Comprehensive Financial Analysis and Management for TVG Restaurant

This report provides a comprehensive financial analysis for the TVG restaurant, covering various aspects of financial management within the hospitality industry. It begins by exploring eight main sources of funding available to businesses, particularly focusing on the context of starting a new restaurant. The report then examines the contribution of different income-generating methods, emphasizing sales, commissions, sponsorships, and grants. It delves into cost elements, gross profit percentages, and selling prices, offering insights into managing these aspects effectively. Additionally, the report addresses methods for controlling stocks and cash within a business and service environment, along with an analysis of the trial balance, business accounts, and budgetary control processes. It also includes an analysis of financial ratios, future management strategies, and a categorization of fixed, variable, and semi-variable costs. The report concludes with a discussion of contribution per product and short-term management decisions based on profit/loss potential, offering valuable insights into financial planning and management for the restaurant's success.

FINANCE IN
HOSPITALITY

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Main 8 sources of funding available to business and services industries.............................1
1.2 Contribution made by a range of methods of generating income in given scenario.............3
2.1 Elements of cost, gross profit percentage and selling price for products and services.........3
2.2 Methods of controlling stocks and cash in a business and services environment.................4
3.1 Source and structure of the trial balance...............................................................................6
3.2 Evaluate business accounts, adjustments and notes..............................................................7
3.3 Discuss the process and purpose of budgetary control.........................................................7
3.4 Analysation of variances from budgeted and actual figures and suggestions for appropriate
future management action...........................................................................................................9
TASK 2..........................................................................................................................................10
4.1 Analysation of ratios and consistent interpretation of historical business performance.....10
4.2 Future management strategies for TVG .............................................................................10
5.1 Categorisation of fixed, variable and semi-variable costs..................................................11
5.2 Contribution per product, and relation between cost, profit, volume relationship.............12
5.3 short term management decision based profit/loss potential and risk (Break even)...........12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Accounting and management are two aspects considered in business organisation.
Various type of statements and techniques are used in accounting and financial management.
This unit is prepared to understand the meaning of financial and management accounting
(Brotherton, 2012). How the financial and accounting records helps the managers to make
strategies and plans. Role of budgetary control process subject to decision making also illustrated
in this context. Concept of financial and accounting is classified in three parts in this context.
Use of various type of cost analysation, contribution analysation, analysis of variances are
defined as per practical based scenarios and situations. Recommendations and suggestions are
given subject to elaborating the role of financial management in better operations.
TASK 1
PART A
1.1 Main 8 sources of funding available to business and services industries
As Paul is going to start a new business as a small restaurant named as TVG. So there is a
need of understanding various sources of funds in order to operate venture smoothly and easily.
This has been examined that there are mainly eight sources of funding which are described
below: Friends and families: This is considered as first and foremost source of fund. As Paul is
establishing new restaurant, then he could ask for money from his personal relations
such as friends, family members or any other persons whom he trust (Jang and Park,
2011). Loans or lines of credit: If any firm is requiring only a little instilment of cash or needs
a temporary help for carrying out commercial activities then entrepreneur can attempt
for a small business administration loan. It is very beneficial in nature as providing a
low interest rate since it is being guaranteed by legal bodies or from a bank line of
credit. Incubators: The key motive of incubator is to offer assistance to start – ups so that they
could grow. They used to provide collaborative activities that aids civilians in solving
issues related to establishing an enterprise by giving them a space for working, seed
funding, training, mentoring and various other advantages.
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 Equity: This simply refers to the initial investment or any funding which is beings
offered by direct owner who is going to set up his business (Jones, Hillier and Comfort,
2016). Thus, it is treated as personal sharing where in there is no need of taking any help
from other person. An entrepreneur may use his own saving for the same purpose and
also receive such amount after certain time period by earning profits from its newly
established business. Issue of shares: This includes public issuing of equity as well as preference shares
existing in the stock exchange (Shaw,Bailey, and Williams, 2011). This is considered as
very general way of increasing long term capitals since there are large number of
investors who are interested to invest in the superior marketing location. Sale of fixed assets: It is viewed as very easy and beneficial mode of funding since here
in different types of fixed resources such as lands or buildings, plant and machineries,
etc. are going to sell for the purpose of gaining higher sum of revenue as a result. It is to
be noted that those assets are not temporary and can be used any time. Receipt of interest, dividend and refund of tax: Such elements assist short – term
businesses by meeting their need of capitals. This kind of funds do not make any
susceptibility or liability because these are treated as income of venture. Budgeting of
capital is performed by utilising several techniques. Such methods aid in analysing
actual costing and returns that would be created from a project and comparing or
relating multiple projects in context to profitability.
 Fund from operations: It simply refers to those funds which are raised by the
corporation's personal operations. It is nothing but the overall collected profits by
venture (Harkison, Poulston and Ginny Kim, 2011). Thus, it can be said that such sum
of received money could be utilised regarding finance in carrying out different long as
well as short term projects.
Therefore, it can be stated that Paul could easily take help of above mentioned eight
sources of funding for setting up his restaurant in UK. Apart from his, there is also need of
saving some amount of money for future so that he can deal with any kind of sudden expenditure
which emerges incidentally.
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1.2 Contribution made by a range of methods of generating income in given scenario
TVG is a small business entity but having an outstanding interior with supporting staff
due to appropriate planning and effective strategy which makes this association distinguish from
their competitors. In fact, managers of an organization are playing a major role in managing their
business operations by acquiring more or more income with the help of suitable methods of
generating revenue. However, it has been assessed that number of methods are identified at
workplace which is used by company to increase their reserved such as; sale on fixed assets,
profit maximization, increment of purchaser, shareholders and so on. Thus, number of tools and
techniques are determined that is utilized by hospitality industry to acquire maximum revenue.
Therefore, major contribution of several methods of income generation are describing as follows:
 Sales: - Hospitality sector are engaging in number of business activities in order to
gained more or more profit by selling various things such as; food or beverages, hotels
rooms as well as some other facilities which us required by customer during their stay. In
fact, all these services are offered by TVG restaurant to increase their company revenue
in a defined time period as well as get succeeded in attaining an organization goals.
 Commission: - This capital is received by third party which means supplier of an
organization (Phelan, Mejia and Hertzman, 2013). However, this amount of a company
is acquired due to their additional work as well as involvement in some other job by
which they get extra amount.
 Sponsorship: - If an enterprise is involved in promoting names of other or any large
organization and for the same they are charging money are known as sponsorship.
Hence, this is also one of the useful or appropriate method of gaining maximum capital
which is playing a very crucial role in income generation of an organization.
 Grants: - According to this element an association is receiving money from governing
bodies or any other authority is considering as a grant.
Consequently, it has been assessed that all the above tools of generating capital are
having a major contribution in TVG restaurant as it aids an association in various manner.
2.1 Elements of cost, gross profit percentage and selling price for products and services
Small business organization needs to focus on each or every element of an organization
in an effective manner in order to control extra cost which affects their profit (Jang and George,
2012). However, TVG is using number of technique to manage all the financial activities in a
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better way with the help of skilled or experienced person. Therefore, they are trying to analyse
various elements of cost, gross profit percentages and selling price to perform business
operations in most effective manner. These are highlighting as follows: -
Elements of cost: - Some of the essential factors that are consider as component of cost
are describing as further: -
 Materials: - According to this element price which is incurred into final goods are falls
under this category. For instance: - ingredients that is used by company while cooking
tasty foods or beverages. Therefore, amount of raw materials of products or services are
described under this.
 Consumables: - Expenses of final or finished products in hospitality sector are consider
as consumables. It means cost of delivering goods to final user and consumed by
customers. For instance: food or beverages.
 Labour: - Cost of workers which is incurred in an enterprise to convert raw materials
into finished goods in order to use by consumer or offered by organization to acquire
more or more revenue (Xiao, O'Neill and Mattila, 2012). Thus salary or wages which is
paid by company to their employees for designing final goods or services are falls under
this element.
 Overheads: - Expense of indirect materials or labour such as; salary of administration
department, stationery.
Selling price and gross profit margin: - These cost are identified as follows: -
 Pricing in tourism: - Selling price get increased in peak season whereas decreased in off
season
 Product or service costing: - Sales cost of goods are decided after adding a pre-
identified percentage of service fare to the unit expense.
2.2 Methods of controlling stocks and cash in a business and services environment
For the successful restaurants, it is must be required to manage properly of entire
business operations. The major things which should be maintain are controlling stocks, cash
flows and services environment in an appropriate manner.
