Hospitality Finance: Funding Sources, Sales, & Business Accounts

This report provides a comprehensive analysis of financial aspects within the hospitality industry. It begins by evaluating various funding sources for a restaurant, including bank loans, equity funds, and retained earnings, and assesses different sales-generating methods like cookery classes, merchandising, and event catering. The report then delves into business evaluation, focusing on the source and structure of trial balances, the usefulness of income statements and balance sheets, depreciation methods like SLM, the importance of account notes, and the purpose and process of financial budgeting, including variance analysis. Furthermore, it incorporates ratio analysis to provide recommendations and evaluates different types of costs (fixed, variable, semi-variable) to inform short-term management decisions. The document is contributed by a student and available on Desklib, where students can find a variety of study resources.

Running Head: Hospitality Management
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Project Report: Hospitality Management

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Contents
Task 1................................................................................................................................3
Introduction...................................................................................................................3
Sources of funding........................................................................................................3
Bank Loan.................................................................................................................3
Equity funds..............................................................................................................3
Retained earnings......................................................................................................3
Evaluation of sales generating methods.......................................................................4
Cookery Classes........................................................................................................4
Merchandising with cookbooks and kitchen items...................................................4
Events catering..........................................................................................................4
Conclusion....................................................................................................................5
Task 2................................................................................................................................5
Power point...................................................................................................................5
Task 3................................................................................................................................5
Introduction...................................................................................................................5
Business evaluation......................................................................................................5
Source and structure of trial balance............................................................................5
Evaluation of business accounts...................................................................................5
Usefulness of income statement and balance sheet..................................................5
SLM method.............................................................................................................5
Importance of accounts notes...................................................................................5
Purpose of financial budget and process......................................................................5
Variance analysis..........................................................................................................5

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Conclusion....................................................................................................................5
Task 4................................................................................................................................5
Introduction...................................................................................................................5
Ratio analysis................................................................................................................5
Recommendation..........................................................................................................5
Conclusion....................................................................................................................5
Task 5................................................................................................................................5
Introduction...................................................................................................................5
Types of cost.................................................................................................................5
Fixed cost..................................................................................................................5
Variable cost.............................................................................................................5
Semi variable cost.....................................................................................................5
Cost evaluation.............................................................................................................5
Contribution per customer........................................................................................5
Relationship between cost, volume and profit..........................................................5
Short term management decision..................................................................................5
Evaluation 1..............................................................................................................5
Evaluation 2..............................................................................................................5
Conclusion....................................................................................................................5
References.........................................................................................................................5

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Task 1:
Introduction:
This report has been prepared to analyze the various sources of funding which could
be used by a restaurant to enhance the finance in the business. And various sales generating
methods have also been analyzed which could enhance the sales and the revenues of the
company. In the given case, a company wants to open a new restaurant and for that purpose
extra funds are required by the company. Funds are the main root of a business. Without
funds, an organization could not run its business properly. Further, it has also been analyzed
that the revenues of the restaurant is limited and for enhancing the level of the revenues what
extra steps could be taken by the company.
Sources of funding:
It is requisite for every organization to fund the cash so that a business could be run
easily. A business could use internal as well as external sources to enhance the funds for
betterment of the organization (Ross, Westerfield & Jaffe, 2007). According to the case, City
Brasserie could take the use of following funding methods to enhance the funds:
Bank Loan:
Bank loan is a traditional method to enhance the funds in a business. This is the most
used source. Bank loan is total amount of money which is borrowed from bank for a
particular period of time with an agreed repayment schedule. This is the most suitable source
of financial structure (Schlichting, 2013). The associated risk with this funding source is quite
less and the cost of the company is also lesser. If the City Brasserie would use the same
source than the risk and the cost of the company would be lower.
Equity funds:
Equity funds are the most used method to enhance the funds in a business. Equity
funds are the total amount of money which could be generated by the company by issuing the
stock in the market. This is one of the most suitable sources of financial structure (Ward,
2012). The associated risk with this funding source is quite lesser than any other sources but
in this case the cost of the company would be bit higher. If the City Brasserie would use the
same source than the risk of the company would be lower but the cost would be higher.
Retained earnings:

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Further, retained earnings are the internal funds to enhance the funds in a business.
Retained earnings are the total amount of money which is kept by the company after paying
the dividends to shareholder from net profit. This source is mostly used by the companies
when companies do not want to enhance the cost (Weaver, Weston and Weaver, 2001). The
associated risk with this funding source is zero and at the same time the cost of the company
would also be zero. If the City Brasserie would use the same source than the risk of the
company as well as the cost would be zero.
Through the above analysis, it has been found that the retained earnings are the most
useful source to enhance the funds for new restaurant. As in this funding; associated risk is
zero of the company and at the same time the cost of the company would also be zero (Ross,
Westerfield, Jaffe & Kakani, 2008).
Evaluation of sales generating methods:
Further, this case evaluates that the management of the company wants to enhance the
sales and for that the following methods could be used by the company:
Cookery Classes:
If the restaurant starts the cookery classes than the fees could enhance the revenue of
the company as well as it would also assist the company to manage the fixed cost of the
company. The revenue generation from cookery classes would be lower but it could run by
the company for long term (Moles, Parrino & Kidwekk, 2011).
Merchandising with cookbooks and kitchen items:
Further, if the restaurant starts merchandising the cookbooks and kitchen items than
the sales amount could enhance the revenue of the company but in this case, the variable cost
of the company would be higher (Lord, 2007). The revenue generation from merchandising
the cookbooks and kitchen items would be higher and the business could also run by the
company for long term.
Events catering:
Lastly, if the restaurant starts doing event catering than the total amount could
enhance the revenue of the company and in this case, the fixed and variable both the costs of
the company would be higher. The revenue generation from event catering would be higher
and the business could also run by the company for long term (Lumby & Jones, 2007).

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Thus from the above evaluation, it has been found that event catering is the most
appropriate way to enhance the revenue of the company as it would offer the highest revenue
to the company.
Conclusion:
From the above evaluation, it has been found that the retained earnings are the most
useful source to enhance the funds for new restaurant. As in this funding, associated risk is
zero of the company and at the same time the cost of the company would also be zero and for
revenue generation, event catering is the most appropriate way to enhance the revenue of the
company as it would offer the highest revenue to the company.

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Task 2:
Power point:
(Refer to the ppt file).

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Task 3:
Introduction:
This report has been prepared to analyze and evaluate the business and various
financial and managerial accounts of the business. Mainly, this report focuses over the trial
balance, income statement and balance sheet of a company. Further, in this report, budgeting
analysis and variance analysis study has been performed to analyze the changes and the
performance of the company. In the given case, a local restaurant wants to open a new
restaurant and for that analysis over the market and financial performance of the company is
required. It is requisite for every company to analyze the market and make a better decision
about the performance of the company.
Business evaluation:
Business evaluation is a process which assists the analyst and the financial manager to
make better decision about the position and the performance of the company. This process
evaluates the financial as well as non financial information of the company and considers the
information to make a better decision about the performance of the company (Kaplan and
Atkinson, 2015).
Source and structure of trial balance:
Firstly, the report has been prepared over trial balance. Trial balance is a rough
statement which is prepared to analyze that whether the entire statements have been properly
reported or not. It is a statement with all the debits and credits in a book of double entry along
with a disagreement containing an error (Higgins, 2012). The sources of the trial balance are
the double entry books of the company and the subsidiary books of the company as it
concerns all the financial transaction of the company and record them to analyze the
performance of the company. Following is the sample of trial balance:
Worksheet Trial Balance
Accounts Debit Credit
Buildings 31,483
Bank 1,900
Accounts
receivable 3,700

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Accounts payable 5,000
GSR collected 2,600
GST paid 2,000
Sales 44,593
Cost of goods sold 21,118
Office equipment 950
Inventory 13,832
Delivery expenses 475
Insurance 228
Electricity 532
Telephone 190
salaries 2,470
Rates 238
Discount allowed 1,007
Rent 484
Commission
income
80
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Capital (opening) 27,607
Net profit
Total 80607 80607
From the above statement, it has been found that trial balance is also one of the
important statements of the company which helps the company to prepare financial
statements.
Evaluation of business accounts:
Further, the business accounts of the company have also been analyzed to identify the
performance of the company. For evaluating the business accounts which are income
statement and balance sheet, various articles and studies have been studied.
Usefulness of income statement and balance sheet:
Income statement and balance sheet are the main statement of the company to
evaluate and analyze the performance of the company. Income statement is useful to identify
the total profit of the company and the operations of the company. Further, it also assists the
company and the investors to make various decisions about the financial position of the
company (Glajnaric, 2016). Further, the balance sheet usefulness has been analyzed and it has
been found that balance sheet is useful to identify the total assets, liabilities and the
shareholder equity of the company and the operations of the company. Further, it also assists

