River Roadway Bike Share

The owner of River Roadway Bike Share, Maya, had a childhood filled with memories of summer evenings biking along the long stretch of riverfront views in Windsor, Ontario. As a child, she went for many bike rides both to the park; however, now she lived too far from the river to bike to the trails, so she settled for driving to the water and taking walks instead. After traveling to places like Beijing, Berlin, and San Francisco Maya realized the technology existed for a fleet of rentable bikes that users could pay for using an app, and that this might be a good option for a city like Windsor. She contacted a Toronto Bike share company (https://bikesharetoronto.com) about their methods and an unexpected alliance was formed. The Toronto-based firm offered to act as their vendor, giving her business access to the technology and the technical support as well as to sell them the bikes/racks.

A deal was brokered and the business was incorporated April 1st and started operating May 1st of 2024. The year end was set as March 31st.

The Agreement

They agreed to a price of $12,000 per electronic rack of 12 bikes (bikes included) and that they would buy 10 bike racks to start. From there, they'd consider adding another electronic rack once monthly rides reached 20,000 in the prior month. They would add an additional rack each time they passed a 5,000-ride benchmark above 20,000 in the prior month. (i.e. 25,000, 30,000, 35,000, etc.) They would have to pay a 20% deposit when ordering the electronic bike rack, which would arrive 30 days after the order. (The opening order was placed April 1, 2024 to arrive May 1.) They would then pay the remainder of the balance owing 95 days after accepting the delivery.

They agreed to pay $25 per month per bike based upon bikes operational in the prior month for access to the software and technical support. These payments would begin upon taking possession of the bikes. With proper maintenance, each rack of bikes is expected to last 3 years with zero salvage value.

They would create a separate interface of their usual app to be unique to the Windsor Road & Bike Path Bike Share. Maya would pay $28,000 to have this developed. (This was paid in April.) The app would process all payments (both for monthly members and singe ride users) and the Toronto Bike Share Company would keep 6% of all sales as a royalty and remit the money collected through the app net of royalties. In the middle of the following month, the payment was sent to Windsor Road & Bike Path for the prior month's revenues.

Forecasted Sales

Maya wasn't sure how Toronto's usage numbers would compare to Windsor's, but the bike share company and Maya worked together to estimate that she will get 200 annual members when she opened and had the bikes running and add 50 new annual members each month until September, but then only add 4 new members each month from October to April. An annual member user would use the bikes an average of 25 times per month. Usage in excess of that will be paid by the daily membership fee. She estimated that she would start with 180 daily users in the summer when she had her initial racks up and running (May is included in summer) and increase 35% each month until September¹ ends. Then daily usage would fall to 50 rides per day, all of which were taken by annual membership owners and remain there until the beginning of next May where it would resume at the daily volume of the end of the previous September.

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¹ Including September

As part of the agreement, they would use the provider's branding, and the bike share company's pricing of $110 for an annual membership or $5 per day for those without an annual membership. All payments would be made through their app's payment platform. Annual members would pay their entire membership up front upon joining.

Other Operating Information

They would need a two-person crew to run a truck that would pick up bikes and move them back to central areas as well as perform any needed maintenance. Each member of the crew would make $19 per hour and would work for four hours a day, two times per week during the off-season, and three times per week during the busy season²

The truck would cost $45,000 and be purchased for cash upon setting up the business. Fuel, oil, insurance and other repairs and maintenance for the truck would average $400 per month in the summer and $150 per month in winter months. Maya estimated bike repairs such as tire patches and chain repairs would be needed after every 45 one-time rides per bike. The average estimation for the cost of a repair kit was $7 per kit. They would begin by purchasing 1,400 repair kits, and they would order another 800 repair kits every time inventory levels fell below 60 kits. They purchased from a supplier who delivered the next day and offered 60-day credit terms, which they intended to take advantage of.

As Manager, Maya would pay herself $2,500 per month, and would collect on the 15th of the next month but only if their cash flow for the month she earned the pay was positive. If the business did not generate positive cash flow in a month she would create a salaries payable to herself. At the end of the year if the business had more than $30,000 in the cash account she would pay this debt off, but not allow the cash account to drop below $15,000 by doing so.

They would also need to pay to rent their spots in the various public areas from the City of Windsor. Maya would need to pay $500 for their initial application in cash to the City for each bike rack, payable immediately upon applying at City Hall. Assuming the license is issued, they would need to pay $175 per month per rack, paid quarterly and due within 30 days of the end of the quarter.

They would also do a multitude of outdoor advertisements. They would initially do 12 billboards announcing the locations of the bike racks and the opening of the business which would each run for 1 year. These would cost $30,000 in total for the year and require a 20% deposit with the rest due 60 days after the billboards went up in May. They would also set up a billboard for each new bike rack added the month after installation with similar terms as the grand opening. Each billboard location would be used for one year only.

Start-up Infusion

Maya would receive $200,000 of startup funds from Participaction Canada at the start of her business (April 1) because of the way it would promote healthy living. In return, each bike would carry a Participation logo on the back of the seat, making the funding a form of one time advertising revenue. Maya also had some personal money set aside to invest in the company, if needed. If the company's cash budget was predicted to be a low cash balance for a month (under $1,500), she would invest up to $50,000 more of her own personal funds cumulatively (i.e. total cash invested could not exceed $50,000); however, she considered this a last-resort and only planned to put in as much as necessary. Cash would be infused in multiples of $1,000 to keep ending monthly cash from dropping below $1,500. (i.e. if cash is projected to be $1,499, she would infuse $1,000 at the end of the month. If it was projected to be below $499, she would inject $2,000, etc.) Repayments would be made in multiples of $1,000 any time ending cash on hand exceeded $5,000 by $1,000 or more. (i.e. any repayment would not reduce ending cash on hand for the month below $5,000.)

² You can assume 4.35 weeks per month

Question: you need to Create an income statement and balance sheet for Maya's business. (Don't forget any amounts owing or receivable at month end.)