The Riverfront, a hotel in Savannah, Georgia. For the hotel, management expects occupancy rates to be 95% in December, January and February; 85% in November, March and April; and 70% the rest of the year. This hotel has 325 rooms and the room rental is $230.00 per night. Of this, on average 10% is received as a deposit the month before the stay, 60% is received in the month of the stay, and 28% is collected the month after. The remaining 2% is never collected.

Most of the costs of running the hotel are fixed. The variable costs are only $30.00 per occupied room, per night. Fixed salaries (including benefits) run $400,000 per month, depreciation is $350,000 a month, other fixed costs are $125,000 per month, and interest expense is $500,000 per month. Variable costs and salaries are paid in the month they are incurred, depreciation is recorded at the end of each quarter, other fixed costs and salaries are paid in the month they are incurred, and interest is paid semi-annually each June and December.

Clients Concern:

The client is aware that net income does not equal cash flow and wants to make sure that the business will generate enough cash to meet all of its obligations.