labor and a missing reserve — that are invisible in any annual figure and show up in one specific
week, which is precisely the mechanism that produces the year-two and year-three cluster.
**26.** The plan is not a prediction; it is an argument — and its value is that it tells you which
number to watch first.