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the company and the investors to make various decisions about the financial position of the
company.
SLM method:
Further, straight line method is one of the depreciation methods which assist the
company to depreciate the amount from total assets amount. It is a default method which is
usually used to reduce the carrying amount of the machinery and various other fixed assets.
This method has been designed to reflect the underlying asset’s consumption pattern. The
straight line method is the most suggested method due to its simplicity and better result
(Gapenski, 2008).
For instance, if machinery is worth of $ 50,000 and the salvage value of the assets
after 5 years is $ 10,000 than the total depreciation of the machinery per month would be
= ($ 50,000 - $ 10,000)/5
= $8,000 per month (Brigham and Michael, 2013)
Importance of accounts notes:
Account notes are the important notes which are provided in the annual report of the
company to explain each important figures of the company. Accounting notes plays an
important role for auditors as well as stakeholders of the company to make better various
decisions according to the performance of the company (Deegan, 2013). It helps the auditors
to analyze all the financial and non financial activities of the company with efficiency as well
as it assist the investors to analyze the performance of the company and understand the
financial statement of the company in a better way (Brealey, Myers and Marcus, 2007).
Further, it also assists the company to take loan from bank as bank evaluates the
financial statement and the annual report of the company and on the basis of financial figure,
loan is allotted to the holders. These notes contain the reasonable assumptions and the
important explanation about the figures.
Purpose of financial budget and process:
Financial budget is crucial for every organization and the country as it assists the
company to evaluate the market and analyze the future changes of the company. Further, it is
also useful for the company to alter the strategies and policies according to the budgetary
reports. Following are some of the main purposes of financial budget:

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 Forecast of income and expenditure
 Monitor the business performance of the company
 Decision making tool (Gitman and Zutter, 2012)
The process of financial budgetary making is crucial as various assumptions are taken
while preparing the reports as well as the historical data, future changes and the present
condition of the market. The process of financial budget reporting is as follows:
1. Analyze the sales opinion
2. Market research
3. Pricing policy of the company
4. Competition
5. Analysis over the strategies
6. Make the reports (Du and Girma, 2009)
According to the above process, it is bit tough for the company to prepare the exact
report but once the reports are prepared in a better way, the reports could assist the company
to make the better decision for the future performance of the company (Arnold, 2013).
Variance analysis:
Further, the study of variance analysis has been done over the company and the
following statement of the company has been analyzed for analyzing the performance and the
changes in the actual figures of the company.
Budgeted
figures
Actual
figures
Sales 70000 65000
Cost of goods
sold 15000 13500
Gross profit 55000 51500
Labour cost 15000 19000
Direct expenses
cost 7000 6500
Overhead cost 8000 8500
Net profit 25000 17500
(Damodaran, 2011)
Below is the evaluation of variance analysis of the company:

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Budgeted
figures
Actual
figures Variances
Sales 70000 65000 -5000
Cost of goods
sold 15000 13500 -1500
Gross profit 55000 51500 -3500
Labour cost 15000 19000 4000
Direct expenses
cost 7000 6500 -500
Overhead cost 8000 8500 500
Net profit 25000 17500 -7500
(Bromwich and Bhimani, 2005)
According to the above evaluation, it has been found that the gross profit and the net
profit of the company have been lowered than the expected amount. The gross profit of the
company was 51,500 but while preparing the budgetary reports, it has been analyzed that the
gross profit of the company would be $ 55,000 (Davies and Crawford, 2011).
According to the table, it is suggested to the company to make few change into the
marketing policies so that the sales of the company could be enhanced as well as the labour
cost of the company must also be controlled to enhance the net profit of the company.
Company is suggested to make few changes to enhance the level of the profits and the
position (Brigham and Ehrhardt, 2013).
Conclusion:
Thus, through the above study, it has been found that managerial accounting is crucial
for a company to make better decision about the position and the performance of the
company. Company is suggested to make few changes to enhance the level of the profits and
the position.