Finance in Hospitality Sector: Belgravia Hotel Report

This report delves into financial management within the UK hospitality sector, using Belgravia Hotel as a case study. It explores various funding sources, including internal (owner's equity, operating activities, and sale of assets) and external (shareholder's equity, bank loans, and governmental grants) options. The report evaluates income generation methods, emphasizing attractive offers and promotional strategies. It discusses cost elements, including material, labor, and overheads, and explains how to set selling prices. Furthermore, it examines stock and cash control methods, such as Just in Time (JIT) and Economic Order Quantity (EOQ) for stock, and balancing and securing cash. The report presents a trial balance and analyzes business accounts. It covers budgetary control, including variance assessment and recommendations for improvement. Finally, it calculates financial ratios, recommends management strategies, categorizes costs, analyzes per-product contributions, and justifies the importance of break-even analysis for short-term decision-making.

FINANCE IN
HOSPITALITY
SECTOR

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1. Reviewing the sources of funding and their benefits in generating income for business......3
P1.2 Evaluate contribution made by methods of income generation...........................................5
TASK 2............................................................................................................................................6
P2.1 Discuss elements of cost and profit and setting selling prices.............................................6
P2.2 Evaluate methods of controlling stock and cash and discussing cost and benefit of two
methods........................................................................................................................................6
TASK 3............................................................................................................................................7
P3.1 3.2 Trial balance and assess the source and evaluate business accounts.............................7
P3.3 3.4 Purpose and process of budgetary control in organization and assess budgetary
variances to recommend for improvement in the future..............................................................9
TASK 4..........................................................................................................................................11
P4.1 Calculation of financial ratios............................................................................................11
P4.2 Recommendation of appropriate management strategies to improve in the future...........12
TASK 5..........................................................................................................................................12
P 5.1 Categorize costs as variable, fixed and semi-variable......................................................12
P 5.2 Calculation of per product contributions and relationship between cost, profit and
volume........................................................................................................................................13
P 5.3 Justify importance of Break-Even analysis for short-term decision making....................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Balancing financial environment in business is main priority of the accounting
professionals. Therefore, the needs of funds in each business operations will be determined and
analyzed by business professionals to analyze the revenue and the costs implicated in such
activities. In present report, there will be discussion based on financial management in
hospitality sector of UK on which Belgravia Hotel has been considered as having appropriate
study and analysis over the facts. This report ascertains the requirements of funds in hospitality
industry as to have satisfactory growth in revenue as well as management of accounts will rise
their market value. Similarly, there has been discussion based on various sources of funds which
in turn will be useful to make appropriate changes in the operations.
TASK 1
P1. Reviewing the sources of funding and their benefits in generating income for business
To ascertain financial needs of business, there has been availability of various sources of
funding which will be through the internal sources or with the external sources which will be
assistive and helpful to the entity to have the required amount of capital funds for the operations.
Moreover, here are various sources which will be helpful to meet the capital requirement of
Belgravia Hotel. Moreover, there are various internal external sources which will be evaluated as
follows:
Internal sources of funding:
Owner’s Equity: This is the most convenient and satisfactory source of funding as there
will not be required to make the return in the generated capital as well as it will not need the time
to have returns (Kallmuenzer and Peters, 2018). The owners or partners of the firm will bring
their personal savings in the operations of the business which will be effective and primary
source of gathering the amount of funds in each activity. Therefore, there is need to have
appropriate balance of amount which will be use in each business activities of a hospitality
industry. Belgravia Hotel will have satisfactory growth in the capital structure if directors or
owner of this firm will bring their savings in operational practices.
Operating activities: By contrasting with these techniques it comprises with making the
operational efforts such as manufacturing goods and services and deal with them in market. Sales

revenue and the gains after deducting all the costs or operations will be helpful to use for the next
tasks or for development of business. In hospitality industry, to make the most appropriate deals
in market, they have to make sale of their services among consumers. Moreover, the revenue
generated through serving consumers will be very helpful and beneficial to have satisfactory
amount of profits.
Sale of assets: The unused and the unequipped assets needed to be sold out the firm as to
have the satisfactory gains through this. Moreover, if a firm seeks for the shortage of funds in the
operations that they can sell out assets like machinery, land, building, equipment, etc. Belgravia
Hotel will have efficient amount of earnings if they will make sale of such assets (Kasemsap and
et.al, 2018).
Externals sources:
These are the roots which are other than internal sources of gathering the capital funds for
the operations. It will be helpful to the firm in relation with gathering the amount of capital
which they desired. Moreover, they have to make payment of interest in return to the particular
amount. Similarly, there will be time limit for the amounts obtained by the firm in order to meet
the funds requirements. Thus, the external sources of funds can be analyzed as:
Shareholder’s equity: These are the sources of fund which help the business in selling
the equity ownership of business in the market. These are the marketable gains which have been
collected through selling shares and securities among investors. In this regard, the investors
mainly seek for details relevant with financial health of firm. Moreover, it will be suggested to
the Belgravia hotel that they must make periodical disclosure of the firm’s financial database
which will be attractive to investors to show their interest in investing in entity. It will be a
suitable technique to raise the capital funds of the business. In addition, shareholders mainly seek
for having appropriate returns over their invested money in the business. Thus, the appropriate
dividend policies will be attractive and satisfactory to the investors in terms of making trust over
the business as well as for analyzing the requirements of firm (Claveria, Monte and Torra, 2015).
Bank loan: These are the borrowings which a firm can have through banks and financial
institutions in against the property or assets of entity. Therefore, Belgravia Hotel will have
satisfactory amount of loans from the banks on which they have to make payment of interest
amount and the time period of loan will decide the terms of loans. The short and long term loan
will be helpful as to meet the financial requirements on right time. In addition, it will be a

