FINANCE IN THE HOSPITALITY INDUSTRY TABLE OF CONTENTS INTROUCTION 1 TASK 11 1.1 Sources of finance in the hobbyitality industry
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FINANCE IN THE HOSPITALITY INDUSTRY TABLE OF CONTENTS INTRODUCTION 1 TASK 11 1.1 Sources of finance to raise fund in business1 1.2 Various methods of generating income 2 TASK 23 2.1 Different components of cost, gross profit and asset prices3 2.2 Ways by which stock and cash can be control in business5 TASK 37 3.3 Discussing the purpose and process of budgeting control7 3.4 Analysis of variances 8 TASK 49 3.1 Assessing the source and structure of trial balance 9 3.2 Evaluating business
FINANCE IN THE HOSPITALITY INDUSTRY TABLE OF CONTENTS INTROUCTION 1 TASK 11 1.1 Sources of finance in the hobbyitality industry
Added on 2020-02-03
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FINANCE IN THEHOSPITALITYINDUSTRY
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1TASK 1............................................................................................................................................11.1 Sources of finance to raise fund in business.....................................................................11.2 Various methods of generating income............................................................................2TASK 2............................................................................................................................................32.1 Different components of cost, gross profit and selling prices..........................................32.2 Ways by which stock and cash can be control in business...............................................5TASK 3............................................................................................................................................73.3 Discussing the purpose and process of budgeting control ...............................................73.4 Analysis of variances .......................................................................................................8TASK 4 ...........................................................................................................................................93.1 Assessing the source and structure of trial balance .........................................................93.2 Evaluating business accounts, adjustments and notes ...................................................104.1 Calculating and analysing ratios ....................................................................................12Recommending appropriate future management strategies ................................................15TASK 5.........................................................................................................................................165.1 Distinguishing cost as fixed, variable and semi-variable ..............................................165.2 Calculating contribution per customer and Explaining CVP relationship.....................175.3 Justifying short-term management decisions................................................................19CONCLUSION..............................................................................................................................19REFERENCES..............................................................................................................................20
INTRODUCTIONIn the present times, hospitality sector of UK is growing with the very high pace in line with thetravel and tourism sector. Now, customers prefer to stay in the hotel which offers high qualityand luxurious accommodation services to the customers. Further, in the competitive businessarena business unit can survive more effectually only when it offers high-quality services. Alongwith this, effectual management of financial resources is also highly required in the hospitalitysector to build and sustain a competitive edge over others. Hence, the company is required toundertake several tools and techniques which aid in the profit margin of the firm. The presentreport is based on different case situations which will describe the sources that business units ofservice sector can use to meet the financial requirements. Further, it will also shed light on themethods which ensure effective management of cash and inventory within the firm. Besides this,the report will also develop an understanding of the concepts of variance and ratio analysis aswell as break-even point which in turn helps in making suitable business decisions. TASK 11.1 Sources of finance to raise fund in businessEach and every organisation whether it is operating in manufacture or services industry wants toexpand the business. For this, capital is required which will be generated by the business entityfrom various sources. As per the present scenario to raise fund worth £50,000 foe sole tradercompany, different sources are available (Jones and et.al., 2016). The sources are internal as wellas external which are stated below:Internal sources of finance: The firm raise fund from the business inside which are known asinternal sources. Various sources for increase financed from internally are such as follows:Retained profits: As per the source profit which remains after paying dividend amount aswell as interest is identified as retained earnings. The remaining profit is to be reused inthe business for increase capital and expand the firm.Sale of assets: Another internal source is the sale of assets where the management sellthose assets which are not used and unable to generate revenue. After selling the assetwhichever fund comes from a market that will be used to increase finance in the business.1
