Cash management, liquidity, and longevity of family owned restaurants

Cash management, liquidity, and longevity of family-owned restaurants

Walden University COLLEGE OF MANAGEMENT AND TECHNOLOGY This is to certify that the doctoral dissertation by Curtis Webley has been found to be complete and satisfactory in all respects, and that any and all revisions required by the review committee have been made. Review Committee Dr. Jeffrey Prinster, Committee Chairperson, Applied Management and Decision Sciences Faculty Dr. Richard Gayer, Committee Member, Applied Management and Decision Sciences Faculty Dr. Robert Levasseur, Committee Member, Applied Management and Decision Sciences Faculty Dr. John Nirenberg, University Reviewer Applied Management and Decision Sciences Faculty Chief Academic Officer David Clinefelter, Ph.D. Walden University 2011 Abstract Cash Management, Liquidity, and Longevity of Family-Owned Restaurants by Curtis Webley MBA, Walden University, 2005 MST, Washington School of Law, 1995 CPA, State of Illinois, 1993 Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Applied Management and Decision Sciences Walden University February 2011 Abstract The majority of family-owned restaurants go out of business within the first 4 years of operations. This is financially disruptive to families and communities. The purpose of this explanatory study was to examine the effect of cash management on the liquidity and longevity of family-owned restaurants. This quantitative research study was based on literature from entrepreneurship, the family firm, cash management, and financial reporting. A self-administered questionnaire was used to collect data on cash management practices and financial performances from 102 family-owned restaurants in a Midwestern U.S. suburb. Based on the principles of cash management practices among publicly traded companies which include monitoring the cash cycle of a business, preparing a cash budget with the basic financial statements, and applying standard debt management and longevity tools, data were gathered to determine if these principles applied to family-owned non-franchised restaurants. The data were analyzed with the use of the t-test to determine if there is a relationship between cash management and liquidity and cash management and longevity of business operations. The results of this study support the hypotheses that a relationship exists between the independent variable, cash management, operationalized as good cash management/poor cash management, and each of the dependent variables, liquidity and longevity (p <.001). This study contributes to positive social change by showing that restauranteurs who incorporate proper cash management practices can significantly improve the liquidity and longevity of their businesses; thereby bringing greater economic stability to families in the communities in which they are located. Cash Management, Liquidity, and Longevity of Family-Owned Restaurants by Curtis Webley MBA, Walden University, 2005 MST, Washington School of Law, 1995 CPA, State of Illinois, 1993 Dissertation Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Applied Management and Decision Sciences Walden University February 2011 UMI Number: 3440242 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. UMI 3440242 Copyright 2 011 by ProQuest LLC. All rights reserved. This edition of the work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, MI 48106-1346 Dedication This dissertation is dedicated to my late Grandmother, Etheline March Heywood, who instilled in me one of her philosophies, that education is the way out of poverty. Without her academic guidance, moral support, vigilance, sacrifices, and determination throughout my adolescent years, I might not have been able to achieve this milestone. To my mother, Edith King, thank you for giving me the opportunity to immigrate to a wonderful country, a country where educational opportunities are limitless, the great United States of America. Acknowledgments I wish to thank my dissertation committee chair, Dr. Jeffrey Prinster, for his continuous words of wisdom, encouragement, and confidence in me during the entire dissertation process. I thank my committee members, Dr. Richard Gayer and Dr. Robert Levasseur, for their professional criticisms, guidance, patience, focus, and encouragement. A special thanks to Dr. Levasseur who helped me tremendously to overcome the many hurdles I faced during the measurement and statistics portions of the dissertation. A special thanks to Dr. John Nirenberg, my reviewer, for his detailed analysis, review, and constructive comments, which at times were challenging, but were vital to my academic success. Thank you for your individual and collective contributions to my dissertation, which helped to ensure that I produced a scholarly work. Without your cumulative help, I could not have completed my dissertation successfully. Thanks to my dear wife and best friend, Phillipina Webley, who, as a law school student, and without hesitation, tackled the tasks as a part-time father, a full-time wife, and a full-time mother, while I worked feverishly to accomplish this task. Thanks to my children Tanya, Eric, Tiffany, and Matthew, who knew how and when to interrupt my studies while echoing accolades of confidence; and to my son, Todd, whose actions toward education gave me that special academic boost. I also am grateful to all those family-owned restauranteurs on Chicago’s Northshore who completed the questionnaire, and to everyone else who contributed to the successful completion of this dissertation. i Table of Contents List of Tables v List of Figures vi Chapter 1: Introduction to the Study 1 Introduction 