Finance in Hospitality Report

This report delves into the significance of finance in the hospitality industry, outlining various sources of finance, budgeting processes, and financial analysis techniques. It covers the importance of financial management in enhancing service quality and meeting customer expectations. The report includes detailed tasks on identifying financial sources, evaluating income generation techniques, discussing cost elements, and analyzing financial statements. It concludes with strategies for improving business performance through effective financial practices.

FINANCE IN HOSPITALITY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................5
TASK 1............................................................................................................................................6
1.1 Identify different sources of finance.................................................................................6
1.2 Evaluate the contribution made by an entity using different techniques of generating
income for a large chain of restaurants.................................................................................10
TASK 2..........................................................................................................................................12
2.1 Discuss elements of cost, gross profit percentages and selling prices for products and
services.................................................................................................................................12
2.2 Evaluate methods of controlling stock and cash in a business.......................................14
TASK 3..........................................................................................................................................17
3.3 Process and purpose of budgetary control......................................................................17
3.4 Variance analysis of Yuri's budget.................................................................................18
TASK 4..........................................................................................................................................19
3.1 Source and structure of trial balance..............................................................................19
3.2 Profit and loss account and balance sheet of R. Riggs to discover mistakes in financial
recording...............................................................................................................................21
4.1 Ratio analysis for R. Riggs based on financial statements.............................................23
Interpretation:-.................................................................................................................24
4.2 Strategies to improve business's performance................................................................25
TASK 5..........................................................................................................................................26
5.1 Fixed, variable and semi-variable costs..........................................................................26
5.2 Break-even position and number of units to be sold to reach out set target...................26
5.3 Suggestion for appropriate selling units.........................................................................29
CONCLUSION..............................................................................................................................29
REFERENCES..............................................................................................................................30

INDEX OF TABLES
Table 1: Analysing sources of finance.............................................................................................8
Table 2: Sale price of a product.....................................................................................................12
Table 3: Variance analysis.............................................................................................................18
Table 4: Trail balance ...................................................................................................................19
Table 5: profit and loss account to analyse financial position of R. Riggs....................................20
Table 6: Balance sheet for R. Riggs...............................................................................................21

ILLUSTRATION INDEX
Illustration 1: Using formula for evaluating EOQ.........................................................................15
Illustration 2: Journal entry............................................................................................................19
Illustration 3: Ratio analysis to analyse financial performance of R. Riggs..................................23
Illustration 4: Ratio analysis to analyse financial performance of R. Riggs..................................23
Illustration 5: Ratio analysis to analyse financial performance of R. Riggs..................................23
Illustration 6: Ratio analysis to analyse financial performance of R. Riggs..................................23

INTRODUCTION
Increasing demands of external business environment will be easily meet by the services
offered by the Hospitality industry. This particular industry is also recognised as service industry
that satisfy variety of needs and expectations of various users located in the external business
environment. Role of finance has explained in the given project report as this resource is the
basic need of an individual. Financial resources are used in n entity in order to uplift the current
business condition as the desired motive of an entity is to take care about the current need after
analysing its future expectations. This report focuses on the significance of finance as a resource
as the usage of finance is regarded as the best suitable for an entity as the hospitality sector's
major aim is to cater the needs of all the customers by enhancing the overall quality of services
offered to them. Accounting of business is done in an entity in order to manage all the business
transactions by proper recording of al the transactions in an entity that helps in determining the
current financial performance of an entity as the expenditures are analysed in order to eradicate
from its roots. Expenditures level in the business can be minimised by compensating them with
he overall income generated by an entity in order to create additional value for an entity in the
external business environment. Stakeholders arse satisfied by providing appropriate information
about the business as creating loyal customer is the common aim of an entity that needs to be
fulfilled by an enterprise. This report focuses on different financial principles in order to
determine the ability of an entity in order to reduce their obligation by increasing its overall skills
and the capabilities over a certain period. Current report has segmented into various parts out of
which one is related to the selection of various sources of finance in order to start an entity as the
sources of finance gets changed with the service industry. In the present report various scenarios
has given that targets different aspects to be considered by n entity as the desired aim of the
business owner lies on analysing the costs associated with each and every procedures as costs are
analysed in order to minimise the overall cost burden lies on an entity. Financial performance of
an entity will be ascertained by using ratio analysis as the important approach that focuses on the
profitability, liquidity and efficiency of an entity as different variety of ratios are determined.

TASK 1
1.1 Identify different sources of finance
An entity owner deals in a service industry are required to select different sources of
finance in order to fulfil all the current business needs by using variety of sources of finance in
order to enhance the quality of service provided by an entity to its users. Decision of business
expansion taken by an entity owner based on various financial resources used in an entity.
However, fund can be allocated through different sources for effective business operations. In
this regard, internal and external sources of allocating finance understand as:
Internal sources: These are those sources which are available internally as in hand of
organization. For example; retained earning, personal savings etc. It can be described as follows:
 Retained earnings-This is commonly used by existing business user which are operating
their business currently in a similar industry. Retained profit is generated when dividend
paid by an individual and al other expenses excluded from the current profit produces by
an enterprise owner. This source of finance choose by an entity are regarded as the
personal property of owner in which entity owner invests its own money in order to
generate higher sales and the revenue. Personal savings: Business owner can allocate fund by using his personal savings also
take financial aid from friends and family. Therefore, adequate fund can be allocated
efficiently for further business operations and improving its quality services effectively.
External source: Adequate and required fund can be allocated through external sources as
taking advantage of loan from bank, borrowing money from other business entities, venture
capitalist etc. In this regard, some of the essential funding external sources can be expressed as;
 Bank loan- It is regarded as the basic source of external finance in which business owner
will borrow fund from the bank or financial institution according to their current needs
and expectations. An entity owner will use this source of fund as in this approach they
can take any amount of loan as there is no specific limit imposed on them (Gadenne,
2017). The nature of business condition or new start type will ascertain the amount of
loan taken by an individual. Collateral security need to be given by a user to borrow
money along with specific interest charged on the total amount of loan borrowed which
will be repay in a specific time period.

 Equity- Internal source of finance in which candidates are attracted towards the current
business in order to take up the shares of an entity and in return provide money to the
business. Funds received from the shareholder are used in a business in order to
accomplish desired aims d targets of an entity (Chang, Fernández and Gulan, 2017).
Shareholders are provided with specific share in a firm as they get voting rights in order
to participate in the business proceedings as they become owner of a business concern.
 Debentures- It is a written document that includes the amount of debt taken by a firm
from a lender on a specific coupon interest rate that will be paid in a given time mutually
decided by both lender and the borrower. Lender provides money to an entity in return
get debenture as a legal evidence to get their money back without any kind of default
along wit specific rate of coupon interest paid to the debenture holder for providing
money to a business. Debentures are shown as debt in the books of account of the
business concern as this needs to be repay by them in instalments decided by both the
parties.
 Venture capital-An entrepreneur prefer this mode of finance in which business expert in
a particular industry will provide finance to an individual in order to fulfil all their
dreams by setting up their business. A person who provide finance to an entrepreneur
will take interest in the firm of an entrepreneur as they provide business expertise along
with the finance in order to set up their business in the best possible manner.
 Micro finance loan- An individual will take loan from small financial institution
according to their requirement as an entity owner will take money from this institution in
less interest rates as this institution are come into existence in order to help a new
entrepreneur (Gadenne, 2017). Employer who intend to open its business requires finance
from different sources in order to enhance the overall condition of an entity as their
desired aim is to capture higher market share.
 Community help- Hospitality association are come into existence that will help an entire
who intends to open its new business, renovating its current unit or expanding their
existing business segments can take help from this institution. Role of this institution is to
provide financial as well as non-financial help required by a person in setting up their
business in order to achieve al te desired aims and targets set by the industry. These

communities will help a firm by proving guidance through all the industry who are the
member of this association as the primary motive of this club is to enhance the existing
talent of a person by increasing creativity or innovation in an individual.
 Government- Legal authority will support the fresh talents of an individual as their
common motive is to improve the overall economy by generating higher sales and the
revenue in their economy (Deakins and North, 2016). The government will launch
various schemes and programs in order to improve the existing performance of its
economy by focuses on promoting desired needs of all the entrepreneur. Incubation
centres are specifically launched in order to promote the desired aims and targets framed
by an entity. Talent of a person will be recognised by an entity as their focus is on
increasing their current skills and the capabilities in a person that can be used in the
favour of a country.
Table 1: Analysing sources of finance
Sources of finance Cost associated Suitability
Bank loan Interests It is not suitable for higher
investment of the business as in
current case investment is of
£450000 that means a user are
required to pay £450000*10%
= £45000 yearly interest for 5
years.
Total costs= £450000+
(£45000*5)
= £450000+£225000
= £675000
Retained earnings No cost It is not suitable for new
business owner as this source
of finance is available for

existing business user.
Equity Dividend Fund received from the
shareholder will remain in the
business till the wound up of
business but dividend and
voting rights will be provided
to them.
Debenture Interest Debenture holders are required
to be paid their interest even
when an entity suffered loss
which is not affordable by an
entity.
Micro finance loan Lower interest Small quantity finance will be
used by a business as money
cannot be used in large
quantity as they provide help in
order to support small scale
business.
Venture capital Management interest
Repayment of capital
Fresh talent of an entrepreneur
will be embraced by the
existing experts of the industry
which will enrich the current
skills of an entrepreneur.
Community help Repayment of capital Communities help an
individual on certain conditions
that needs to be fulfilled by a
person as without this they will
not grant help to them in

setting up their existing
business.
Government Subsidies
Grant
An individual is required to
fulfil all the conditions of
government in order to get
grant.
After, analysing various options on two important parameters that is costs associated ad
analysing its suitability (Zare, 2016). Equity would be chosen as an important source of finance
in order to set up their business in the hospitality sector as the desired aim of the business will
get achieved by opting this particular approach. It is suitable for an entity as it is beneficial for an
entity in order to build their business own their own. An individual will make their capital
investment of £450000 as this is suitable source of finance for an individual as fewer dividends
will be provided by an entity to all the users as they are getting higher benefit in exchange of
costs applied by them in their business.
1.2 Evaluate the contribution made by an entity using different techniques of generating income
for a large chain of restaurants
Various ways that can be used by an individual in order to generate higher sales and the
revenue by operating their business activities by satisfying the needs and higher expectations of
all the external market users (Erkan, 2016). Focus of an entity lies on its present resources as
their existing skills and the capabilities are used in order to generate higher revenue in their
business. Large restaurant chains apply several techniques in creating market awareness about its
products or services among ll the external market users by capturing their attention towards the
business. Generating increasing sales: it influences profitability of organization as well different
strategies are applied for enhancing selling of goods as well cost control efficiently. In
addition to this, it is related with marketing and profit earning capabilities of entity for
further business operations and competitive advantages. Sale of unused assets: It is essential for optimum utilization of resources and generating
ideas for increasing productivity of entity. In accordance to this, several techniques are

used for product promotion and using desired assets for systematic production and
distribution of goods.
 Organizing events: It is one of the great source for advertising products and encouraging
customers for purchasing goods and services provided by entity on large scale. It affects
increasing in demand for goods and profitability effectively.
 Subletting- It is one of the important ways in which an individual can earn higher
revenues by utilising their idle spaces of their restaurant to another person. This step can
be taken as best from the point of cost benefit as they get benefit in reduction of its rent
for a premise when they divide their rent costs by subletting. Letting of the sub part of the
restaurant to club, bartenders will in turn increases the existing sales and the revenue as it
attracts wide number of customers towards their restaurant as it increases the overall
value of the business in front of the customers.
 Promotions- Market awareness will be increases when an individual emphasises on
providing discounts or offers to all its customers will increase the customer's count in a
month as more consumers (Pickering and Mitchell, 2017). First visit vouchers are
provided y an enterprise as their major role is to increase the overall rush towards their
business as price sensitive customers will not visit easily as the attractive look of
restaurant assumed by the price sensitive customer as expensive restaurant. Menu of this
restaurant will be updated monthly with the revision in all the prices as in this way an
entity will be able to grab the attention of most of the users located in the external
business environment.
 Voluntary personnel- Basic costs involved in a business is of employee cost as in a
service industry employees reflects the actual conditions of their business. Customer;s
needs and expectations are fulfilled by all the employees working for the betterment of an
entity. Employees recruited in restaurant from hospitality colleges as in this way all the
hospitality students will get experience while working in restaurant and restaurant will
also save the cost of employees as in its way cost of salary will get reduces. The
reduction in the salary costs will be beneficial for an entity in order to increase its overall
sales and the revenue within a given spa of time.

TASK 2
2.1 Discuss elements of cost, gross profit percentages and selling prices for products and services
Designing of a product requires consideration of each and every elements used by an
entity in order to improve the overall conditions of the business. Cost elements need to be
analysed properly as determination of costs is essential for an entity as in this manner costs are
identified in order design the prices of variety of products or services. Good price of product is
important as this will steal the attention of most of the buyers located in the external business
environment.
Fixed costs is that costs which is unaffected of the sales units produced in an entity as
fixed costs need to be identified by an enterprise owner (Kavussanos and et.al., 2016). Categories
of fixed costs are also required to be analysed by an entity as element of fixed cost and other
variety of costs will be mentioned specifically in a product's price. Variable cost is another kind
of costs incurred in an entity which is fluctuating in nature that changes according the increase or
decrease in the existing sales units of an entity. Contribution in a specific product will be easily
traced out by a business manager by including fixed as well as variable costs in a product along
with a specific product or services offered by an entity.
Table 2: Sale price of a product
Particular Product A Product B
Sales £100000 £80000
Variable costs £50000 £35000
Contribution £50000 £45000
Fixed costs £12000 £15000
Profit £38000 £30000
Profit percentage £38000/£100000*100
=38%
£30000/£80000*100
=37.5%
Sale price (50000+12000+38000)/1000 (35000+15000+30000)/1000