satisfactory source as the professionals will have effective amount of borrowings that they desire.
Thus, which in return helps them in improving the operational quality as well as bounds them in
meeting the targets.
Governmental grants: There are various governmental agencies which approach towards
helping the business in its survival. Moreover, there will be improvements in the revenue and the
grants of the business to have risen in the income level as well as in operational activities. These
are funds which will be helpful to Belgravia Hotel in terms of operating the business activities as
it does not require any interest amount to be paid in return of such grants. These are the amount
which are tax free, so the professionals need not to make payment of corporate tax in relation
with such grants.
P1.2 Evaluate contribution made by methods of income generation
The sources of income will be helpful for Belgravia hotels to effectively accomplish
business activities in the best possible manner (Avilova, Ermakov and Gozalova, 2014). This is
required for so that extra income may be produced in a better way. The hotel provides good
quality food and high end rooms in effective manner enhancing level of customer satisfaction
quite effectually. The main method is to provide attractive offers to the consumers in the best
possible way and furthermore, discounts should be provided as well by which they will be
attracted to the hotel and sales will be maximized leading to enhance income. Moreover, mailing
discounts related offers to customers in effective way. Thus, customers will be provided with
fresh offers and thus, technology has imparted new way of doing business.
Moreover, to organize contests is useful technique to maximize sales by implementing
such promotional tool in effective manner. Relationship with potential customers will be
attracted to hotel and as a result, firm will be able to garner income by organizing contests quite
effectually (Lado-Sestayo and et.al, 2016). Moreover, social media is another useful strategy
helpful for organization to accomplish promotion by disclosing attractive discounts on the social
networking sites to grab customer attention in effective way. Hence, these methods are helpful
for firm to generate income with much ease.

TASK 2
P2.1 Discuss elements of cost and profit and setting selling prices
The business incurs various costs such as material, labor and overheads which are
required to be incurred by Belgravia hotel in order to set selling price of products in effective
way. These costs are required to quote prices with much ease. Material cost is the main part of
food items like ingredients applied in flour for preparing bread is termed as material cost. On the
other hand, labor costs such as wages, salaries and overtime payments etc. depreciation is
indirect expenditure and overheads are administrative, marketing and cost of maintenance etc.
Thus, by adding all these, total costs are ascertained with much ease. It is then used in setting
selling prices in effective way (Liu and Pennington-Gray, 2015).
Fixed and variable expenditures are taken into account as well. Fixed ones are required to
be incurred irrespective of sales are achieved in desired manner. In simpler words, it is needed
that company should incur the same irrespective of profits earned by it. While, variables
expenses are incurred in relation to the level of production which means that expenses can be
lowered down if production volume is low. For instance, purchase price = 80, Kitchen
percentage = 160, then gross profit = 160 – 80 = 80. It can be converted in percentage form
Gross profit * 100 / Kitchen percentage. Thus, applying formula, = 80 * 100 / 160 = 50. Hence,
by adding gross profit of 50 with cost of 80, selling price = 50 + 80 = 130.
P2.2 Evaluate methods of controlling stock and cash and discussing cost and benefit of two
methods
Methods of controlling stock are as follows-
1. Just in time (JIT) approach-
This approach is quite useful in carrying out stock in that way by which no wastage may
occur in the Belgravia hotels. The stock is required to be analyzed in effective manner so that no
wastage or spoilage may be present and as such, products may be provided to customers.
2. Economic Order Quantity (EOQ) -

EOQ is useful model which is used so that inventory can be purchased in optimum
manner. There are two types of costs such as holding and ordering costs are taken into account
by which perfect balance is obtained and quantum of desired stock is purchased. This is
essentially required so that no less quantity or more than required quantity is ordered by hotel.
Thus, it is a standard formula helping business to order cost-effective stock and as a result,
spoilage is not found.
Methods of controlling cash are listed below-
1. To balance-
Balancing cash on daily basis helps to control cash in the best possible manner. When
cash is received, it should be entered in accounting books and same treatment should be made in
relation to withdrawal of cash (Stock control and inventory, 2017). Hence, balancing of each and
every transactions will effectively used to initiate control upon cash.
2. To secure cash-
Securing cash through installing security related cameras should be implemented at cash
counter. This will reduce theft and cash would be controlled in the best possible way.
Furthermore, employee should be assigned such job for ensuring security.
3. Reconciliation
Bank passbook and accounting records of Belgravia hotels should be reviewed constantly
so that no discrepancies may be present.
TASK 3
P3.1 3.2 Trial balance and assess the source and evaluate business accounts
Trial balance of Belgravia Hotels
Particulars Debit Credit
Capital in the business 104
Distribution expenses

