Craft Farmacy: Expansion to Waterloo

In early 2023, the executive chef and owner of Craft Farmacy was considering the feasibility of expanding to a second location in Waterloo, Ontario. Craft Farmacy was a farm-to-table restaurant in London, Ontario that featured an upscale, rustic bistro style dining experience. During 2022, the owner had visited similar farm-to-table restaurants in the Kitchener-Waterloo region to verify his sales, investment, and cost assumptions; this data allowed him to project financial statements and cash budgets for the new restaurant. With the projections complete, the owner thought he could analyze the risk of the expansion, and then decide whether or not a second location in Waterloo would be a wise investment.

This case can be used in the financial planning modules at the undergraduate level. Primarily a quantitative exercise, it is well suited to introduce students to a full set of financial projections under a variety of assumptions, and highlight the links between the three projected statements: cash budget, income statement, and statement of financial position. It also provides a useful opportunity to introduce students to spreadsheet software and its use in a business classroom. Qualitative analysis is purposefully limited to help students concentrate on creating the projections, examining the costs, and using tools like break-even and return on investment to assess risk. To add difficulty, most information is given in the body of the case; students must sort through and identify the relevant information for each assignment question. Also, it is not explicitly stated which items impact cash flow in the case, which may add further difficulty for some students. After completion of this case, students will be able to<ul><li>use a quantitative exercise to practice projecting financial statements and cash budgets;</li><li>clearly show the link between the cash budget, income statement, and statement of financial position;</li><li>separate out relevant information to identify variable and fixed expenses, perform break-even calculations, and apply and assess basic risk evaluation tools like return on investment;</li><li>review cost behaviour related to changes in sales volume (seasonality analysis); and</li><li>discuss potential sources of financing.</li></ul>

• financial planning
• projected statements
• breakeven analysis
• return on investment
• cash budgeting
• entrepreneurship