Finance Report: Funding Sources, Cost Elements, and Pricing Strategies

This report delves into the financial aspects of the hospitality industry, using the Balaclava Hotel as a case study. It begins by examining various funding sources, both internal (retained earnings, revenue increase, and delayed payments) and external (issuing shares, property securitization, loans, bonds, and leasing), evaluating their contributions to income generation. The report then analyzes the elements of cost and profit, including material, labor, and expenses, and discusses the role of setting selling prices using the Comfort Inn Hotel as an example. Pricing strategies like premium pricing, penetration pricing, and price skimming are explored, along with cost-based, customer-based, and competitor-based pricing approaches. Finally, the report evaluates methods for controlling stock and cash, highlighting techniques like minimum stock levels, economic order quantity, electronic fund transfers, and bank reconciliation. The report provides a detailed overview of financial management within the service sector, offering practical insights for hospitality businesses.

Finance in Hospitality Industry
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Contents
Task 1...............................................................................................................................................3
Review the sources of funding available for business industries & evaluate the contribution of
various methods in generating income. [P1.1], [P1.2], [M1]..........................................................3
D1. Drawn a suggestion or conclusion about best option of funding resources:............................5
Task 2:.............................................................................................................................................6
Discuss the elements of cost and profit and the role of setting selling prices in the service
business environment using your chosen organization as an example. [P2.1]................................6
[M2, D2] Role of setting selling prices in the service business environment:................................7
B. Evaluate the methods of controlling stock and cash and discuss the cost and benefit of at least
two methods used in your chosen organization. [P2.2]...................................................................8
References:......................................................................................................................................9
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Balaclava Hotel is an international lodging company which operated its business in three phases
related to lodging, restaurants and contract servicing. The hotel management needs to focus on
their investment strategy and available sources of funding to raise its shareholder's values and
profitability. The major aim of preparing this report is to make discussion regarding various
sources of funding for services industries. This report will discuss cost-benefit analysis and
relevant techniques to define the role of setting prices (Harris, 2013).
Task 1
Review the sources of funding available for business industries & evaluate the contribution
of various methods in generating income. [P1.1], [P1.2], [M1]
Availability of sources is needed in business and services industry to generate more income.
Balaclava Hotel needs to focus on increment in funding resources to increase their shareholder
values. Finance is the blood of any hospitality businesses; industry needs money to develop their
business activities such as purchasing capital tools, equipment, lands, and to maintain their costs
on a short and long-term basis.
To generate Funds Company needs to find various options such as internal or external funding
sources:
1. Internal sources:
These are those sources from which company can retain funds from internal management:
 Retained earnings: these options are very good for Balaclava Hotel due to this company is
focusing on increasing their values of shares. Retrained earning is the valuable option to
generate funds within the organization. It is the method of collecting finance but not distribute
it among members as part of a dividend.
 Raise working capital: these kinds of funds are used to maintain their regular expenses
within the management.
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 The increment in revenue: sales are major resources of income in any hospitality sector.
Sales are the main factor that decides the balance between demand and supply equilibrium in
the market. It necessary to manage working capital to maintain the positive level of demand
and supply of the services in the market.
 Delay in payments: if there is any delay in making payment to the suppliers, creditors, it
becomes necessary for the industry to retain money or funds which creates negative influence
in the company’s decision regarding funding (Harris, 2013).
So the availability of sources in internal option basically depends on the remaining funds. But all
the remaining money is not favorable for the hospitality industry.
2. External sources of funds:
 Issuing preference shares: the activities related to issuing preference shares are benefitted
for hospitality industries. The preference shareholders can easily contribute to core-based
investment funds of the company.
 Right issues of shares: if the company want to raise their income and provide a higher
benefit to their existing shareholders so Balaclava Company should issue right issues of
shares. The right issue of shares is better than issuing normal shares for the company. Existing
shareholders are provided a right to subscribe their shares at the concessional rate. By these
methods, a company will become able to raise their income in an effective and safe manner
(Rural Information Center, 2015).
 Property securitization: in this concept, company gets a chance to develop a pool of
different financial assets (such as marketable securities, short-term, and long-term assets) and
attract various investors to invest in those projects. This concept is based on the marketing of
various financial assets to get additional investments in the market. An illiquid asset is joined
directly-indirectly to convert them into financial security and generate income by financial
strategy.
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 Loans from banks and various financial institutes: loans are the easiest way for the
hospitality industry to procure or raise their funds through getting loans’ advancement from
commercial and financial institutes.
 Bonds: Balaclava Hotel can raise their funds through issuing bonds and invite public. It helps
the company to attract more investors. Investors get to know about rate and price of
independent bonds. It helps the company to get additional investment in future.
 Leasing: Leasing is the technique, based on hire purchase agreement in the management. In
this technique, a company does not invest in purchasing capital equipment but take them into
the lease for long-term use (Rural Information Center, 2015).
D1. Drawn a suggestion or conclusion about best option of funding resources:
These are the major resources of funds which are available for the company to raise the
shareholder's values. As Balaclava Hotel has an option of continuous growth, so the company
can issue bonds or right issues of shares for their existing shareholders. It will support the
company to improve their decision making procedure regarding long and short-term proficiency.
Company can also improve their core business activities. In the hospitality sector, Balaclava
Hotel is the service or product company so the company can raise their revenue from service
core activity. Company can raise their income by issuing debentures and borrowing loan from
merchant banks. These steps will develop non-core activities for the company such as dividends
from investments, interest from loans etc. that will help to generate additional income (Atrill &
Mclaney, 2013).
