Financial Decision Making for Business Expansion

This assignment provides a comprehensive analysis of financial decision making for business expansion. It discusses various sources of finance that companies can utilize during this process, such as bank loans and selling old assets. Additionally, the assignment explores different pricing strategies, including penetration pricing, which involves setting lower prices at an initial level to attract customers and then increasing prices when the brand image is established.

Financial Decision
Making in Travel and
Tourism

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Introduction of the company..................................................................................................1
Sources of finance in context of expansion plan....................................................................1
Importance of cost volume and profit analysis.......................................................................2
Appropriate pricing strategy for the organisation..................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Financial decisions in all the business entities are made by financial analysts of the company in
order to make sure that company is performing well or not. In order to run all the operations in
all the sector it is very important to form strategic decisions so that business goals such as profit
maximization can be attained (Arzhang and Hamidi, 2014). Travel and tourism sector is a part of
hospitality industry in which services are provided to the customers. This report is based upon
financial decision making in travel and tourism sector. The organization which is selected for
this project is Expat Explore Travel which was founded in year 1997 by Carl Cronje and Jakes
Martiz.
Various topics are being covered under this report which includes different sources of funds
for expansion purpose, cost volume and cost volume profit analysis. Apart from this discussion
and recommendation regarding appropriate pricing strategy is also being covered under this
report.
MAIN BODY
Introduction of the company
Expat Explore Travel is a tour operator which is established in UK and founded by two
people Carl Cronje and Jakes Martiz. Currently it is operating its business appropriately in UK
and planning to expand business in different geographic locations. The main objective behind
expansion is capturing larger market share and enhance profitability (Background of Expat
Explore Travel. 2019). The organisation offers different tour packages for various locations such
as Europe, Turkey, Greece, Egypt, UK and Croatia. Now it is planning to reach up to US in order
to expand the business.
Sources of finance in context of expansion plan
Sources of finance: When a new company introduces itself in the market or planning to
expand business in new locations then it is very important to have appropriate amount of finance
so that all the requirement of business can be fulfilled. If the organisation is not able to acquire
sufficient amount of then it is not possible to attain objectives that are formed previously. As
Expat Explore Travel is planning to expand its business in UK and for this purpose it requires
sufficient funds. Finance for business can be acquired from different sources (Sources of finance,
2010). All of them are as follows:
1

Bank loan: It is a traditional method which is used by all the business while expansion.
While selecting this option organisations are required to give a collateral to the bank and if the
borrower fails to refund the amount then bank seize asset and sale it to acquire money. This
option can be selected by Expat Explore Travel to expand its business in US. If a loan is being
taken by the enterprise from bank then interest on a specific rate is required to be paid by
borrower to bank on monthly basis. Short, mid and long-term loans are provided to companies
by banks (Becker, 2016).
Bootstrapping: It is the ability to use external funds in order to expand the business.
When expansion related goals are achieved and organisation reaches up to growth then amount
could be paid off. It includes using money from own saving account, utilising current cash flow
appropriately by ignoring overspendings and increasing clients by setting low price and
achieving higher profits. This option can be selected by Expat Explore Travel in order to expand
its business in US so that its goal of attaining higher market share can be achieved. In this option
the owner does not require to share power of decision making with the investors.
Crowd funding: With the help of this financing option organisations can acquire funds
from different options by attracting them with an impressive business plan. This option can be
selected by Expat Explore Travel in order to expand the business in US. Under this alternative
attractive business plan is being presented in front of various investors in order to conveyance
them to make investment in business.
Angel financing: In this option organisations approach rich investors who provide start up
capital for the purpose of expansion. Angel investors get benefits from government in the form
of tax rebate. Expat Explore Travel can use angel financing to expand the business in US by
attracting rich investor towards the business plan (Khoshnevis Yazdi and Khanalizadeh, 2017).
Recommendation: From all the above described options Expat Explore Travel should
select bank loan for the purpose of funds for business expansion because it is the best and safe
option to acquire money for business. It can help to achieve goals of business such as capturing
larger market share, profit maximisation and customer satisfaction.
Importance of cost volume and profit analysis
Cost: It is the amount of total expenses which are being invested by the company to
manufacture products or deliver products to customers. There are three different types of costs
2

that may take place for Expat Explore Travel while operating business. All these costs are as
follows:
 Fixed cost: All the expenses that does not change with the nature of service or delivering
process are part of fixed costs. Whether services are delivered or not such type of
expenses are faced by the company it is not possible to control them.
 Variable cost: These are called variable due to their varying nature because all the
expenses that changes with nature of service or delivery procedure known as variable
costs.
 Semi Variable cost: All the costs that are partially variable and partially fixed are known
as semi variable cost. These are fixed up to level and after crossing that level these
become fixed.
The graph below can reflect nature of all the above described costs:
The above image shows behaviour of different costs FC shows total fixed costs, VC line
shows variable cost of the company and TC reflects total cost.
Cost volume profit analysis: It is a method of cost accounting which is used by organisations to
look at the impact of changing level of cost and volume of operating income of the company
(Law. and et.al., 2016). It is also known as break even analysis in which that amount of sales is
3

determined where organisation can cover all its expenses that are made while delivering services
to the clients. Various types of assumptions are made in this method including selling price,
fixed and variable expenses. All these elements are used to form strategic decisions. It is very
important for Expat Explore Travel to for strategic decision. Its significance is as follows:
Cost volume profit analysis is very important for managers and organisation because it helps to
find the break even point so that all the expenses can be recovered and profit can be acquired for
future (Lunt and et.al., 2014).
 It works as a decision-making tool in which investment proposals are evaluated by the
company and then appropriate option is selected by them to acquire higher profits.
 It is very important to set a base for planning all the marketing efforts of business and
then enhance its market share.
 While allocating budget to different functional departments of the organisation it guides
managers to mobilize monetary resources in appropriate manner and perform budgeting
activities effectively.
 With the help of cost volume analysis managers can meet the break even point so that
possibility of losses can be reduced and decisions regarding maximisation of sales can be
formulated.
The graph below is showing cots volume profit:
4