1 Background of the Study 4 Problem Statement 6 Purpose of the Study 7 Nature of the Study 7 Research Questions and Hypotheses 9 Theoretical Base 10 Definition of Terms 16 Assumptions 18 Limitations 19 Delimitations 19 Significance of the Study 20 Social Change Implication 24 Rationale of the Study 26 Summary and Transition 27 Chapter 2: Literature Review 29 Introduction 29 Entrepreneurship 30 ii Differences between Family-Owned Firms and Non-family Firms 38 Family-Owned Businesses 41 Human Capital 43 Social Capital 44 Patient Financial Capital 44 Survivability Capital 45 Governance Structure and Agency Costs 45 The Cash Cycle of a Restaurant 47 Preparing and Understanding the Financial Statements 48 Managing Cash Flows 53 Cash Management 55 Managing Debts 60 Preparation of a Cash Budget 67 Summary 70 Chapter 3: Research Method 73 Introduction 73 Research Design and Approach 73 Survey Research Method 74 Experimental Research Method 75 Research Approach 76 Setting and Sample 79 Sampling Procedures 80 [...]... liquidity of family- 10 owned restaurants on Chicago’s Northshore? Ho: There is no relationship between cash management and the liquidity of family- owned restaurants on Chicago’s Northshore Ha: There is a relationship between cash management and the liquidity of familyowned restaurants on Chicago’s Northshore 2 Is there a relationship between cash management and the longevity of familyowned restaurants. .. liquidity, and longevity This study was an examination of cash management (independent variable) and its effects on the liquidity and longevity of family- owned restaurants (dependent variables) as discussed in chapter 3 Nature of the Study The nature of this study was to determine the extent of cash management in family- owned restaurants and what relationship, if any, cash management has on liquidity and longevity. .. relatively short period of time because of the nature of the business • All credit card sales are considered cash sales • Restauranteurs are driven by profit motives • Proper cash management enhances liquidity and longevity of family- owned restaurants 19 • Family- owned restauranteurs do not use the cash management strategies of large corporations Limitations • Only family- owned restaurants on Chicago’s... Lynott (2006), and Mullins and Churchill (2004) are the cash cycle, cash budget, income statement, balance sheet, and the statement of cash flows Failure to utilize any of the five categories of cash management showed the degree of cash management, and cash management strategies that family- owned restauranteurs use as provided for in the research literature A rating scale was established and responses... effects of poor cash management on the liquidity and longevity of family- owned restaurants Research in this area might provide valuable information about proper cash management, and how it can help family- owned restaurants to remain in business as going concerns Although there is more literature on corporate cash management policies of publicly owned companies, those policies differ from those of small... between cash flow management, liquidity, and business longevity, on Chicago’s Northshore in Illinois, to get a better understanding of how cash management contributes to the cash flows of family- owned restaurants While large companies are able to acquire the required financial expertise, and pay more attention to financial strategies than small businesses, efficient companies succeed regardless of size... management, liquidity, and longevity were considered based on data that were collected • All variables not specified in this dissertation were considered beyond the scope of this study Delimitations I examined the relationship between cash management and liquidity of familyowned restaurants on Chicago’s Northshore, Illinois, and determined whether proper cash management can help enhance the longevity of family- owned. .. Shore and Milwaukee Railroad The railroad 17 ran along Lake Michigan’s western shores between Chicago and Milwaukee, and serviced 13 suburbs (Ebner, 1988) Family- owned restaurants: All businesses whose main product is the sale of meals, are not franchised or considered chain restaurants, and are owned by a single individual; owned or managed by members of or descendants of biological families Such restaurants. .. management and the longevity of familyowned restaurants on Chicago’s Northshore? Ho: There is no relationship between cash management and the longevity of family- owned restaurants on Chicago’s Northshore Ha: There is a relationship between cash management and the longevity of familyowned restaurants on Chicago’s Northshore These hypotheses were developed so that they would be testable using the t-test... state of Illinois were examined • There is limited literature on the effects of poor cash management on the liquidity of family- owned restaurants • The survey relied on reports of behavior and not on observation • The survey questionnaire required pilot testing • This study might be limited by the subjectivity of the researcher who functions as an instrument of inquiry • Only the variables of cash management, . effect of cash management on the liquidity and longevity of family- owned restaurants. This quantitative research study was based on literature from entrepreneurship, the family firm, cash management,. located. Cash Management, Liquidity, and Longevity of Family- Owned Restaurants by Curtis Webley MBA, Walden University, 2005 MST, Washington School of Law, 1995 CPA, State of Illinois,. Faculty Chief Academic Officer David Clinefelter, Ph.D. Walden University 2011 Abstract Cash Management, Liquidity, and Longevity of Family- Owned Restaurants by Curtis Webley