Financial Management for Hotel Industry

This document discusses financial management in the hotel industry, focusing on the procedure of zero based budgeting. It explains the advantages of zero based budgeting over traditional budgeting and provides practical ways to apply this technique. The document also includes a cash budget for a hotel chain in the UK and Europe.

FINANCIAL MANAGEMENT
FOR HOTEL INDUSTRY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................6
a. Defining and describing the procedure of zero based budget ................................................6
b. Analysing advantages of the zero based budgeting over the traditional budget ....................7
c. Ways in which an entity can apply zero based budgeting technique in a practical sense.......9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial management refers to the planning, directing, controlling and organizing
financial activities like procurement and use of the funds of an entity. In other words, it means
application of the general principles of management towards the financial resources of the
company. The best practices regarding the financial management within the hospitality industry
involves creating annual budget, developing detailed financial tracing model, having an ongoing
audits and building reporting structure that enables the managers in keeping a track on the
information relating profit and loss evaluation. The present study is based on Haversons Ltd,
seen as the chain of the hotels in UK and the Europe. One of the group that belongs to this hotel
is situated in Liantwit Major having specifically 50 similar twin bedrooms and 80 as double
bedrooms. Furthermore, the study includes preparation of cash budget for every month of an
accounting period. Moreover, it involves highlights on meaning and evaluation of the zero based
budgeting with its process and its effectiveness over the traditional budgeting approaches.
TASK 1
Cash budget- It means the budget that plans for expected receipts and the expenses in
terms of monetary value during a particular period (Hernandez, Jonker and Kosse, 2017). Such
outflows and inflows of the cash involves revenues gathered, payment of the expenses, loans
payments and the receipts. Cash budget means an anticipated projection in relation to the cash
position of the company in future (DeFranco and Schmidgall, 2017). This budget is been used
for analysing that the company is generating enough cash in operation of the business activities.
Partic
ulars January
Febru
ary
Marc
h April May June July
Augu
st
Septe
mber
Octob
er
Nove
mber
Dece
mber
Recei
pts :
Sales 382414
29821
8
29100
5
28511
1
32560
0
38045
0
40060
0
48075
0
52018
0
40080
0
37508
0
34090
0
Cash
sales 229448.4
17893
0.8
17460
3
17106
6.6
19536
0
22827
0
24036
0
28845
0
20807
2
24048
0
22504
8
20454
0
Collec
tion
from
75565.00
64
13082
1.708
8
11356
7.572
11104
6.873
6
11793
9.428
13638
9.72
15068
3.16
17030
9
24456
2.352
22588
8.84
14946
6.208
13787
6.88
1

the
credit
sales
Recei
pts
from
sale of
the
long
term
assets
Recei
pts
from
loans
Other
receip
ts
Total
receip
ts
687427.4
064
60797
0.508
8
57917
5.572
56722
4.473
6
63889
9.428
74510
9.72
79164
3.16
93950
9
97281
4.352
86716
8.84
74959
4.208
68331
6.88
Paym
ents:
Paym
ent
made
on
cash
and
the
2

credit
purch
ases
bed
purch
ase 2560 2560
Kettle
tray
sets 7150
Furnit
ure 50000 50000 50000
Furnit
ure
and
fitting
s 37500 37500 37500 37500
Buildi
ngs
cost
10920
0
10920
0
10920
0
10920
0
10920
0
Paym
ent
for
the
expen
ses:
Printi
ng and
station
ary
cost 5800 4000 4000 4000 5800 4000 4000 5800 4000 4000 5800 4000
laundr 18750 18750 18750 18750
3

y
servic
es
salarie
s 26666 26666 26666 26666 26666 26666 26666 26666 26666 26666 26666 26666
wages 40000 40000 40000 40000 40000 40000 40000 40000 40000 40000 40000 40000
Light
and
heat 30000 30000 30000 30000
Marke
ting
cost 25000 25000 25000
petrol
cost 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100 1100
Decor
ating
cost 18000
Maint
enanc
e cost 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000
Cleani
ng
cost 10000
Cash
drawi
ngs
Purch
ase of
the
long
term
4

assets
:
motor
vehicl
e 30000
land 28000 52000
Repa
yment
of
deben
tures
or the
loans
Other
payme
nts :
Comp
liment
ary
toiletri
es 8166.67
8166.
67
8166.
67
8166.
67
8166.
67
8166.
67
8166.
67
8166.
67
8166.
67
8166.
67
8166.
67
8166.
67
Busin
ess
rates
75000
.00
75000
.00
75000
.00
75000
.00
75000
.00
75000
.00
75000
.00
75000
.00
75000
.00
corpor
ation
tax
77900
0.00
Total
paym
ents
165732.6
7
15468
2.67
19093
2.666
66666
11593
2.666
66666
15848
2.666
66666
11593
2.666
66666
11093
2.666
66666
21568
2.666
66666
26263
2.666
66666
25063
2.666
66666
28818
2.666
66666
26263
2.666
66666
5

