BUSI 338 Week 7 Discussion Board Forum 4 Example

Discussion Board Forum 4: Financial Planning and Budgeting

BUSI 338 Developing Entrepreneurial Opportunities, Discussion Board Forum 4 Thread and Replies

Thread by [Student Name]

The forum prompt, the venture's monthly figures and the classmates' ventures are composites; the textbook, research, agency guidance and Scripture cited are real.

Hill City Mobile Bike Works is projected to earn about $77,000 in operating income in its first year, but that annual figure hides a problem: repair revenue is seasonal, and the bills are not.

Byrd and Megginson (2018) distinguish between a profit plan, which shows whether the business makes money over a year, and a cash budget, which shows whether it can pay its bills each month. When I spread the projection across the calendar, about 70 percent of revenue arrives from April through September, as riders bring bicycles out for spring and summer. The van lease, insurance, phone, software and loan payment, about $2,600 a month together, arrive every month. In January and February, revenue may cover only half of those costs, leaving a gap of roughly $1,300 each month. December is little better. On paper the year looks healthy; in the bank account, the first winter could look like failure.

The plan answers that gap with a reserve. From May through August, $2,000 a month goes into a separate account before the owner takes any draw, building $8,000 by September. That covers the winter shortfall with a margin for a slow March, and any balance left in April rolls forward to the next year's reserve. Joseph urged Pharaoh to store a fifth of each good harvest against the famine years ahead (English Standard Version Bible, 2001/2016, Genesis 41:34-36), the same principle on a national scale. A seasonal business has to save in summer what it will spend in winter.

Cash also depends on how quickly money moves. Ebben and Johnson (2011) studied small firms and found that those with shorter cash conversion cycles were more liquid and needed less invested capital, and some showed better returns. For this business, that means collecting payment at the end of each repair rather than invoicing partners monthly, and keeping parts stock lean so cash is not sitting on van shelves through the winter. Partners that want monthly billing will be asked to pay by card on file, so the money arrives within days rather than weeks.

Reply to Tamara

Tamara, your tax-preparation business has the opposite season from mine, with most revenue from February to April, and your plan to budget each month separately shows you have seen the same problem from the other side.

Your post made me wonder whether the budget itself helps beyond managing cash. In a study of smaller businesses, Cassar and Gibson (2008) showed that owners who prepared budgets and regular internal reports made more accurate forecasts of their own revenue. That suggests comparing each month's actual results with your budget will make next year's forecast better, especially in a business where one season decides the year. A simple spreadsheet with budget and actual columns side by side would be enough, and the gaps would show which assumptions to change. Repeat clients from one April to the next could also be tracked, since they are the base of your forecast. Will you track your actual results monthly during the off-season too, when there is less to record?

Reply to Luis

Luis, your first-year landscaping budget was thorough on equipment, fuel and crew wages, and listing the mower replacement as a future cost was a good habit that many first budgets skip.

I noticed the budget did not include taxes. As a sole proprietor, you would generally need to pay estimated federal income and self-employment tax in four installments during the year rather than all at once in April (Internal Revenue Service, 2024). For a seasonal business, the September and January payments could fall when cash is low, and an underpayment can bring a penalty even when the full tax is paid by April. Your equipment purchases may also be deductible, which would lower the amount owed, so a short meeting with a tax preparer before the season starts could pay for itself. Would you set aside a fixed percentage of each job's revenue for taxes, the way some seasonal owners do, and if so, what percentage would you choose?

References

Byrd, M. J., & Megginson, L. C. (2018). Small business management: An entrepreneur's guidebook (8th ed.). McGraw-Hill Education.

Cassar, G., & Gibson, B. (2008). Budgets, internal reports, and manager forecast accuracy. Contemporary Accounting Research, 25(3), 707-738. https://doi.org/10.1506/car.25.3.3

Ebben, J. J., & Johnson, A. C. (2011). Cash conversion cycle management in small firms: Relationships with liquidity, invested capital, and firm performance. Journal of Small Business & Entrepreneurship, 24(3), 381-396. https://doi.org/10.1080/08276331.2011.10593545

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Internal Revenue Service. (2024). Estimated taxes. U.S. Department of the Treasury. https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes