Lyric Dinner Theater was at looking at consistently bad financial performance year after year and was struggling with its finances and payables even after a recent loan. Further, its operations were in a mess, costs were extremely high, employees were de-motivated and incompetent and capacity was under-utilized. Further, the Board of Directors were considering winding up the business if it did not break even or start showing profits in another year. Deborah joining at this stage was a blessing for Lyric Dinner Theater.
She brought with her a spate of fresh management inputs and a wide range of actions to improve Lyric Dinner Theater’s business structure, operations, production, sales and marketing functions. But while she was able to contribute to Lyric Dinner Theater’s way of functioning, she was not yet experienced enough to completely tackle all the issues required to successfully turn around a business that is in such a bad situation. Further, she did not have the Dinner Theater industry’s inner knowledge or experience that such a project demands.
Even from Lyric’s view point, it would be better if Deborah could have been able to provide her management inputs from outside while bringing in a highly experienced industry manager like Mike Johnson of Tiffany’s Attic to head the business. Analyzing from a solely career point of view, joining Lyric Dinner Theater was a high risk – high reward move for Deborah. If she is still able to turn around the business and make it profitable, it can become a big professional and career achievement to her advantage.
However, if she is unable to turn the business around; though she might learn a lot through this experience – it will definitely put her career on a slower track. 2. Can this business be profitable? If not, why not? If yes, what needs to be done to achieve profitability? In my opinion, this business can be profitable. There are a host of factors and statistics that make it seem difficult to succeed in this business segment of Dinner Theaters.
These are – * Only about 50 % of dinner theaters are profitable as per the industry analysis given in the case * An extremely high bankruptcy rate of 30% per year exists for the industry on the whole * More and more dinner theaters are shutting down and lesser and lesser new businesses are coming up – in short, the industry is shrinking * The business faces extremely high competition from virtually all other sources of entertainment including sporting events and concerts In spite of these seemingly disastrous industry statistics and insights, the dinner theater business can be extremely profitable if managed properly and by a well-experienced management team. In the case study itself, Firehouse which is functioning in the same business environment is doing well and so is Tiffany’s Attic in Kansas City (due to better management). Further, this business very much seems to be profitable when we prepare the accounting statements on an accrual basis.
I have recalculated the income statement for YTD February based on the following assumptions: * Income (Box Office Sales and Liquor & Miscellaneous) is as stated in the case * Variable cost of sales is calculated on the ratio of cost to sales in 2009 (assuming that in 2009, on an average the payments were done for what was consumed). This is important because in the cash system, the outflows are more on need to pay a supplier basis and not what is actually consumed. * For ‘Food Purchased’ and ‘Supplies’, the ratio is considered with Box Office Sales (This will also provide a higher than actual figure, as the actual food costs had reduced in 2010 as a result of the new chef being employed.
However, it is done to ensure a conservative basis for calculating profits) * For ‘Liquor Purchased’, the ratio is considered with Liquor & Miscellaneous Sales * It is assumed that ‘Show expenses’ has to be paid immediately – so it is taken as given in the case for YTD February * It is assumed that ‘General Overhead Expenses’ will remain same in 2010, as it was for 2009; and the expenses can be accrued proportionately over 12 months. This is important because in the cash system, the outgoings for items like rent is overstated (in initial months) and for items like depreciation is understated (in initial months) * ‘Other Income’ has been ignored to follow conservative accounting policy and ensure that profits are not overstated (The calculations are in the attached excel sheet. ) After restating the Income & Expenditure Statement on accrual basis, the YTD February net profit increases from USD 4,701 to USD 26,879. Thus, the actual profit is much more than what is stated.
This suggests that the business can be very much profitable. The turn-around from a loss making enterprise to achieving a profit of over USD 26000 can be attributed to two factors: * A part of it can be attributed to the show “Annie” * However, only the show cannot bring so much difference. A large part of it has to be attributed to the changes brought about by Belzer. To achieve profitability in the long run, it needs to be ensured that the already implemented changes are properly executed and followed, and it also requires a host of other changes. The changes already introduced by Belzer are