BMB 655 Module 8 Budgeting Assignment Example

2026 Quarterly Cash Budget

[Student Name]

Southern New Hampshire University

BMB 655: Music Business Finance

Module Eight Assignment

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

2026 Quarterly Cash Budget

Introduction

The publisher expects 2026 to be a strong year, with revenue of about $4.3 million including the acquired catalog from May. But profit and cash will diverge, because royalty receipts lag usage and several large payments fall in the middle of the year. This paper builds a quarterly cash budget for 2026, identifies the lowest point and recommends how to manage it. The company's policy is to keep at least $600,000 in cash, about two months of writer royalties and payroll. Amounts are in thousands of dollars.

Timing Assumptions

Receipts follow the collecting organizations' schedules. Performance royalties from the two main United States performing rights organizations arrive quarterly, roughly six to nine months after the music is performed; mechanical royalties from the Mechanical Licensing Collective and other sources arrive monthly; sync fees arrive when a license is signed, usually within thirty days; and foreign royalties arrive through sub-publishers twice a year, in the second and fourth quarters. Administration fees are deducted from collections as they arrive.

Payments follow the company's own schedules. Writer royalties are paid twice a year, in March for the second half of the previous year and in September for the first half of the current year, following common practice that Passman (2023) describes. Payroll and overhead are paid monthly, loan payments monthly, and advances in installments agreed with each writer. The catalog purchase closes on May 1 with $900,000 of cash and a $2.4 million loan whose payments begin in June. Gitman and Zutter (2015) emphasize that a cash budget depends on getting these timing assumptions right, more than on the annual totals.

The Budget

2026 cash budget by quarter, in thousands of dollars

The loan proceeds go directly to the seller at closing and do not pass through the company's cash, so only the $900,000 cash portion and $120,000 of legal and diligence costs appear.

Profit Versus Cash

The operating budget for 2026 shows revenue of about $4.3 million and operating income of about $560,000, higher than 2025 because of the acquired catalog's eight months of earnings. Yet the cash budget shows receipts of only $4.1 million. The difference arises because much of the acquired catalog's income, earned from May onward, will not be paid until late 2026 or early 2027, and because royalties earned on the company's own songs in the second half of 2026 will be collected in 2027. Writer royalties tell the reverse story: the September payment covers royalties collected in the first half of the year, so cash paid to writers in 2026 lags the royalties the company records. The two budgets are both correct; they answer different questions. Management needs the operating budget to judge performance and the cash budget to avoid running short.

The Low Point

Cash falls through the middle of the year for three reasons: the $900,000 cash portion of the catalog purchase and its closing costs in the second quarter, the September writer payment of about $630,000 in the third quarter and the new loan's payments, which begin before the acquired catalog's income arrives. Acquired catalog income will lag the purchase by about two quarters while collecting organizations update their records, so the catalog's royalties reach the company mainly in the fourth quarter. The third quarter ends with about $426,000, against a $600,000 minimum.

Covering the Gap

Two actions cover the shortfall. First, the company should arrange a $400,000 revolving credit line before the purchase closes and plan to draw about $250,000 in August, repaying it in the fourth quarter when foreign income and higher performance distributions arrive. Brealey et al. (2020) note that credit lines are the usual way to manage predictable seasonal gaps, since they cost little when unused. Second, one writer has agreed to receive her $30,000 third-quarter advance installment in October instead, which reduces the draw. With both actions, third-quarter ending cash is about $706,000.

Stress Test

If the third-quarter performance distribution, about $470,000, were delayed by one quarter, as happened in 2021 when one organization changed its systems, third-quarter cash would fall to about $210,000 after the credit line draw. The company would need to draw the full $400,000 and delay a second advance installment. This scenario argues for arranging the line at $400,000 rather than at the minimum expected need.

Monitoring

The budget will be updated monthly as royalty statements arrive. Each collecting organization publishes its distribution dates in advance, and the finance manager will compare actual receipts with the budget within a week of each distribution. A variance of more than 15 percent in any quarter will trigger a review of the remaining quarters and of the credit line. The acquired catalog's first statements, expected in the third and fourth quarters, deserve particular attention, since they will show whether registrations were transferred correctly and whether its income is running at the level assumed in the valuation.

Conclusion

The publisher's 2026 is profitable but its cash is tight in the third quarter because a large purchase, a writer payment and new loan payments arrive before the acquired catalog's income. A $400,000 credit line, a modest change in advance timing and a clear minimum balance keep the company within its policy, even if a royalty distribution is late. The same discipline, planning for cash rather than profit, will carry into the funding plan in Milestone Three.

References

Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of corporate finance (13th ed.). McGraw-Hill Education.

Gitman, L. J., & Zutter, C. J. (2015). Principles of managerial finance (14th ed.). Pearson.

Passman, D. S. (2023). All you need to know about the music business (11th ed.). Simon & Schuster.