Sky is the owner of a small business called Sky's Skateboards. Sky, who grew up in a circle of avid boarders, started the business last year, initially adding cool designs to her siblings' and friends' skateboards. After a year of painting skateboards, Sky realized that her add-on design business was slowing down, but there was unmet local demand for custom designed skateboards. Many people had seen her designs and shown up at her doorstep looking for new skateboards for themselves, their kids, or their significant other. Over the holiday season, Sky had done some research and found she could order quality skateboards in basic colours (black, white, blue, etc) for $50 each. She expects to sell boards for $100 each after designing them. If a customer wants to request a specific design, she will charge a premium and sell the skateboard for $125. For the past year, Sky has customized used skateboards for $30 each (the average job took $5 in materials and an hour of her time). Initially, she averaged 15 designs a month. This number peaked in the summer at about 30 designs monthly. By the end of the year, the average had dipped to about 15 a month again. Sky is wondering what she should project for this business activity next year. She wants a pros and cons analysis of continuing to work with used skateboards. Sky anticipates that each new skateboard will require $10 in materials (after initial purchase) and require two hours of her time. For custom designs, she is budgeting an extra 30 minutes for communicating with her customer. For the time being, Sky will continue selling out of her parents' garage as it keep costs low. She is planning on relying on word-of-mouth marketing and perhaps some newsletters too. Sky's friend, Libby, says she can design and print unique newsletters on a monthly basis for $300 per month. Sky plans to distribute the newsletters herself to save money. Sky likes the idea of advertising more, but is wondering if she should only do the newsletters every other month. She is projecting 200 skateboard sales, of which 25% are custom-design. By advertising each month, there will be a 10% boost to these numbers. Sky recently spoke to her father who is an experienced businessman because she isn't sure about her revenues and costs for the past year. Her dad vehemently stressed the importance of a sole proprietor maintaining accurate records for business and tax purposes. Sky had grown impatient with the conversation and ended it, but is now curious about what her father may have meant. Sky is thinking about adding on online sales after this upcoming year (in 2023). She believes that the online sales volume would match her upcoming year's volume, effectively doubling business. However, there would be some added shipping costs, estimated to be $10 per order on average. Another option is renting a small retail space for $2,000 a month. Sky expects that her current sales volume would double in 2023 if she went in this direction. With either the online or storefront approach, Sky would need to invest in new machinery which could either be purchased for $10,000 or leased for $200 a month (5 year lease). The machinery is expected to last five years and Sky expects the usage to be pretty consistently annually but there would be higher usage in the summer months. She is wondering what the appropriate accounting and tax treatment for the machinery would be. If Sky were to purchase the machine outright, she could borrow the money from the bank at a 5.75% rate. Her friend Libby has some money saved up and has offered to cover the newsletters, distribution, and funding for the machine in exchange for 30% ownership in the business. Sky is also considering going to college. She understands that at age 19, she has some time before fully committing to a career. She believes she can borrow the $40,000 needed at a low rate and earn $25 an hour after graduating with a 4-year bachelor's degree. After three years, she expects to earn $40 an hour for the rest of her career. She wants advice on stopping her business to pursue education, as she can't imagine going down both paths simultaneously. If Sky decides to continue with the business, she wants to emphasize ethics as she believes that is the best long-term approach. Any advice on this aspect of business, and her situation specifically, would be appreciated. Sky wants a detailed analysis of how her business and overall career are progressing. She wants advice on business ethics, business strategy, and other relevant matters. Sky welcomes any recommendations, as well as any questions to her which will help you better analyze her business. Please prepare a business memo to Sky, addressing all issues raised in this case.

Question

Sky is the owner of a small business called Sky's Skateboards. Sky, who grew up in a circle of avid boarders, started the business last year, initially adding cool designs to her siblings' and friends' skateboards. After a year of painting skateboards, Sky realized that her add-on design business was slowing down, but there was unmet local demand for custom designed skateboards. Many people had seen her designs and shown up at her doorstep looking for new skateboards for themselves, their kids, or their significant other. Over the holiday season, Sky had done some research and found she could order quality skateboards in basic colours (black, white, blue, etc) for $50 each. She expects to sell boards for $100 each after designing them. If a customer wants to request a specific design, she will charge a premium and sell the skateboard for $125. For the past year, Sky has customized used skateboards for $30 each (the average job took $5 in materials and an hour of her time). Initially, she averaged 15 designs a month. This number peaked in the summer at about 30 designs monthly. By the end of the year, the average had dipped to about 15 a month again. Sky is wondering what she should project for this business activity next year. She wants a pros and cons analysis of continuing to work with used skateboards. Sky anticipates that each new skateboard will require $10 in materials (after initial purchase) and require two hours of her time. For custom designs, she is budgeting an extra 30 minutes for communicating with her customer. For the time being, Sky will continue selling out of her parents' garage as it keep costs low. She is planning on relying on word-of-mouth marketing and perhaps some newsletters too. Sky's friend, Libby, says she can design and print unique newsletters on a monthly basis for $300 per month. Sky plans to distribute the newsletters herself to save money. Sky likes the idea of advertising more, but is wondering if she should only do the newsletters every other month. She is projecting 200 skateboard sales, of which 25% are custom-design. By advertising each month, there will be a 10% boost to these numbers.   Sky recently spoke to her father who is an experienced businessman because she isn't sure about her revenues and costs for the past year. Her dad vehemently stressed the importance of a sole proprietor maintaining accurate records for business and tax purposes. Sky had grown impatient with the conversation and ended it, but is now curious about what her father may have meant. Sky is thinking about adding on online sales after this upcoming year (in 2023). She believes that the online sales volume would match her upcoming year's volume, effectively doubling business. However, there would be some added shipping costs, estimated to be $10 per order on average. Another option is renting a small retail space for $2,000 a month. Sky expects that her current sales volume would double in 2023 if she went in this direction. With either the online or storefront approach, Sky would need to invest in new machinery which could either be purchased for $10,000 or leased for $200 a month (5 year lease). The machinery is expected to last five years and Sky expects the usage to be pretty consistently annually but there would be higher usage in the summer months. She is wondering what the appropriate accounting and tax treatment for the machinery would be. If Sky were to purchase the machine outright, she could borrow the money from the bank at a 5.75% rate. Her friend Libby has some money saved up and has offered to cover the newsletters, distribution, and funding for the machine in exchange for 30% ownership in the business. Sky is also considering going to college. She understands that at age 19, she has some time before fully committing to a career. She believes she can borrow the $40,000 needed at a low rate and earn $25 an hour after graduating with a 4-year bachelor's degree. After three years, she expects to earn $40 an hour for the rest of her career. She wants advice on stopping her business to pursue education, as she can't imagine going down both paths simultaneously. If Sky decides to continue with the business, she wants to emphasize ethics as she believes that is the best long-term approach. Any advice on this aspect of business, and her situation specifically, would be appreciated. Sky wants a detailed analysis of how her business and overall career are progressing. She wants advice on business ethics, business strategy, and other relevant matters. Sky welcomes any recommendations, as well as any questions to her which will help you better analyze her business. Please prepare a business memo to Sky, addressing all issues raised in this case.

Accepted Answer

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