Video Case: Tom and Eddie’s

Video Case Study Instruction:
– Watch the “Tom and Eddy’s” video below
– Apply what you learned in this class to answer the following questions at the end of the case
– Write a 2-page essay about your research and understanding about Franchising business model by answering the questions posted at the bottom of this page
– The font size should NOT be over 12
– Please submit your case study in word or .pdf format in this forum.

Video case is posted at:

(Links to an external site.)
Tom and Eddie’s
Time: 9:58
Learning objectives
Identify the factors that are taken into consideration in ensuring a successful start-up.
Assess the impact of demographics on a company’s ability to prosper and grow.
Discuss the role of the chief financial officer in a start-up business.
Explain the difficulties in securing bank financing for a start-up operation.
Discuss the sources of financing for the restaurant industry.
Key people and companies
Tom Dentice—Partner
Eddie Renzi—Partner
Bryan Gordon—CFO
Overview
Two retired executives from McDonald’s are the featured entrepreneurs in this video. Together they financed the operation themselves after unsuccessfully trying to obtain bank financing. The start-up was launched during the recession in 2009 when banks were very cautious about lending funds to small businesses. Because of the importance of financial management to the success of an operation, the partners hired a professional CFO who also was an executive with McDonalds. The video demonstrates the importance of financial management to a small startup operation and the overall importance of cash-flow management. According to one of the partners, entrepreneurs look at opportunities but do not consider failure. The video also discusses the challenges and financial and other factors considered in expanding the business to other locations.
Major issues in the case
Success in starting and sustaining a business requires a combination of ambition, talent, industry knowledge, and experience. Once the business is off the ground, the entrepreneur must remain attentive to the importance of the day-to-day operations, especially cash-flow management and inventory management and control.
Factors considered in launching expanded operations include demographics, average income levels, other commercial operations, ease of access and other important factors. The issue of franchising is also raised.
Video Case: Tom and Eddie’s
This video features the start-up company called Tom and Eddie’s, an upscale hamburger restaurant in the Chicago area. Started in 2009 at the height of the recession, the partners had a difficult time securing bank financing. As a result, they financed the operation themselves with the help of a third partner, Vince Nocarando. The partners both had long and successful careers as executives with McDonald’s. Tom was Executive Vice President for New Locations and Eddie was the President and CEO of North American operations.
Both partners, as a result of their experience at McDonald’s, are well suited for the restaurant business. One of the most challenging and important elements of a successful start up, like Tom and Eddie’s, is a talented financial manager. Recognizing the importance of the financial function, they hired another former McDonald’s executive, Brian Gordon, as CFO. Gordon explains that cash flow is the most important element in starting up a restaurant. In fact, cash flow is more important than profits in the first and perhaps the second year of operation. Second to cash flow in terms of importance for sustainability is the management and control of inventory.
Cash flow is important, according to the CFO, because of the “known” costs, such as rent, payroll, inventory, taxes, and utilities. These are “known” costs because they are recurring and the relative costs are known on a weekly or monthly basis. CFO Gordon explains that cash flow is important in managing these known costs because of the significant “unknown” factor, which is sales.
Tom and Eddie’s uses a very technology-intensive inventory management and control system because of the perishable nature of foodstuffs associated with the restaurant business. According to CFO Gordon, the restaurant has “net 14” terms with its food vendors. This means that the invoice is paid 14 days after the receipt of the goods. This is a form of financing, according to the CFO, that allows the company to turn that inventory once or twice during the 14 day period.
At the time of the video, Tom and Eddie’s was in its fifteenth month of operation with three restaurants in the Chicago area. According to one of the partners, Eddie, the goal is to grow to ten stores and then look at franchising the operation. When considering where to open a new operation, Eddie indicates that careful consideration is given to the demographics of the area, including the average income level of those working and living in the area to be served, the age of the population, the square footage of the surrounding commercial space, and ease of access to the location. Equipment is purchased rather than financed by the partners.
According to the partners, entrepreneurs think in terms of opportunities, not in terms of potential failure. With 15 months of successful operation, capital will be easier to raise from traditional sources of financing, such as banks, to expand the operation. Who knows, maybe a franchised Tom and Eddie’s will be opening soon in a location near you.
When considering expanding operations, what are some of the factors that would be considered by Tom and Eddie’s?
According to Tom and Eddie’s CFO, “cash flow” is more important than the first year’s profits. Why?
What are the three factors associated with operating funds, according to the video?
What is meant by the term “front of the house”?
Why, according to the video, was bank financing unavailable for Tom and Eddie’s start-up?

BUS051 Case Study Rubrics
Criteria Ratings Pts
This criterion is linked to a Learning Outcome
Format
1 pts
Full Marks
Paper is based on essay format with a unique title, name, and fond size and spacing.
0.5 pts
Partial Marks
Paper is missing some of the key elements of format.
0 pts
No Marks
Paper does not have proper format.
1 pts
This criterion is linked to a Learning Outcome
Grammar and Spelling
2 pts
Full Marks
No grammer and spelling errors.
1 pts
Partial Marks
Case study has minor grammar and spelling errors.
0 pts
No Marks
Case study has major grammer and spelling errors.
2 pts
This criterion is linked to a Learning Outcome
References/Citations
1 pts
Full Marks
Both textbook and external research references are shown at the end of the essay.
0 pts
No Marks
None of the textbook and external research references are shown at the end of the essay.
1 pts
This criterion is linked to a Learning Outcome
Content of the case study
6 pts
Full Marks
Apply the textbook knowledge and provide solid information from external research to support the answers to the questions.
4 pts
Partial Marks
Apply some textbook knowledge and provide some information from external research to support the answers to the questions. Some answers are lack of in-depth analysis to satisfy the purpose of this exercise.
2 pts
Partial Marks
Does not apply textbook knowledge and/or provide little information from external research to support the answers to the questions. All answers are lack of in-depth analysis to satisfy the purpose of this exercise.
0 pts
No Marks
Missing Assignment
6 pts
Total Points: 10
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