As you already said that your first problem is solved but now you are facing problem of "Permission denied" whenever you try to run squid with "-z" directive.
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I have already answered that in another post but for you I am copying it from there to here..
This is the permission problem, You have to make squid as the owner of the cache directory then have to give proper permission to them. It is like this.
Say we have a user squid of group squid..
chown squid:squid <ur cache directory>
then set permission to read, write execute to group and user..
chmod 770 <ur cache dir>
Then initialize chaze using -z
Also then you have to set same permission for log directory of squid ie.. /usr/local/squid/var/log [/b] !
BTW. I have also given more details over here -->
Squid proxy cache permission