Financial Performance and Management Strategies in Hospitality

This report provides a comprehensive analysis of financial management within the hospitality industry. It begins by exploring various sources of funding, both internal and external, available to businesses, including retained profits, family and friends, bank loans, and venture capitalists. The report then evaluates methods for income generation, such as focusing on attractive interior and exterior designs, employing skilled personnel, organizing events, sub-renting, and cost control. Financial accounting concepts like trial balance, income statements, and balance sheets are assessed, along with ratio analysis to evaluate business performance and recommend future management strategies. Cost classification, contribution per product calculations, and break-even point (BEP) analysis are also discussed to aid in short-term management decisions. The report concludes by summarizing the key findings and insights into the financial aspects of the hospitality sector, offering practical guidance for financial planning and decision-making.

Finance in the Hospitality Industry

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Reviewing sources of funding which are available to business and service industries.........1
1.2 Evaluating range of methods that contribute in income generation......................................5
TASK 2............................................................................................................................................6
TASK 3............................................................................................................................................6
TASK 4............................................................................................................................................6
3.1 Assessing the sources and structure of trial balance..............................................................6
3.2 Evaluating business accounts, adjustments and notes...........................................................7
4.1 Calculating ratios to assess business performance................................................................9
4.2 Recommending appropriate future management strategies.................................................11
TASK 5..........................................................................................................................................12
5.1 Classifying cost in terms of fixed, variable and semi-variable............................................12
5.2 Calculating contribution per product and explaining CVP relationship..............................12
5.3 Taking short-term management decision on the basis of profit or loss potentials and BEP
analysis......................................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Financial management is essential within the hospitality sector for the attainment of goals
and objectives. In the recent times, hotel unit can enhance productivity and profitability only
when it delivers high quality services to the customers. Further, level of competition is also stiff
in the hospitality sector which in turn directly influences profit margin of firm. In this regard,
finance manager of the firm has accountability to make suitable assessment of cost and lay high
level of emphasis on developing competent plan. Now, companies which are operating in
hospitality sector needs to conduct research for assessing the expectation level of customers.
Hence, by allocating funds to each business activity in a optimal way firm can attain success to a
great extent. The present report is based on different case scenarios which will provide deeper
insight about the sources that can be undertaken by business entity for meeting financial
requirement. Besides this, it will shed light on the sources that assists firm in generating more
income. It will also develop understanding about the aspects of financial accounting such as trial
balance, income statement and balance sheet. In this, report will highlight the extent to which
financial position and performance of R. Riggs is sound. Report will also entail how BEP
analysis aid in decision making and makes contribution in the attainment of goals.
TASK 1
1.1 Reviewing sources of funding which are available to business and service industries
On the basis of cited case situation, business entity of small business enterprise requires
£450000 for purchasing new building. In this, there are several internal and external sources
that can be undertaken by the firm for meeting monetary needs pertaining to capital expenditure
or investment. Hence, major internal and external sources which are suitable for this purpose
enumerated below:
Internal sources

Retained profit: In order to deal with the undesirable situations business entity lays high
level of emphasis on retaining some amount rather than investing the whole. Hence, by using
such fund entrepreneur can meet financial needs and requirements to the significant level.
Advantages: Disadvantages
In this, owner of the firm is free from fixed
obligation in terms of interest payment (Brotherton,
2012).
When business unit uses whole retained profit for
meeting requirements then they would not be in
position to deal with the future contingent situation.
Friends and family members: By taking financial assistance from friends and family
members owner of small business unit can generate funds.
Advantages: Disadvantages
 Less interference in decision making
 Absence of both monetary and non-
monetary obligations
Sometimes, business entity faces difficulty in
convincing family members towards the plan. This
aspect imposes issue in front of firm pertaining to
raising funds.
Sales of fixed assets: Sole trader can also generate funds by selling fixed assets which
are not used in productive activities. Every business unit has some scrap in the form of
machinery, other equipments etc (Internal Source of Finance, 2017). In this regard, by selling
such unused assets entrepreneur can raise fund and thereby would become able to implement
plan.
Advantages: Disadvantages
 Low cost is the main advantage which
is associated with the selling of assets.
Moreover, in this, by placing
advertisement in the newspaper firm
In the case of quick selling of assets, sometimes
business unit does not receive suitable amount.