Stock controls: It is an essential for smoothing the entire functions of business operations
as well as working capital management to run an organisation. Paul should consider various
methods for controlling his inventory and maintain available stock for satisfying customers and
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meet their desired expectations in effective manner. There are some recommendations for
inventory controls such as:
 Re-order level of the inventory and computer economic order quantity which will
support in maintaining the stock level for restaurant and make available them whenever
required.
 He should make effective decisions for purchasing goods or material as well as required
to avoid unnecessary stock.
 Paul must focus on suitable method such as create Just In Time inventory management
system. Because hospitality industries generally deals with perishable goods such as
food & beverages so that JIT is very useful to control on inventory systems for reducing
more wastages, losses as well as handle costs of inventory.
 He can implement the software of ERP (Enterprise Resource Planning) program for
inventory management. Because it is very supportive in ensuring the updates as well
accurate information regarding restaurant for making effective decisions on time.
There are two types of methods for controlling stocks or inventories such as:
Safeguarding the stock from damage and theft: This control method is very effective for
inventory management system because it restricts the store area for only staff members who are
authorised and also encourage the high value items in a safe locker. Company use various
security cameras systems for better protections.
Reporting the stocks in the financial statements: it also an another important technique
for controlling over the stock in appropriate manner (Lee, Singal and Kang, 2013). It is required
for conducting the physical stock count at the end of year as well as they consider the figures into
accounts during finding the gap or mismatch between physical figure and systems.
Cash control: for every business organisation, the most important factor is controlling on costs
and manage the cash flow. Cash amount is very necessary for running the business operations as
it encourage to conduct smooth organisational functions of working capital management. There
are various method of cash controlling such as:
Implementation of dual control over the cash: it helps in providing authorisation for two
individuals for the purpose of verifications and handling the cash balances for reducing the
chances of cash thefts or manipulations.
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Preparation of bank reconciliation: This method must be required for identifying the
reason behind differences between cash book figure and bank statement balance.
PART B
3.1 Source and structure of the trial balance
a) Source of trial balance has been categorised in three ledgers such as general, sales and
purchase ledger (Mohammed, Guillet and Law,2015). General ledger consists with impersonal
accounts, sales ledgers are related with personal accounts of customers or debtors and purchase
ledger consider personal accounts for suppliers or creditors. General ledgers include nominal and
real accounts. Nominal accounts refer to the accounts of income and expenditure. On the other
side real accounts refers to the assets and equity accounts.
Therefore, trial balance consists of accounts which have balance of debit &credit and
these all are summed up at the end.
Trial balance structure can be categorised by the following such as:
 Current assets Fixed assets & contra assets
 Current liability Long Term liability
 Owner's capital Contra capital
 Contra Revenues
 Expenses
a) Trial balance of Olakunle as at 30th June 2019
Particulars Debit amount Credit amount
Net profit - 94100
Outstanding wages - 6000
Outstanding rent - 4300
Prepaid insurance a/c 4500 -
Opening capital 53000
Drawings 62000 -
trade payables - 5900
Equipment 71000 -
Motor vehicle 18000 -
Bank balance 5500 -
Closing Inventory 2300 -
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Total 163300 163300
3.2 Evaluate business accounts, adjustments and notes
b) Revised Profit and loss account or Profit and loss adjustment account for the year 30th June
2019
Particular Amount Particulars amount
To outstanding wages 6000 By net profit 99900
To outstanding rent 4300
By prepaid insurance
a/c 4500
To net profit after
adjustment 94100
104400 104400
c) Statement of financial position for the business as at 30 June 2019
Liabilities Amount Assets amount
opening capital 53000 Equipment 71000
Add profit 94100 Motor vehicle 18000
Less: drawing (62000) 85100 bank balance 5500
O/s wages 6000 Closing inventory 2300
O/s rent 4300 Prepaid insurance 4500
trade payables 5900
101300 101300
PART C
3.3 Discuss the process and purpose of budgetary control
Budgetary control
this is considered as a techniques to analyse the budgeted cost of future tasks and projects
and analysation of variances with actual cost (Cobanoglu, Berezina, Kasavana and Erdem, 2011).
Budgetary control is considered one of the effective method to which helps the managers to
correlate the actual and budgeted results. This techniques is beneficial to in respect of decision
making process. There are various type of variances are calculated such as material variances,
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labour variances and price rate variances. It helps the managers to find out effective and main
reason of differences.