7 7 7 7 7 7 7 7 7 7
Net
receip
ts
521694.7
39733333
45328
7.842
13333
3
38824
2.905
33333
3
45129
1.806
93333
3
48041
6.761
33333
4
62917
7.053
33333
3
68071
0.493
33333
3
72382
6.333
33333
3
71018
1.685
33333
3
61653
6.173
33333
3
46141
1.541
33333
3
42068
4.213
33333
3
Bank
balanc
e at
begin
ning 318000
20369
4.739
73333
3
24959
3.102
4
13864
9.802
93333
3
31264
2.004
16777
4.757
33333
4
46140
2.296
21930
8.197
33333
3
50451
8.136
20566
3.549
33333
4
41087
2.624
50538
.9173
33333
6
Bank
balanc
e at
period
end
203694.7
39733333
24959
3.102
4
13864
9.802
93333
3
31264
2.004
16777
4.757
33333
4
46140
2.296
21930
8.197
33333
3
50451
8.136
20566
3.549
33333
4
41087
2.624
50538
.9173
33333
6
37014
5.296
Work
ing
note:
Credit
sale 152965.6
11928
7.2
11640
2
11404
4.4
13024
0
15218
0
16024
0
19230
0
31210
8
16032
0
15003
2
13636
0
52.00
%
79542.11
2
62029
.344
60529
.04
59303
.088
67724
.8
79133
.6
83324
.8 99996
16229
6.16
83366
.4
78016
.64
70907
.2
5.00%
3977.105
6
3101.
4672
3026.
452
2965.
1544
3386.
24
3956.
68
4166.
24
4999.
8
8114.
808
4168.
32
3900.
832
3545.
36
Collec
tion
after
discou
nt
75565.00
64
58927
.8768
57502
.588
56337
.9336
64338
.56
75176
.92
79158
.56
94996
.2
15418
1.352
79198
.08
74115
.808
67361
.84
6

47.00
%
71893
.832
56064
.984
54708
.94
53600
.868
61212
.8
71524
.6
75312
.8 90381
14669
0.76
75350
.4
70515
.04
Total
collect
ion
75565.00
64
13082
1.708
8
11356
7.572
11104
6.873
6
11793
9.428
13638
9.72
15068
3.16
17030
9
24456
2.352
22588
8.84
14946
6.208
13787
6.88
TASK 2
a. Defining and describing the procedure of zero based budget
Zero based budgeting refers to the approach that is used in building a budget from the
zero base (Mariana, 2018). This budget is not based on the prior period budget and is starter
from the scratch. With the use of this planning tool, manger has to justify each and every
disbursements prior to adding it to the official budget. The main purpose of this budgeting is
reducing the spending by looking at the area where the cost could be cut down.
There are few steps in the process of zero base budget that are as follows-
Identifying decision units- In the first step, decision units are been determined in respect
of the responsibility centres. Such decision units must contain useful evaluation and an
identification. Amount of the scope, expenses, quality and the direction of the tasks are counted
as the bases for justifying meaningful units of the decision.
Developing new ways or methods for achieving goals- After identifying the goal,
preparation of the decision package is the next step under this budgeting tool (Dynowska, and
Cereola, 2018). This decision package is seen as the set of the documents that describes and
identifies activities of a unit in such a manner that the management could evaluate and provide
ranking against the others that are competing for very limited purposes and in deciding regarding
approving or disapproving it.
Discovering new approaches in funding the processes of the business- Under this step,
decision packages that are developed will be ranked by the executive, departmental and
operational managers based on the organizational needs, funds availability and the other major
factors (Rendón, 2018). Ranking could be made through the use of various approaches or the
combinations of all the approaches such as comparison approach, voting method, Delphi and
judgemental approach.
7

Prioritize the funding- At this stage, availability of the resources is been kept in the mind
and allocation of the resources in several decision units is been made (Process of zero based
budget, 2017). The resources that are selected must be adequate enough in meeting needs of the
selected alternatives.
By following the above steps, an entity could be able to assess the amount of expenses
that will be incurred in the process of goal achievement. This in turn helps the company in
finding new ways for spending their money in profitable and low cost channels.
b. Analysing advantages of the zero based budgeting over the traditional budget
There are number of benefits associated with zero based budgeting that are depicted as follows-
 This approach does not keep incremental approach as the base so it helps in promoting
efficiency as it needs managers of the company in reviewing and making justification of
the activities (Khetan and Oh, 2016). Under this budget, previous periods inefficiencies
are not been repeated at the time when the new budget is framed or developed.
 It is counted as the most appropriate technique for staff and the support areas of the firm
because inputs of such areas are not been directly relates to final outputs of an entity.
 Zero-based budget is considered as an alternative way in performing similar job as under
this budget is prepared from the base or starting. Thus this facilitates an opportunity to
the management in getting critical appraisal within their business activities.
 It emphasize on the process of management in assessing and making decisions as it needs
a managers in reviewing their activities all the time when the budget is been developed.
 This tool helps management in attaining optimum allocation of the scarce resources as it
comprises of the unique aspect that is evaluation of the both proposed and the current
expenditure and in placing it in the priority order (Tacuba Santos and Chavez Maza,
2018). Such funds are been used on the priority basis and it results in better resource
allocation.
 Through this method, communication within an entity is been improved and the
communication channel are been strengthened.
 It involves increased participation of the employees and creates a motivation
environment among workers within the firm.
 ZBB is reflected as very much useful for the service departments and the government
agencies.
8