The above graph shows cost volume profit of the organisation. Fixed cost of the company
is 20000 in order to recover all the expenses enterprise is require to sale at least 50000 units. If
50000 units are not sold then organisation may have to face a loss and if this level is crossed then
profits can be acquired (Pădurean, Nica and Nistoreanu, 2015).
Appropriate pricing strategy for the organisation
As Expat Explore Travel is planning to expand its business in US so it is very important for
managers to set best price to its services so that objectives such as higher profit, large market
share can be acquired. For all the business entities it is very important to set best suitable price to
its services or products so that large number of customers can be attracted. In order to capture
large market share organisations are required to analyse that what amount for their services
clients are willing to pay and then decide price for them. For managers of Expat Explore Travel
it is vital to form pricing decision appropriately so that it can attain competitive advantage in the
market of US. There are various types of pricing strategies that could be adopted by Expat. All of
them are as follows:
5

 Premium pricing: In this type of pricing option organisation set higher prices for their
products and services higher than competitors. It is selected by companies when they
have a specific targeted segment where services are going to be rendered to upper class
customers. It can be adopted by Expat Explore Travel to attract business clients of US
and expand business there (Shenkar, Luo and Chi, 2014).
 Market penetration pricing: Under this strategy organisations set low prices for
products and services to attract large number of customers. Most of the companies use it
to grab attention of clients from competitors. After a long period when entity realises that
the business is well established then prices are raised by them. This type of strategy can
be selected by Expat Explore Travel to expand business in US by attracting large number
of customers with the help of low prices.
 Economy pricing: In this type of strategy businesses reduce costs marketing and
production so that they can set low prices to products or services. Main objective of this
option is to provide best services and goods to clients on low process which can be
bought by them without frills. It can be opted by Expat Explore Travel to expand its
business in US by setting low prices to its services and attract large number of clients to
establish it appropriately in the market.
 Skimming pricing: In this pricing strategy organisations set high prices to their products
on initial level. When competition in the market increases, they reduce prices of goods
and services in order to compete with other companies and retain existing customers. Ain
advantage of this strategy is that it helps to maximise profits whether the market is
competitive or not. This option can be adopted by Expat Explore Travel to expand its
business in US by setting higher prices of services on initial level and afterwards
increasing prices when market is competitive (Vellas, 2016).
Recommendation: From all the above described strategies the best suitable pricing
option for Expat Explore Travel for the purpose of business expansion is penetration. It can
help to establish business by setting lower prices at initial level to attract large number of
customers and when it gets success in establishing a good brand image it can increase prices.
It is a great option for the travel company to achieve main business goal which is capturing
large market share.
6

CONCLUSION
From the above project report it has been concluded that financial decision making is a vital
part of organisational strategies that help to attain organisational goals such as profit
maximisation and customer satisfaction. There are various types of sources of finance that can be
selected by companies while planning for business expansion. These are bank loan, selling old
assets of business etc. When an enterprise is planning to expand its business then it is very
important for managers to find appropriate pricing strategies in order to meet expectations of
targeted customers.
7

REFERENCES
Books and Journals:
Arzhang, P. and Hamidi, N., 2014. Financing of Tourism Industry: A Hybrid Approach Delphi-
ANP-VIKOR. Oman Chapter of Arabian Journal of Business and Management Review.
34(2346). pp.1-10.
Becker, E., 2016. Overbooked: The exploding business of travel and tourism. Simon and
Schuster.
Khoshnevis Yazdi, S. and Khanalizadeh, B., 2017. Tourism demand: A panel data
approach. Current Issues in Tourism. 20(8). pp.787-800.
Law, A. and et.al., 2016. Transitioning to a green economy: the case of tourism in Bali,
Indonesia. Journal of Cleaner Production. 111. pp.295-305.
Lunt, N. and et.al., 2014. Insights on medical tourism: markets as networks and the role of strong
ties. Korean Social Science Journal. 41(1). pp.19-37.
Pădurean, M. A., Nica, A. M. and Nistoreanu, P., 2015. Entrepreneurship in tourism and
financing through the Regional Operational Programme. Amfiteatru Economic
Journal. 17(38). pp.180-194.
Shenkar, O., Luo, Y. and Chi, T., 2014. International business. Routledge.
Vellas, F., 2016. The international marketing of travel and tourism: A strategic approach.
Macmillan International Higher Education.
Online
Background of Expat Explore Travel. 2019. [Online]. Available through:
< https://expatexplore.com/the-expat-explore-story/ >
Sources of finance. 2010. [Online]. Available through:
< https://www.forbes.com/2010/07/06/best-funding-sources-for-small-business-
entrepreneurs-finance-dileep-rao.html#489d0c974715>
8

REFERENCES
Books and Journals:
Online
9