Process of budgetary control
this process remain divided in various steps such as
 Making the plan and create a targeted performance to coordinate and merge all the
activities
 Recording the actual performance of each department
 Comparison of actual performance, figures with the budgeted figures and performance
 Calculation of difference and variances to analyse the reason
 Taking effective and appropriate actions in order to sort out the problems and remedy
the situation.
Main objective of budgetary control
Below are the main objectives defined subject to budgetary control process
 To consolidate all levels and functions of organisation while preparing budgets
 To merge all the activities and operation of the business organisation.
 To control the cost incurred to various department and centralised the cost in single
format
 To assist managers in order to make strategies, plans and decision making process.
 To control expenses and incomes to enhance profitability and efficiency.
 To bifurcate the cost such as variable and fixed cost.
 To evaluate an optimum requirement of working capital to operate operations and
functions of business.
 To forecasting the estimated risk and uncertainty and provide remedies subject to
detected risks and uncertainty.
A budget is a financial limit set against a particular activity or time duration which has to be
maintained by the people concern so that overall cost of the project is controlled. The process of
making budget is given as follows:
 A demand for funds from different sections of the work place
 On the basis of revenues distinct departments actual requirements of funds is analyzed
 All the proposals received are evaluated so that selection can be done
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 After doing the basic work discussion of the whole collected information is done with the
senior manager
 Finalization of budget is done
 Reports are than presented on regular basis
 At the end of financial year, review of annual reports is done
The purpose of the same concept is discussed below in detail:
Compel for planning – Since the restaurant business come across various changes it
becomes difficult to manage same and therefore with the help of budgetary control system risk of
uncertainty can be reduced (Zhang, Guillet and Gao, 2012). This system provides direction to the
whole work force which further reduces the loss that may occur due to change.
Communication of ideas and plans – Through the concept of budgetary control a
common working system can be established that helps in setting up uniformity in the business.
Coordinating the activities – Different departments of the referred restaurant needs to be
coordinated so that they can contribute in the overall development of the organization.
Establishing a system of control – The another objective of the budgetary control system
is to ensure control over the whole department as when standards are set against various
activities they can be easily compared and hence it becomes easy to identify that what sections of
the business are not performing well.
Motivating employees – In case of gaps found in the actual and desired results employees
can be motivated to give the desired outcomes by showing them the areas in which they are
lacking behind.
Defining of objectives – The system of budgetary control also give emphasis on
communicating the common goal of the firm which has to be achieved with the provided
resources (Financial techniques for hospitality managers, 2017). .
Basis for internal audit – In TVG there are various departments which has different
working responsibility. Through the system of budgetary control strength and weakness of each
section can be clearly defined.
3.4 Analysation of variances from budgeted and actual figures and suggestions for appropriate
future management action
Alina is a cutlery manufacture and produces steel spoons. Due to high competitive market
there is a shortage of steel to adequate quality. There is a vast availability of resources found in
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market subject to production process of spoons. Below are the some figures given subject to
analysing the variances and difference between the actual and projected results.
Variance analysis and calculation of contribution
Particulars Budgeted Actual Variance
Unit sold 100000 70000 -30000
Less:
Material -15000 -22500 -7500
Direct material -22500 -24375 -1875
Contribution 62500 23125 -39375
Price rate and efficiency variances
Particulars Price/rate Variances Usage/efficiency Variances Total Variances
Material -4500 -3000 -7500
Labour 3750 -5625 1875
TASK 2
4.1 Analysation of ratios and consistent interpretation of historical business performance
Liquidity ratio: this is one of the method of analysing the ratio of liquid assets and liquid
liabilities (Taylan Dortyol, Varinli and Kitapci, 2014). Below are some ratio defined in on the
basis of practical scenarios
Current ratio: current assets / current liabilities
= 12300 / 16200 = 0.75
Acid ratio: 5500 / 5900 = 0.93
4.2 Future management strategies for TVG
TVG is operating in a highly competitive market. They should basically focus on two
strategies for attaining their set targets. First one is related to reduction in cost of business
operations. This work can be done by assuring optimum utilisation of available resources.
Although this is not an easy task. Human resource division should hire some part time
employees. Scarcity of manpower occurs on occasional basis in restaurant industry. Instead of
recruitment permanent workers, few work can be hiring for managing the work on weekends and
festive season. TVG can buy more new equipment’s for reducing cost of business in long run.
Normally restaurants get success in minimising manufacturing and service cost for short period
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