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Task 2:
Discuss the elements of cost and profit and the role of setting selling prices in the service
business environment using your chosen organization as an example. [P2.1]
Balaclava Hotel is basically focused on their services and products form to raise the market
values. Cost of the products is basically related to that cost which company used to produce their
final product whereas profit is the concept of the excess amount of selling price over cost. The
major element of profit is gross profit and net profit. Gross profit is determined as the percentage
of total business sales. If Comfort Inn Hotel (chosen company) total income from sales would be
$100,000 than gross profit would be incurred after computation of cost of goods sold which
would be $70,000. Gross profit would measure the percentage of total sales (70% of $100,000)
(Cash Flow Accounting, 2011).
Cost can be classified into various elements:
1. Material cost: it is materialistic or commodity cost which is applied by the company in a
production of goods. It is classified into two components such as direct material costs and
indirect material costs. Direct material costs are basically recognized within individual cost unit.
Example: raw material purchased whereas indirect cost is used for aligned purposes such as
consumable rates, stores oil and wastages and printing etc. (Career ride, 2017).
2. Labour cost: it is also classified into two areas. Direct labor cost directly employs and take part
in the manufacturing and production purpose of the company. In the indirect labor cost, it does
not take part directly in production purpose of the company.
3. Expenses: direct cost and expenses are directly identified within individual cost centers. Such as
hire charges of land and buildings, cost of a defective task in the management. In the indirect
expenses, it cannot be recognized as individual cost centers. For example, rent, salary payment,
and lighting and office expenses (Atrill & Mclaney, 2013).
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[M2, D2] Role of setting selling prices in the service business environment:
Pricing strategies to be adopted by Comfort Inn hotel, UK:
1. Premium Pricing: in the hospitality industry, high charges amount for specific products. For
example, a high amount can be charged by Comfort Inn for cruises, luxurious suites, hotel
facilitation etc. (Richards, 2017).
2. Penetration pricing: in this strategy, it continues the trends to reduce the prices of services to
attract more customers compared to the competitors.
3. Price skimming: when hospitality sectors have chances to take competitive advantages, the
prices are used to be increased. These advantages are not constitutive so high prices attract those
customers who want to consume luxurious lives. It tends to continue high prices to lead to
attracting new competitors in the market (Richards, 2017).
There are various approaches to setting prices in setting prices in the Comfort Inn Hotel:
Cost-based pricing: cost-based pricing is based on an addition of profits and income
components on the top if the cost element while producing the products.
Customer-based pricing: customer based pricing is basically depended on customers wants. It
is determined by the believing ness of the firms about how much amount is consumer able to pay
for a particular product.
Competitors–based pricing: according to this approach, the price is determined according to
market conditions and various components influenced by competitors’ pricing strategies
(Tutor2u, 2017).
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B. Evaluate the methods of controlling stock and cash and discuss the cost and benefit of at
least two methods used in your chosen organization. [P2.2]
There are various stock and cash controlling methods which are used in Comfort Inn Hotel to
analyze cost and benefit within the organization:
Techniques for inventory or stock control:
1. Minimum stock level: In this stock controlling method, Comfort Inn Hotel use Re-order
model to minimise its stock level when it would reach a pre-organised level of minimum
stock.
2. Economic Order quantity: it measures the optimum quantity of product to purchase at one
minimum level of time in a subject to reduce the annual cost of carrying, ordering and holding
items of inventory (Info entrepreneur, 2017).
The two methods of controlling cash activities in Comfort Inn Hotel:
1. Electronic fund transfer: EFF is the main option to control the flows of cash. It is the good
medium of electronic transfer of money from one account to another account across various
institutions with the use of computer systems. In this way, cash flow can be controlled without
direct interruptions of external elements.
2. Bank reconciliation method: it is techniques of how to records accounting process related to
corresponding facts and information of cash. This technique helps match the balances of
businesses accounting transactions and reports of cash records in the bank statement. It helps
to manage differences & changes and ascertain the accounting records accordingly
(Accounting tools, 2017).
In the Comfort Inn Hotel, these controlling components are used to determine cash, prices and
accounting transactions related to stock.
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References:
 Accounting tools, 2017. Bank Reconciliation Overview. [Online] Accounting tools
Available at: https://www.accountingtools.com/articles/2017/5/17/bank-
reconciliation [Accessed on: 21 November 2017].
 Atrill, P. & Mclaney, E. 2013. Accounting and finance for non-specialists. Financial
Times/Prentice Hall. Volume 7
 Career ride, 2017. What are the various elements of costs? [Online] Careerride.com.
Available at: http://www.careerride.com/fa-element-of-cost.aspx [Accessed on: 21
November 2017].
 Cash Flow Accounting, 2011. The three element of profit. [Online] Cash Flow
Accounting. Available at: http://www.cashflowaccounting.com/blog/the-three-elements-
of-profit/ [Accessed on: 21 November 2017]. Harris, P., 2013. Accounting and Finance for the International Hospitality Industry.
International journal of accounting policy.
 Info entrepreneur, 2017. Stock control and inventory. [Online] Canada business network.
Available at: http://www.infoentrepreneurs.org/en/guides/controle-des-stocks-et-
inventaire/ [accessed on: 21 November 2017]
 Richards, L., 2017. Different Types of Pricing Strategy. [Online] Chron. Available at:
http://smallbusiness.chron.com/different-types-pricing-strategy-4688.html [Accessed on:
21 November 2017].
 Rural Information Center, 2015. A Guide to Funding Resources. The United States of a
department of agriculture.
 Tutor2u, 2017. Pricing Strategies. [Online] Tutor2u. Available at:
https://www.tutor2u.net/business/reference/pricing-strategies-gcse [Accessed on: 21
November 2017].
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