On May 1, 1989, Bruce MacLean, owner of Cape Breton Boat Rentals was preparing a weekly cash budget to determine his operating line of credit requirements for the upcoming summer rental season.


Cape Breton Boat Rentals, established in June, 1988 at Munro Park, North Sydney, Nova Scotia, was set up to rent canoes, kayaks, sailboards, sailboats, paddleboats, and motorboats to tourists and local residents. MacLean thought Munro Park was an ideal site as it provided a good traffic location on Seaview Drive (for customers wishing to take the water craft away) and a good beach location (for those customers seeking to rent on-site).

In 1988, Cape Breton Boat Rentals operated seven days a week from June 17th to September 5th; MacLean's younger brother, Malcolm, ran the shop. By all accounts, the company's services were well received by the public. Many customers had praised the fair prices, adding that the service "should have been available long ago." July write-ups in the Cape Breton Post and August radio coverage seemed to echo expressions of satisfaction with the new business.

Despite this favourable reception, the company's first year of operations was disappointing. Sales reached only $14,699, less than half the projected sales revenue of $33,000. The poor sales performance combined with expenses of $22,024 produced a first year loss of $7,325 (Exhibit 1) and a tight liquidity position (Exhibit 2). To reverse this poor performance in 1989, MacLean planned a number of changes. He expected these changes to

This case was prepared by Professor Donald G. Ross at St. Francis Xavier University for the Atlantic Entrepreneurial Institute as a basis for classroom discussion and is not meant to illustrate either effective or ineffective management.

Copyright 1990, the Atlantic Entrepreneurial Institute. Reproduction of this case is allowed without permission for educational purposes, but all such reproductions must acknowledge the copyright. This permission does not include publication.

substantially improve revenues while holding expenses steady; if successful, these moves would lead to the realization of the projected income statement set out in Exhibit 3.


MacLean made several risky assumptions in projecting increased sales revenues for 1989. He was relying on: 1) better weather for rentals, 2) customer acceptance of a substantial increase in prices, 3) increased market development as a result of a tripled advertising budget, and 4) increased revenues from an extended operating season.

MacLean knew that 1988's low sales were not caused by a lack of rental equipment. In fact, on only one sunny weekend in August had almost all of the company's equipment been used; on average only about 10% of the company's equipment was out on rental. MacLean felt instead that 1988's low sales were mostly due to the poor July weather - he believed this factor alone had reduced the season's sales by 25%.

He also felt that insufficient advertising during the company's first season had hurt sales. He therefore intended to triple his advertising budget to $2,500 for 1989. This would enable him to: 1) distribute brochures to the major tourist bureaus, campgrounds, motels, and restaurants at the start of the season as he had done in 1988, 2) double, from May to August, his first season's advertising in the local daily newspaper, the Cape Breton Post, and 3) introduce radio spots on CJCB to increase demand during the six week peak period from July 2nd to August 12th (weeks 8 through 13). (Peak season demand was double that of low season.) He expected an additional 25% in sales from the increased advertising.

To further boost revenues, MacLean planned a 25% across-the-board increase in rental fees for 1989. Although the increase was steep, the new fees would still be below prices MacLean had observed in the Halifax-Dartmouth area and in similar operations in Prince Edward Island. Consequently, he didn't feel that the company would lose any sales because of the price increase.

Finally, MacLean felt that revenues in 1988 were unnecessarily restricted by too short an operating season (82 days). To secure a longer operating season (91 days) and capture the spring fishing boat market, he decided to open on May 19th, the start of the Victoria Day weekend, and to stay open Friday through Monday until Canada Day (weeks 1 through 7). Thereafter, the company would operate seven days a week until it closed on Labour Day (week 17). MacLean also felt that each additional business day would not only generate increased sales, but would lessen the impact of bad weather on total 1989 revenues.


Advertising expenditures for the season comprised: 1) $250 for brochures to be printed the first week of May (payable the last week of June); (2) $875 for the "business card" advertisement running Tuesday, Thursday, and Saturday in the Cape Breton Post ($125 payable in the last week of June and $250 payable the last week of each month following); and 3) $1,375 for radio advertising. (Because the company had not previously used radio advertising, the terms of payment called for $350 the first week of July, $350 the last week of August and the remainder the last week of September.)

The $2,000 expected automobile expense was based on the costs incurred in using MacLean's own automobile and is comprised of car operating costs of $1,000 (spread evenly over the season) and a $1,000 fee for use of the automobile (MacLean would draw this out at the end of the season). The company's insurance is payable in one lump sum the second week of July.

Interest and bank charges of $75 were paid on the last week of every month to the Royal Bank of Canada (RBC) which handled the company's operating accounts and held a demand note for $4,000 from the company which was to be repaid at the end of the 1989 season. An additional combined payment of $1,500 interest and $3,000 principal was due on October 31st to the Northside Economic Development Assistance Corporation (NEDAC) which provided term financing to the company at a fixed interest rate of 11 and 3/4 %.

Land rent was payable as follows: $100 on June 30th, $200 on July 31st, and $200 on August 31st. Maintenance costs were expected to total $1,500 - $500 to cover a major engine overhaul payable in the first week of June and $1,000 incurred equally over the season. Motorboat gas and supplies expense was projected to drop to $100 over the season because this cost was going to be passed along to the customer in 1989. The cost of office supplies would be paid in the last week of June. Telephone and utility charges were expected to be incurred equally over the season and would be paid the last week of each month, starting in June.

To prepare the shop for opening, Malcolm would commence work on Sunday, May 14th (beginning of Week 1) and would work until Saturday, September 9th (end of Week 17) when the shop would be closed for the winter. Wages would be paid at the end of each two week period, (commencing in Week 2).


To increase rental revenues by an additional $1,500, MacLean had arranged to purchase a used 35 hp motorboat for $2,500 cash on May 15th. He believed this would bring in at least another $1,500 in rental revenues. To finance the purchase MacLean planned to sell some surplus canoes and small outboard motors over the season.


Prepare a weekly cash budget for Cape Breton Boat Rentals for the 1989 season and advise MacLean of his operating line of credit requirements.


MacLean planned to include all preseason payments in the first week and all cash receipts and payments after the end of the season in the last week. MacLean required a minimum cash balance of $1,000 at the end of each week to cover any contingencies.

All sales were for cash, no credit was allowed. Sales tax of 10% would be collected and remitted monthly to the Province of Nova Scotia in the third week of the month following collection.

When preparing the cash receipts from sales figures, MacLean calculated the low season cash receipts on the basis of being open for only four days a week and the peak season receipts at twice the low season daily sales rate.

 Exhibit 1

 Cape Breton Boat Rentals Limited
Income Statement
For the Year Ending April 30, 1989

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Exhibit 2

Cape Breton Boat Rentals Limited
Balance Sheet
As at April 30, 1989

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Exhibit 3

Cape Breton Boat Rentals Limited
Proforma Income Statement
For the Year Starting May 1, 1989

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