1 Anne’s Lemonade Stand Anne sells lemonade for 50 cents a cup. This season she expects to sell 4,280 cups in the 12 weeks she will be open. Lemons cost 98 cents per pound and one pound of lemons yields 10 cups of lemonade. Sugar cost $2.20 for a 5 pound bag and each 5 pound bag yields 35 cups. She uses a 22lb bag of ice per day at a cost of $2.25 per bag. Cups cost 9 cents each. Start up cost are $75 for pitchers, table, chairs, lemon squeezer, utensils and ice chest. Labor cost are for her neighbor Joe who works 3 hours each day for $2 an hour except for Thursday. How much profit will Anne make and where’s the cash? Remember profitability does not equal the cash flow. Seems simple but where do you start and where does Anne get her start up cash? She has $25 from savings to invest where does the rest come from? Is it from Mom (investor or family member loan), or other credit sources (usually credit cards)? What about inventory? How much should I have on hand, how long is the lead time to get the raw materials, how long does the lemonade take to make, quality control (should I start with fresh lemonade each day), etc.? Then there is the question about location.

2 Anne’s Lemonade Stand Let’s Start with calculating some basic information What is Anne’s Standard cost?

3 Anne’s Lemonade Stand Next step let’s project revenue and expenses

4 Anne’s Lemonade Stand Clearly Anne made a profits with a 67.83% gross margin and low overhead but how does the cash flow look over this same time period? Many question need to be asked to project her cash flow. What inventory levels should she maintain – minimum and maximum? How much lemonade should be made each day (production)? Could profitability be enhanced by ordering bulk quantities of raw material and how would this impact liquidity? Will she have enough staff to cover peak sales periods? Illness, vacations, no shows, unexpected sales volume What other problems should she anticipate? Bad weather, bad lemons, have secondary suppliers, transportation, bad location What assets will need to be bought that effect the balance sheet and cash but not revenue and expense? Pitchers, mixing containers, cash box, cost to construct the stand, delivery vehicle Are there other cost overlooked by Anne?

5 Anne’s Cash Flow Projection

6 Anne’s Inventory Assumptions