EBIT = EARNINGS BEFORE INTEREST AND TAXES. you included interest in your EBIT Wait Staff would not be paid full minimum wage, they are allowed to be paid lower due to tips. therefore putting all 20 employees at 7.25 or even 15 is wrong. Look i like what you are doing but there are too many errors and assumptions that make this fictional.
Also if we use the 5 y ear phase in, food sale prices at restuarants are estimated to rise 2-3% a year minimum. So using a fixed revenue over 5 years is not realistic. That entree salad at $7 in 2020 will be closer to $9 in 2025. A realsitc price multiple in restaurants to cover overhead, labor, food costs and still have a profit is 3x minimum according to my experience and what business analysis I have read. So if the chicken dish with sides costs you $6 to make, your price should be $18 minimum and often at restaurants you will see it at $19 - $21 to pad profits. We can bump this up a little more due to higher salaries on average due to phased in increase in mimum wage. if something is not selling well after reviewing monthly sales you dump it. It will cost more to eat out but it always costs more to eat out. restaurants might shave 1-2 staff members and adjust hours but because they still want to make good profits like all business owners. Instead of opening from 4PM to 10:30PM they open 5PM to 10PM.
As if that info was not in the report...fuck off with your usual sophistry and use your brain. Obviously some academics think raising minimum wage creates jobs....others and the CBO would not be choosing those academic's models.
Because given our current safety nets and benefit cliffs.... the poverty line is a very subjective concept... But, again... I was not taking a stand on whether increasing the minumum wage is a good thing or a bad thing. I just think its fucking ridiculous to have a govt mandating an increase in minimum wage when it also imports over a million people a year and lets in millions of undocumented workers. Like I say... if we are going to be lefty or righty... let us do it correctly. We are currently getting the worst possible policies from both sides... because that is what the cronies who own our politicians desire. Its truly a pyscho command economy idea... to mandate a large increase in minimum wage when we take in a million people a year... and do not turn people away at the border.
Fine. Call EBIT "profit" or EBT. Interest is in both cases and doesn't affect the scenario comparison. You're arguing over a sunk cost in both cases that doesn't change the outcome. You can argue all you want about what hourly wage should be applied, but labor cost is approximately 30-34% of gross revenue in the restaurant business. Feel free to google this. It's all over, and it was the percentage used in both eateries I queried. If you would like to provide a reliable source that indicates that the percentage should be lower, I'm open to it. But lowering the % without that (correcting the wage amount) would just mean I would lower gross revenue accordingly and it would still not affect the comparison. I am willing to tweak this scenario if you want (and provide valid arguments), but if you just want to say "its fictional" over and over without working towards an accurate model, don't waste my time.
I have Tsing on ignore so I had to read his posts via incognito, but he purports to be a CFO of a 700MM company. None of my controllers nor my CFO would make such simple errors in an fictitious income statement.
Updated P&L. Please continue to provide feedback if you wish to challenge any of the numbers. I lowered gross sales (only a tiny bit) to make labor costs as a % of sales and profit as a percent of sales traditional with the industry. You are welcome to challenge these numbers if you wish, but I would encourage you to google and learn about traditional restaurant margins (and the cost of labor).
I repeated myself several times about the mistakes in your model but you continuosly overlook it. Why should I continue to go back and forth but let me summarize it again for you: 1. The min wage is to be phased in over 5 years, you jacked it up immediately 2. Revenues over that 5 year period should be expected to increase 2-3% annually ata minimum, you kept them the same. 3. All 20 employess will not be earning the min wage because at least half of them are tipped so their salary would be less than you estimated thus a lower labor cost increase with an increase in min wage. 4. Your Total Labor does not even add up correctly unless there is something hidden. 5. Owner could easily shave off a few hours a week of being open or shifts to save some money. Restaurant labor is in 3 groups: Front House Staff (servers hosts and bartenders) Managers Kitchen Staff Or you can divide it into 2 groups of hourly v. annual salary. Then you have to adjust labor depending on which night of the week. You will have more staff on FRI and SAT then you will have on TUE and WED. So your salary assumptions are generic. Also labor should be less than 30% unless this is a really fine dining establishment but even then the prices charged are way higher. I dont know what kind of restaurant this is. But I am supposed to go to homework to fix all the mistakes. I tell undergrad students I used to teach about models..... garbage in... garbage out. If you want to make crazy assumptions then it is easy to show how a restaurant goes from profitable to a loss.... but where is the complaints when food costs jump like they have with meat and dairy various times over the past 2 years, what about rent increases etc... labor is a cost of business and despite your wild accusation that it would double in price overnight, restaurants and businesses can adjust to a reasonable increase in min wage. If not then they go out of business just like if their rent increased over the next 5 years with an escalation clause. You are implying to us all you have vast experience in running a business but it is not s howing in how you model costs and forecasts. I should not have to do your homework for you.