You, CPA, are advisor to the organizing committee (OC) of the first annual Seaside Music Festival (SMF). The OC consists of community members who are passionate about hosting this event in their New Brunswick town (Appendix I). They have seen other New Brunswick towns host similar events with great success. The OC is still in the planning phase and has yet to finalize details.

The OC has now decided to also consider a two-stage option that would allow two acts to perform simultaneously (Appendix III). This option would attract a wider range of musical tastes and ages. The OC has asked you to determine the break-even point and sales needed to earn operating profits of $150,000, which could then be used to invest in next year's SMF.

To finance the SMF, the OC is exploring various options. The provincial Department of Tourism (PDT) has grants available for events that align with PDT's mission and goals (Appendix IV). The OC has asked you to create a list of performance metrics that could be used to prove that SMF would support PDT's mission and goals.

Even if a grant is obtained, further financing of approximately $100,000 will be required. The OC has come up with some financing options and want you to evaluate them and recommend the most appropriate one (Appendix V).

Finally, the OC is aware that, as a major undertaking, hosting the SMF has some risks. The OC wants you to identify the risks and provide strategies for their mitigation.

DESCRIPTION OF THE SEASIDE MUSIC FESTIVAL

The SMF will take place in June, which the OC expects to help bring business to hotels and campgrounds during a normally slow time. The festival is being held entirely outdoors and, while the weather in June is generally good, there is a chance of less-than-ideal conditions.

The OC has already confirmed interest and availability from several popular musical artists from across North America. One of these artists is internationally known and has never played in eastern Canada. To complete the schedule, a few more artists are still needed, especially if the two-stage option is chosen.

Alcohol and food will be available at the SMF and will be handled by an outside catering company that the OC will hire. The local government that issues alcohol permits is concerned about how well alcohol rules will be regulated and has warned the OC that they will be responsible for fines and will lose their permit if rules are broken.

The OC plans to publicly announce the SMF soon and will ask catering firms to submit proposals that include the types of food they would offer. The catering company would operate at its own financial risk and SMF will take a small commission on revenues.

PROVINCIAL DEPARTMENT OF TOURISM - SPECIAL EVENTS GRANTS

Purpose: The PDT provides grants to support special events held within the province of New Brunswick. These funding opportunities will be available for events that align with the mission and goals of the PDT. To qualify for a grant, applicants will identify specific performance metrics for their special event in order to prove that it will serve the mission and goals of PDT.

Mission: To increase the economic benefits that come from tourism activities in the province of New Brunswick.

Goals:

1. To promote "staycations" by providing opportunities for New Brunswick residents to enjoy leisure and entertainment experiences within their own province or town.

2. To attract first-time visitors to the province.

3. To make leisure and entertainment events within the province accessible and affordable.

4. To support tourism activities that promote sustainability and comply with environmental best practices.

FINANCING OPTIONS

Bank Loan

The local bank is willing to provide a loan at 8% interest, payable in full 60 days after the festival ends. In the event of default, the bank requires a personal guarantee from the OC members to cover 50% of the loan.

Personal Funds

The members of the OC are willing to lend the funds required for the festival. Each of the 10 OC members would lend the festival $10,000 and would require repayment of $12,000 immediately after the festival ends. They would also require that they are paid first, before any other creditors.

Private Investor

A local businessperson, who made their money in construction, is willing to lend the funds to the festival at 12% interest. The repayment terms are: an initial payment of all revenues from the first 500, full-price tickets sold then the balance to be repaid 30 days after the festival ends. They would also like a seat on the committee, to ensure that the festival will be successful.

What is the break even point and the calculations for the financing options?