Reference no: EM132192504

Tom and Eddie's, is an upscale hamburger restaurant in the Chicago area. Started in 2009 at the height of the recession, the partners had difficulty securing bank financing, so they financed the operation themselves with the help of a third partner. The partners had long and successful careers as executives with McDonald's and, recognizing the importance of the financial function, they hired another former McDonald's executive as CFO. Tom and Eddie's had 3 restaurants and wanted to expand to 10 stores and then franchise the operation. There are many considerations in planning and opening new restaurants, including the demographics of the area, the square footage of the surrounding commercial space, ease of access and even the design of furniture and equipment. The restaurants incur "known" costs, such as rent, payroll, taxes, utilities and other recurring costs, and cash flow is important in managing these costs because of the significant "unknown factor," which is sales. Tom and Eddie's also use a very technology-intensive inventory management and control system because of the perishable nature of the ingredients used by the restaurants.

• Consider the different types of budgets discussed in the chapter. Which type of budget appears to be the most important to Tom and Eddie's CFO? Why?