Finance in Hospitality Industry

Finance in hospitality industry
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Contents
Part A...............................................................................................................................................3
1.1 Review of the sources of funding available to Paul..............................................................3
1.2 Evaluate the contribution that the sale of the old oven, the sub-letting of the unused space
and the selling of recipes for commission can make on the business’s profitability and cash
flow..............................................................................................................................................5
2.1 Discuss elements of cost, gross profit percentages and selling prices for products and
services offered by a restaurant...................................................................................................7
2.2 Evaluate methods of controlling stock and cash in the restaurant.........................................9
References:....................................................................................................................................11
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Part A
1.1 Review of the sources of funding available to Paul.
The restaurant which has been running by Paul has a sound reputation in the market and Paul has
been recognized as one of the bet chefs in the country which can turn advantageous for him in
order to acquire different funds in the business. The various funds are required for equipment’s
to be upgraded and fulfilling other requirements (Pavlova, 2017). The sources of funds which are
available to him in this business are:
Own funds – The source of funds represents the funding made in the business by utilizing the
personal savings of the owners who are running the business. The funds generated in this source
represent no cost of capital however there is an opportunity cost associated with the same. The
funds are utilized in the business majorly to fulfil the working capital requirements of the
restaurants and to ensure that the day to day activities of the restaurant does not get influenced or
discontinued. In the given case Paul can use his personal savings or the investment made in other
securities to be invested in the restaurant and financing the working capital needs (Kirlioglu &
Dogan, 2016).
Family and friends – The source of funds represents the money generated form the help of
family and friends in the social circle of the owners of the business. The amount of funding is
often not adequate for the business and requires some type of consideration to be paid to these
sources. However there are no regulations associated while funding this type of investment in the
business. Paul can ask his family members and other colleagues or friends to make investment in
the restaurant.
Retained earnings – The retained earnings refers to that portion of business income earned
during the year which is not distributed to the shareholders or owns of the partners of the
business and are reinvested in the business for fulfilling the funding requirement of the business.
In the same case retained earnings will represent the earnings which had been generated in past
and will require no additional regulatory requirements or formalities to be fulfilled. The type of
funds will not carry any cost of capital for the restaurant and Paul (Kim, et. al., 2018).
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Bank loan/ Overdraft or mortgage – The short term financing source of the business is
appropriate for adequately financing the short term fund requirements of the business. The bank
will provide either a loan or overdraft facility which will be based on the credibility position of
the assesse. In the concerned case bank loans can be obtained which will bear a rate of interest or
overdrafts facility which can be used to adequately finance the availability of current assets in
the restaurant.
Factoring/ invoice discounting – The factoring or invoice discounting will refer to the debt
financing facility extended to the business which can be availed by selling the accounts
receivable or invoices of the company at a discount and money can be obtained immediately.
The type of source of finance will bear a cost of capital in the form of discount given by the
seller. In this case Paul can sell its accounts receivables notes or invoices in order to meet the
immediate cash requirements of the restaurant (Pavlova, 2017).
Crowd funding – The crowd funding refers to the source of finance in which funds are raised in
the business in the form of small amounts by the large number of people present with utilizing
the sources of channels like internet, social media etc. The type of financing proves to be useful
in financing the long tern capital of the company. In the given case the money can be generated
in the business by encouraging the different type of small investors through channels appropriate
for this purpose.
Trade creditors – The trade creditors can be a major source of finance which refers to the
process of creating debt on the company by making creditors. In the given case the up gradation
of equipment’s can be funded by creating additional trade creditors other than for purchasing the
resources of restaurant and materials (Kim, et. al., 2018).
Business angels – The business angels or the angel investors refers to long term financing option
for the business in which various potential investors who are willing to make investment in the
business in consideration of ownership in the company provides large amount of investment to
be made in the company or business. The capital requirements of the restaurant including the
funds required for upgrading the equipment will be obtained through this source of funding. The
cost of capital will be in the form of ownership of the company or restaurant (Seo, et. al., 2017).
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