As indicated a $40,000 bank loan is needed for repayment over a five year period and the financial forecast indicates a $1,000 monthly transfer to the bank for loan repayment. Security for the loan is available by second mortgage on the Rossi home which has been valued at $125,000 and has $25,000 balance remaining on the first mortgage. According to the projections the loan can be repaid without difficulty.
It is intended that the FOODAWAY business will be operated for five years. The objective is to build the business successfully and resell while a three year lease period remains for a buyer. It is estimated that the resale price in five years will be exceed the present purchase figure and provide a reasonable return on the initial investment as well as paying off the bank loan and giving a modest income to the Rossi family along with other benefits to the family. Given that interest in the food industry continues the sale of the business in five years will permit the Rossi family to look at the restaurant venture or other investment opportunities.
In addition to the saved $25,000 for business purchase, $8,000 will be invested in the business to deal with initial cash flow needs during the early months of activity. The financial forecast notes that there is an effective profit arising during an operation year, but no formal wages or draw have been assigned to the Rossi family. The draw from Net Profit will be at the discretion of the Rossi family and will not exceed the Net Profit during any one month. Initial capital investment recovery and return must be reflected. As well a cash reserve must be held to allow for cyclical trading although the location and circumstances should reduce extreme variations.
