Sally’s Dilemma
Sally has been looking at properties for the restaurant with a realtor. She asks whether you believe the company’s financial position would support purchasing or leasing a property. You both have discussed the available options and issues that might impede the operation or make a deal cost-prohibitive. You explain that some leases are great investments for the property owners but not so much for the leasees. Leasing terms are often designed to squeeze all the profit out of the tenants’ operations. However, you both agree there are also Pros and Cons to owning the property. You and Sally agree to research the costs/profit ratio to determine whether to buy or lease the Boca Raton property.
The first step requires you to calculate the potential overall profit (A Spreadsheet layout works best in displaying these items). Here is the information you will need to develop the spreadsheet:
Gross Revenue = number of seats (259 seats with 90% occupied on average) x the number of meal seatings (3 per night; 6:00, 7:30, and 9:00 pm) x average meal price of $250 x 365 days of operation.
Food and service expenses are 68% of your revenue—additional costs, including insurance, professional fees, etc., equal 9.9 million per year.
Rent would cost $100 per seat per day. The cost of the mortgage is $125 per seat per day (based on a one-year term).
Support Material:
10 Most Expensive Restaurants in the World: 2013 (USA Today).Links to an external site.- Fine dining at Michelin-starred restaurants worldwide can come at a price.
10 Most Expensive Restaurants in the World: 20230 (Yahoo! Finance)Links to an external site. – This list is an updated list of restaurants.
Buying a Restaurant (Web Restaurant Store) Links to an external site.- The article covers how much it costs to buy a restaurant and the steps you need to take to purchase a restaurant.
Buying vs Leasing Commercial Real Estate: Pros and Cons of Each (Value Penguin)Links to an external site. – This article addresses the pros and cons of buying vs. leasing.
How Bob Chinn’s Crab House Became The Highest-Grossing Restaurant In The U.S. (Forbes)Links to an external site. – This is a demonstration of potential gross revenue.
Post and Reply
Secondly, based on the information that you have gathered in Assignments 5.1, 5.3, and the Marketing Study, discuss the following:
Your Pros and Cons analysis of buying or leasing based on terms of the agreements and property Marketing Study information
The potential profit and expense calculations for the Boca Raton property
Post your Pros and Cons Chart in the Discussion, displaying the buy and lease decision factors
Important: You must complete Module 5 Assignments in the numbered order: 5.1, 5.2, and 5.3. These must be completed before attempting 5.4.
For the final submission, Develop and Post an objective Discussion analysis that outlines your Chart and Spreadsheet regarding the company’s purchase/lease decision for the Boca Raton restaurant property.