Personal savings: Here the owner uses its savings which are done in its personal life.There is not any cost bear by the management to raise fund by this source (Liu andPennington-Gray, 2015).External sources of finance: Further, there are various ways which are used to raise fund fromthe external market are known as external sources which are given as below:Equity: Most widely used external source is equity financing in which the firm issueequity shares in the market with the help of stock market. The shares are purchased byshareholders and the amount used in the firm for business expansion, for that it has togive dividend amount to shareholders.Bank loan: Further, as per the source the firm take a loan from various commercial banksand use in the business. For this, it has to pay interest amount as a cost of finance.Venture capital: It is one type of external sources which allows manufacture and servicesindustry businesses to provide finance (Slåtten and Mehmetoglu, 2015). It imposescharges on the firm regarding stake of the overall organisation.Leasing: As per the sources the business gives some part of the asset on lease to anotherparty and then raise the finance to expansion of the company.Financial institutions: There are various institutions which provide finance to the firmfor business expansion. Several financial institutions are such as commercial banks, non-commercial banks, traditional financial agencies, merchant banks, etc.1.2 Various methods of generating incomeThere are various ways by which a restaurant can increase revenue and decrease costs,which are stated below:Provide differentiate products and services: When the restaurant make and offerproducts as well services different from the rivalry firms then number of customers willbe attracted (30 Ways Hotels Can Increase Revenues, Decrease Costs and BoostBooking, 2013). This leads to generating and increase sales as well as the profitability ofthe restaurant.Offer skims, and discounts: Apart from above ways the restaurant should allow toconsumers after providing various schemes as well as discounting offers. These types of2
services will help to firm to attract a number of customers which lead to earn higher salesand revenue (Torres, Singh and Robertson-Ring, 2015).Promotional activities: These types of activities and strategies increase awareness amongthe people by which they attract to consumers its food items and services. It leads toincrease sales as well as profitability of the restaurant.Commissions: As per this source the restaurant can generate income by contracting withtravel and tourism companies. In this the restaurant provide consumers to the tourcompany for staying and takes commission from respective tour firm. By this it is able togenerate income for the restaurant.Sub letting: By providing very small part of the restaurant to stall such as cuisine,Chinese etc. it can generate income. Provide small part is known as sub letting of thecompany which helps to increase income as well as profitability of the restaurant.TASK 22.1 Different components of cost, gross profit and selling pricesThe cost of production, prices of products and services as well as profit, these all are verysensitive and important factor of the organisation. Every firm has the aim to maximise profit andfinancial health as well in the industry. In the present case, there is a firm Marks & Spencer isoffering its goods and services worldwide. There are several elements of cost, gross profit aswell prices are given as below:Cost: It is a sensitive component of the business, and every company needs to manageand reduce the cost of production which lead to enhance profitability. There are variouscomponents of the cost are such as follows:Direct costs: Those costs which are directly incurred in the production process areknown as direct costs. In the direct costs basically two categories included in the Marks andSpencer while selling retail goods and services. Further, the two types are like as related to thelabour as well as material which are explained below:Material costs: Material cost is an important component of the firm due to raw materialis very necessary for producing goods and services (Dogru and Sirakaya-Turk, 2016).The cost is included in total cost of production which leads to decide the price of3
products. With reference to the Marks and Spencer company: the material costs are suchas: purchasing goods and services for further selling, buying required materials, cost ofinventory, cost of products sold etc.Labour cost: To produce or to convert raw material into finished goods there ismanpower is required and a firm has to pay a cost to them. The cost is known as a labourcost of products.For example: wages to staff of retail shop, online service providerlabours etc. Further, generally four categories of the labour costs are incurred in theMarks and Spencer company which are: Variable labour, Fixed, Direct as well as theIndirect labour expenses. Indirect costs: In the production process expenses which are not directly consists,identified as an indirect cost. Numerous indirect costs are given as below:Packaging expenses: The M&S sell goods after packing to them, without packing it notsale into the market. Hence, another element is expenses which are incurred in the packthe finished goods. For example: packing a particular food item such as to pack chocolatewrapper is required which is a cost for the firm.Selling and distribution cost: Further, to advertise, promoting and selling the goods inmarket cost is to be bear by the firm which is included in total cost. In order to sell theproducts business gives advertisement using different sources for example newspapers,social media, templates etc. In this firm has to give money to the social media, newspaperagencies etc. which is expense of selling and distribution.Overheads: As per the element there is various indirect cost are included in total cost.The indirect costs are such as indirect labour and material, utility expenses, interest,depreciation on assets, etc. (Mugassa, 2015).As per the overhead expenses, various costsincurred in the Marks and Spencer entity are such as rental expenditures of plant andproperty, electricity bills, accountants salary, human resource expenses, selling anddistribution, interest amount of debt, other administration costs etc.Gross profit: It is a type of profit of the firm where the cost of goods sold is deductedfrom total revenue of the organisation. Further, management keeps a record of the financial4
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