Finance in Hospitality - Doc
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Added on 2020-10-04
Finance in Hospitality - Doc
Added on 2020-10-04
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FINANCE INHOSPITALITY
INTRODUCTIONFinance is the life blood in any organization and hence, is required in order to havegrowth and to attain organisational objectives. The present report talks about finance inhospitality. Hospitality industries are generally service providing industries. Restaurant business,hotel business, travel and tourism and hospital are few of the example of hospitality industry. Inthe present research report various sources available to raise funds for service industries has beenprovided along with various techniques that can be used by restaurant business in order togenerate their income. Further, in this report, budgetary control along with its process has beenexplained and the same has been enclosed in PPT along with analysing variance between actualand budgeted results for Cyprian. Financial statements are also prepared for R Rigs afterconsidering two unrecorded entries along with their analysis using ratio analysis tool. At lastvarious proposals have been analysed for getting desired profits for R Rigs.TASK 11.1 Available sources of funds in business and service industriesA business cannot grow unless there are sufficient cash reserves that are required toinvest for growth. Growth of a business ultimately increases sales and profit of the firm (Axsäter,2015). However, for increasing sales business had to increase its current assets and fixed assetssuch as inventory, plant and equipment, land and building, etc. Funds in a business are requiredin order to carry out business operations, expansion of business, purchasing of fixed assets or formaking investments. There are many different ways from where a small business can raise funds.Therefore, from following sources a sole a trader can raise funds in context with buying a newbuilding worth £450,000.Various Sources of raising funds:Personal sources:It is easy for small business traders to finance their business through their personal cash.This source of fund is most beneficial for small owners along with various other benefits like, abanker is always keen to know before providing any loan amount that how much own capital is1
invested in the business by owner. Personal sources could be like their personal savings, homeequity loan secured by own residential house, cash value life insurance etc.Finance through Friends and Family:Another popular source for the growth of small business includes finance through friendsand family (Shenoy and Rosas, 2018). Benefit of friends and family finance is that there is noneed of any guarantor because they already know you along with flexible repayable terms andlower or no interest rate. However, a written contract presenting the debt amount and liabilitymay be created between the borrower and lender. Internally generated funds:It is the most advantageous source of fund. Under this, finance is raised through retainedearnings of the business. By using retained earnings business only loses the opportunity cost ofinterest if it had kept in bank. In order to have growth, ploughing retained earnings back in thebusiness could be a smart move. Bank Loans:Bank loans are easily available to small business trader for investment in property aspapers of that property can be kept as the purpose of security. There is also an option of takingfinance lease from bank (DRURY, 2013). Under this option, asset is purchased by bank and thenowner takes that asset from bank by paying either rent or lease amount. Loan consists ofexcessive documentation requirement, as borrower needs to present their financial statement toinform lenders about their capability of loan repayment. Moreover, debt covenant is designedthat are necessary to be complied and as per this, timely instalments and interest required to bepaid by the firm. Trade Credit:Another essential financing tool for small traders is trade credit. Under this credit periodis extended by the suppliers. Credit amount which is to be payable to suppliers is then invested inbusiness. Increasing internal cash flow: 2
Need of purchasing a building is often forecasted earlier. Hence, by then, increasing cashflow within business in the way of increasing profit margin on products and services, cutting costof services, managing working capital, selling off old assets or by recovering debts earlier,business can generate more cash (Sources of funds, 2017).Issuing share capital:Issue of share capital, is generally the least favourable sources of finance for smallbusiness traders because brand image of the business is yet in process and thus less public relyon them. However, there is an option to owner if he wants to raise finance through issuing sharecapital.The best way for raising finance in order to purchase new building for small trader isusing personal source or through bank loan (Jang and Park, 2011). Because using personalsources will increase capital in the business that will create a good image of the firm andtherefore, bank loan can be easily available.Government programs:With the help of government and grants for the financial institutions which in turn helpsin facilitating the adequate funds for the business operations. The most important benefitassociated with the grant is that it does not need any repayment if it is utilized in the mentionedtimeframe and for the purpose for which it is given. Thus, the same is its limitation also as grantis available for specified time or given objective only. Hence, it cannot be used for any otherpurpose. 1.2 Methods for generating income in restaurant businessIn the competitive world, making restaurant profitable is a difficult task. In order tosurvive in a restaurant industry, making high revenue is a key factor, however, in order toincrease revenue, business cannot use wrong practices like charging high from customers,reducing average volume, etc. Using such practices can push the customers away from therestaurant. Below are some tactics that can be used by restaurant business to increase theirrevenue and make their restaurant profitable:Good Ambiance:3
It is said that 1st impression is the last impression. The first thing that a customer noticesis the front look of restaurant and its ambiance (Walker, 2016). Having a good look willdefinitely attract more customers which in turn will increase volume of sales and good image inthe market. However, along with the ambiance, comfortable sitting area must also be considered.Knowing target customers:Before a restaurant starts marketing about your business, it is necessary to identify yourtarget customers. For example, if the restaurant is in the middle of southern BBQ country, sellingsmall amount of dish with less variety will not work. Hence, must be created keeping in view thecustomers around the restaurant.Update menu regularly: Consumers always want something different to try in a restaurant. If there would be samemenu year by year, customer will get bored out of it and will get pushed away from therestaurant. Therefore, it is necessary to provide different new choices to the customers to makethem retain in your place.Be known for a signature dish:Consumer often get attracted to a restaurant if it is popular for a signature dish. Signaturedish in the menu aids to the business value (Park and Jang, 2014). It is something that shapeshow a customer looks at the restaurant.Good marketing strategy:Advertising your business is necessary in order to create recognition in the market. Greatmarketing plan can be executed such as offering welcome drink and welcome snacks tocustomers, opting for social media marketing, TV and radio, etc. However, the best marketing isthe mouth advertising which is done by the customers, so first priority of a restaurant must becustomer satisfaction.Commission based business: In despite of the above, restaurant can offer differentservices and earn commission based revenues to maximize their income level. Running4
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