can attract potential investors.
 Facilitates quick generation of funds
Reduction or controlling of working capital: Business entity can meet monetary needs
and requirement by making control on working capital. In accordance with such aspects by
speeding up the time of receivables and stretching payables business entity can manage funds
more effectually and meet monetary aspects.
Advantages: Disadvantages
 Assists in maintaining ownership
within the firm
 No requirement of collateral security
(Working Capital Loans – The
Advantages and Disadvantages, 2017)
 Negatively affects credit rating
 High interest rates
External sources
Bank loan: It is one of the most preferred sources of finance which provides high level of
assistance to business entity in fulfilling monetary needs. Hence, by applying to banking
institution on the basis of collateral security owner of small business unit can generate funds.
Advantages: Disadvantages
 This source of finance offer deduction
to the business entity in tax brackets.
 In this, sole trader has convenience
pertaining to making payment in the
form of installments (Zhuang and et.al.,
2011).
 In business loan, interest rates are
usually high which in turn imposes
burden on sole trader.
 Sometimes, banks do not grant whole
amount for which business entity has
applied.

Leasing: For purchasing building business entity requires more funds, in this, by taking
concerned asset on lease entrepreneur can meet financial needs. Moreover, in leasing, by making
payment of rent owner of the firm can use building for performing business activities.
Advantages: Disadvantages
 Such financial source offers tax
benefits to the entity.
 Leasing source protects business entity
from the potential of loss such as
reduction in the value of assets.
 Under leasing, entrepreneur is obliged
to make use of asset as per the terms
and conditions of lessor. This in turn
closely influences the strategies and
policies of firm.
Venture capitalists: In the recent times, venture capitalist is the main sources of finance
which can be undertaken by small business entities. Now, venture capitalists provide fund to the
entities that have sound plan and potential to grow.
Advantages: Disadvantages
 Along with the financials, venture
capitalist source provides organization
with expert advice. Moreover, due to
having interest in the venture,
capitalists also offer legal and tax
assistance to business entities (How to
Finance Your Business Growth, 2017).
 Further, in this, sole trader offers
return to the capitalists only when
enough profit is generated. In this way,
such source reduces fixed monetary
obligation of firm.
 Loss of control is one of the main
drawbacks which are associated with
such source. Moreover, venture
capitalists act as a equity holders and
interferes in the decision making
aspect.

Factoring: Each business has some receivables so by discounting the same from financial
institution owner of small business unit can generate funds.
Advantages: Disadvantages
It offers conveniences to business entity in relation
to getting fund pertaining to receivables before the
due date. This is main benefit which encourages
business unit to undertake such source.
In against to offering early payment of receivables
financial institution charges some discounting
prices which in turn impose cost in front of firm.
In conclusive form, it can be stated that sole trade can meet monetary requirement of
£450,000, pertaining to capital expenditure, through the means of venture capitalist and bank
loan. Both such sources will assist in fulfilling needs and help in developing highly optimal
structure.
1.2 Evaluating range of methods that contribute in income generation
There are several methods which large sized restaurant unit can undertake to generate
income such as:
 High focus on attractive interior and exterior: In the context of restaurant sector, interior
and exterior is the main aspects that have significant impact on customer decision
making. Thus, by making focus on creativity in this regard owner of restaurant unit
would become able to attract more customers which in turn contributes in income
generation.
 Selection of skilled and talented personnel: In the context of large sized restaurant unit,
employees are the one who offer and deliver services to the customers. Thus, satisfaction
level of customers is highly influences from the manner in which personnel deal with
them. In this regard, by selecting highly skilled and talented personnel business entity
would become able to enhance customer satisfaction and loyalty (Kizildag, 2015). This in
turn makes positive and significant contribution in the profit margin of firm.
 Organizing events: Large unit of restaurant chain can enhance income by organizing
cultural events, exhibition and band performance (Nussbaum, 2012). All such events
enable business entity to generate more income and enhance its profitability aspect.