 It makes the managers more and more cost conscious and enables in determining the
priorities in interest of an entire organization.
Unlike traditional approach, ZBB do not look at those budgets that are been framed in the
past periods. Traditional budget intends to seek prior budget and make adjustments on the basis
of the information present in those budgets.
ZBB is stated as the time consuming technique but provides an updated view of the
estimates which helps the company in making appropriate forecasting. However, traditional
budgeting does not provide for a current and future estimates of the expenses and income that
will be generated in the future periods.
Zero based budgeting assist the managers in determining the irrelevant or necessaries
spending that are incurred in the allocation of the activities (Dynowska, and Cereola, 2018). It
provides an appropriate measure for keeping control over the cost and achieving cost
effectiveness within the processes. On the other side, traditional budgeting only provides a
review towards past expenditure and made assumptions on the basis of the previous allocations.
c. Ways in which an entity can apply zero based budgeting technique in a practical sense
ZBB is been thought of as the approach that facilitates a particular process in evaluating
the programs of the company (Zero based budget, 2018). It allows for the budget reductions and
permits for re-allocation of the resources ranging from low to the high priority procedures and
the programs. It is considered as the cost benefits analysis tool that helps in decision making
within an enterprise.
For instance- A company that operates in constructing equipments executes a process of
zero-based budget for the making detailed analysis of the departmental expenses. The firm
noticed that cost of the certain parts that were used in their final products are been outsourced to
the other manufacturer which had increased by 5% in terms of value every year. An entity was
having the capability in making such parts in house by using their own workers. After weighing
of the negative and the positive in-house manufacturing, company has found that it could make
parts more cheap than the suppliers present outside.
CONCLUSION
By summing up the above report it has been identified that cash budget plays a crucial
role in the company for establishing amount of the credit that it could be extended to the
customers without determining the problems attached with the liquidity. It helps in avoiding the
9

shortage of cash in the periods within which an entity encounters large number of the expenses.
Moreover, ZBB drives the managers in finding the cost effective methods in making the
improvements in the activities. This approach helps in detecting the inflated budgets and is seen
as useful for the service departments as criteria are not counted as easy in identifying. This tool
helps in re-evaluating and re-examining all the expenses and the income with adequate
justification of all types of the expenses within the business.
10

REFERENCES
Books and Journals
DeFranco, A. L. and Schmidgall, R. S., 2017. Cash Budgets, Controls, and Management in
Clubs. The Journal of Hospitality Financial Management. 25(2). pp.112-122.
Dynowska, J. and Cereola, S. J., 2018. Expectations Related to the Implementation of
Performance Budget in Municipalities. Olsztyn Economic Journal. 13(4). pp.475-486.
Hernandez, L., Jonker, N. and Kosse, A., 2017. Cash versus debit card: the role of budget
control. Journal of Consumer Affairs. 51(1). pp.91-112.
Khetan, A. and Oh, S., 2016. Achieving budget-optimality with adaptive schemes in
crowdsourcing. In Advances in Neural Information Processing Systems(pp. 4844-4852).
Mariana, Z., 2018. THE CASH BUDGET–A SHORT-TERM FORECAST TOOL FOR THE
FINANCIAL STATEMENTS OF ECONOMIC ENTITIES. Ecoforum Journal. 7(2).
Rendón, M. E. M., 2018. The Budget Base Zero as a principle to determine the expenditure
public. Revista Latinoamericana de Investigación Social. 1(1). pp.23-39.
Tacuba Santos, A. and Chavez Maza, L. A., 2018. Contributions of the Zero-Based Budget to
the Business and Financial Efficiency of Petroleos Mexicanos. REVISTA DEL CLAD
REFORMA Y DEMOCRACIA. (72). pp.165-196.
Online
Process of zero based budget. 2017. [Online]. Available
through:<https://www.patriotsoftware.com/accounting/training/blog/what-is-zero-based-
budgeting-example-process/>
Zero based budget. 2018. [Online]. Available
through:<https://www.investopedia.com/terms/z/zbb.asp>
11