Working Capital Management

CASE 1 Dinner Bell Hotel

MY INTERNAL ‘FARMER'S ALMANAC’ warns me that there could be cash flow problems soon,” said Sarah Clare, the manager of Dinner Bell Hotel (DBH), a Michigan resort. (The Farmer's Almanac is a periodical famous for its long-range weather predictions and astronomical data, as well as humor, trivia, and personal advice.) Sarah continued: “We need to know now what the likely situation will be. I think I'd better redo the forecast.”

CASH FLOW ISSUES

Two months ago (in early January 2011), Sarah and her financial staff had prepared a cash flow forecast for the period July 2011 to March 2012. July through early November are the busiest times for the hotel. Summer and fall guests enjoy the atmosphere of an old-fashioned resort with large meals, farm animals, a petting zoo, nature walks, bicycling and hiking trails, fishing, tennis courts, a lake for swimming and boating, and a nine-hole golf course.

The phrase “dinner bell” dates back about two centuries, when people who lived and worked on vast tracts of land as ranchers or farmers needed a way to be called to dinner. The hotel continues that tradition by ringing a bell to announce mealtime. The weather gets too cold by early November for most outdoor activities, so the hotel built an indoor pool and developed long theme weekends like classic movies, card tournaments, and supervised child and teen amusements.

It is not unusual for the hotel to run cash deficits during most, if not all, of the months between ...