Administration expenditures
Bank balance 50
Cash in hand 4
Borrowings from bank 50
Furniture & Fixture 150
Accumulated depreciation provided on
Furniture & Fixture 45
Receivables 10
Trade Payable 15
Total 214 214
Trial balance is extracted for Belgravia Hotels which is effective method for carrying out
any type of mathematical inaccuracy found in journal or preparation of general ledger accounts
in effectual manner (Shkurkin and et.al, 2016). Thus, with the help of trial balance, mathematical
and arithmetical accuracy can be analyzed with much ease. The source and structure can be
evaluated below-
 Non-current assets are Furniture & Fixture and Accumulated depreciation provided on.\
 Current assets are Bank, Receivables and Cash in hand
 Current liabilities are Trade Payable and Capital in the business
 Non-current liabilities is Borrowings from bank
Balance sheet is prepared for the business below-
Balance sheet as at 31 December
2017 Amount
Assets
Current assets

Bank deposit 19000
Cash and Cash equivalents 20000
Trade 34000
Total current assets (CA) 73000
Furniture and Fixture 18800
Building 294500
Fleet of cars 35880
Tax 5000
Total assets 427180
Liabilities and stakeholders' equity
Liabilities
Current liabilities (CL)
Trade Payable 8300
Outstanding wages 35000
Interest payable 4500
Total liabilities 47800
Shareholders' equity
Capital 331580
Total liabilities and stakeholders'
equity 427180

P3.3 3.4 Purpose and process of budgetary control in organization and assess budgetary
variances to recommend for improvement in the future
The main purpose of budgetary control is to analyze planned and actual output and
finding out deviations if any for improvement. Thus, costs are assessed in a better way. The
process of budgetary control is listed below-
 Budget Committee- Decisions are made regarding the requirement of budget for various
departments of hotel and Budget committee is formed.
 Budget centers- The allocation of costs to different department is made in accordance to
their needs. The budget center is a unit and controls costs in effective manner and hence,
funds are allocated to respective departments.
 Budget manual- It clarifies roles and responsibilities of the personnels concern with
budget. Furthermore, it is used to establish relationship between personnels in the process
of budget (Singal, 2014).
 Budget Officer- He is appointed by Chief Executive Officer (CEO) for effectively
scrutinizing budget prepared by executives and thus, modifications if any is made by
officer. Moreover, variances are assessed and action is taken for improvement.
 Period- The budget is prepared for the specific time frame as per operational needs of
firm. This period is dependent on varied elements usually different in relation to
industries.
 Key factor- The budgetary control process is taken and accomplished by hotel and budget
is prepared in effective way. The key factor need to be identified which may impact firm
and as such, key factors need to be analyzed so that it may not hamper performance.
Analyzing budget variances
Particulars Budgeted Actual
Guests in hotel 20000 15000
£0.00 £0.00
Sales 2000 1700

Cost of Sales 1500 1390
Gross profit (GP) 500 310
Administrative expenses 200 210
Selling and distribution expenditures 150 90
Variances can be effectively computed from the above variance table-
Sales variance = Actual sales – Budgeted sales
= 1700 – 2000
= -300
Cost of Sales = Actual sales – Budgeted sales
= 1390 - 1500
= -110
Gross profit (GP) = Actual – Budgeted
= 310 - 500
= -190
Administrative expenses = Actual expenses – Budgeted expenses
= 210 – 200
= 10
Selling and distribution expenditures = Budgeted expenditures – Actual expenditures
= 150 - 90
= 60
It can be interpreted that sales of firm is unfavorable as it is not as per the budgeted figure
and as such, business need to enhance sales by implementing well-mannered strategies (Zervas,
Proserpio and Byers, 2014). Furthermore, costs are also more than that of actual expenditures.

Thus, it is recommended to improve sales by reducing overall unnecessary expenses or costs that
are deteriorating profit of firm.
TASK 4
P4.1 Calculation of financial ratios
Particulars Formula 2017
Gross profit (GP) margin Gross profit / revenue * 100 73.08%
Operating profit margin Operating profit / revenue * 100 50.00%
Current ratio
Current assets / Current
Liabilities 7.6 : 1
Receivables collection period
Receivables at the end / Cost of
Sales / Number of days 21.06 days
Payable payment period
Payable at the end / Cost of
sales / Number of days 10.53 days
Debt to Equity ratio
Firm's debt / Stockholders'
Equity 0.25%
P4.2 Recommendation of appropriate management strategies to improve in the future
It can be assessed from financial ratios that debt equity ratio is less as it is 0.25 % which
means that firm is less reliant on debt. Ideal ratio is at least 0.40 % which implies that 40 % of
capital should be financed with debt and remaining 60 % from equity. Hence, it needs to improve
upon the same. Moreover, current ratio is 7.6 : 1 which is more than ideal ratio of 2 : 1. This
shows that business needs to effectively use current assets. It is recommended to use social
media strategy to attract customers and enhance profitability.