 Sub-renting: By giving some part of restaurant on rent to others entrepreneur can
enhance its income (Law and et.al., 2012). For instance: Owner of restaurant chain can
increase its income level by giving some part to the one who offer handicraft products. In
this way, by receiving rent from such entity owner can get more income.
 Offering high quality and developing attractive ambiance: Now, customers prefer to
visit hotel or restaurant which lays high level of emphasis on hygiene. Thus, by providing
customers with high quality services and attractive ambiance business entity can
maximize both productivity as well as profitability.
 Cost control: For enhancing the income level, it is highly required for the owner of large
chain of restaurant to exert control on cost aspect. In this regard, by applying the tool of
budgetary control manager of restaurant can assess financial deviations and thereby
would become able to take action for improvement (Luo, 2011). Thus, through the means
of such tool firm can avoid unnecessary expenses and thereby become able to enhance
income level.
TASK 2
Enclosed in PPT.
TASK 3
Enclosed in PPT.
TASK 4
3.1 Assessing the sources and structure of trial balance
Trial balance may be served as a statement which contains balances of all the ledger
accounts. It has two sides such as debit and credit that clearly reflects the figures of assets,
liabilities, income and cash flow statement (What is a Trial Balance, 2017). This statement is
highly significant which in turn provides input or financial assistance to R. Riggs in the
preparation of financial statements.
Sources and structure of trial balance

Ledgers are considered as main sources that give input for the trial balance. By
considering the closing balances of ledger accounts, trial balance is prepared by the accountant
which in turn helps in preparing further financial statements. Structure of trial balance mainly
consists of two sides such as debit and credit. Figures pertaining to expenses and assets are
recorded in assets side. On the other hand, incomes as well as liabilities are posted in the credit
side of trial balance.
Journal Entries in the books of accounts of R. Riggs
Date Particulars Debit side (£) Credit side (£)
03 / 03 /
2017
Furniture a/c…Dr
To Creditors a/c…Cr
525
525
30 / 12 /
2017
Bank a/c….Dr
To Interest received from Bank... Cr
500
500
Trial balance of R. Riggs
Particular Debit (£) Credit (£)
Furniture 525
Creditors 525
Bank a/c 500
Interest received from Bank 500

Total 1025 1025
3.2 Evaluating business accounts, adjustments and notes
Income statement for the year ended on 31st December 2017
Particulars
Amount
(£)
Amount
(£)
Sales 157165
Less Cost of Goods Sold 94520
Gross Profit 62645
Discount Received 160
Interest Earned 500
Operating profit 63305
Less: Expenditure
Wages and Salaries 31740
Rent 3170
Discount allowed 820
Van Running Cost 687
Bad debts 730
Doubtful debt provisions 91
Depreciation 1630
Total expenses 38868
Net Profit 24437
Statement of financial position for the year ended on 31st December 2017
Particulars (in £) (in £) (in £)
Fixed Assets
Office furniture and Van (6650 + 525) 7175
Less: Depreciation 1630 5545
Current Assets
Stock 2400

Debtors 12316
Less: provision for doubtful debts 496 11820
Prepaid expenses 230
Cash at bank and hand (5424 + 500) 5924
20374
Total Assets 25919
Current Liabilities
Creditors 5245
Creditors of furniture 525
Accruals 412 6182
Financed by
Capital 12400
add: Net profit 24437
Less: drawings 17100 19737
Total Liabilities 25919
4.1 Calculating ratios to assess business performance
Ratio analysis of R. Riggs is as follows:
Ratios Formula Calculation
Profitability ratios
Sales revenue 157165
Gross profit 62645
Net profit 24437

Gross Profit Ratio (Gross profit / Net Sales)
*100
(62645 / 157165) *100 = 39.9%
Net Profit Ratio (Net profit / Net Sales) *100 (24437/ 157165) *100 = 15.5%
Liquidity ratios
Current assets 20374
Current liabilities 6182
Current Ratio Current assets / Current
liabilities
20374
/ 6182 = 3.29
Acid test ratio/ Quick
Ratio
(Current asset – (Closing
stock + prepaid expenses) /
Current liabilities
(20374
– (2400 + 230) / 6182 = 2.87
Efficiency ratios
Debtors 12316
Creditors 5770
Cost of goods sold or
purchase
94520
Debtor’s turnover Ratio Debtors/ (Annual credit sales
/ 365)
12316 / (157165 * 365) = 28.60 days
Stock turnover ratio COGS / Stock 94520 / 2400 = 39.38 times
Creditors turnover Creditors / (Annual credit 5770 / (94520 * 365) = 20.28 Days