This paper circulates around the core theme of Task 1 LO1 Understand sources of funding and income generation for business and services industries together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
Unit 2: Finance in the Hospitality Industry
Unit 2: Finance in the Hospitality Industry
Task 1 LO1 Understand sources of funding and income generation
for business and services industries
1.1 review sources of
funding available to business and services industries
As an employee of Alpha Beta
services my aim is to help small business owners or people think of starting a
business within the hospitality industry by informing them of the funding
available for these businesses and income generation for businesses and service
industries. With small businesses or people thinking of starting a business is
probably always the biggest problem. Below is a list of some of the most
popular funding and start-ups available: * Loans: Loans are one of the most
popular sources of funding. There are two types of loans secured and unsecured.
The difference between the two is that with a secured loan the borrower
initiates some assets and an unsecured loan is a loan that is not initiated by
any assets. Assets also known as goods can be anything from business equipment,
inventory or a receivable. The first is the time over which it takes to pay the
loan off (the term) and the interest rate. According to Pakroo (2010) a
majority of business loans are short term from between one to three years. In
addition, Pakroo (2010) also stated Banks are the most popular place where
business and service industries get their loans from. * Investors: There are
people who contribute in financing your business, they are called investors.
Investors usually take a significant amount of equity or ownership (a certain
percentage) in the business, but the investment that they make in financing
your business does not have to be paid back to them. There are two main types
of investors; private and angel investors. According to Cobb (2012), an angel
investor’s capital in a new business is considered to be a high risk investment
since the new company has not yet recognised a solid track record of success. *
Sponsorship: A sponsor can be an individual or a group that provides financial
support. For example, O2 spends £6m a year sponsoring the former millennium
dome which is now as the O2 arena. * Small Business Schemes: Small business
schemes are intended to encourage new and small growing businesses, to bring
wealth and ultimately create jobs * Grants: There are two types of grants,
direct grant and repayable grants. A direct grant is a cash award, which is
often given out for activities such as training, export development or
staffing. A repayable grant is a scheme where cash funding is offered for a
project with the intention that the sums are paid out of future revenues.
However, if the project fails, the grant is written off. * Franchise: Buying a
franchise or an existing business if often the right way for certain
individuals. In addition, according to Keup (2012) individual buy franchise
because there is a “lower risk of failure and/or loss of investment than if you
were to start your own business from scratch”. According to Mendelsohn (2004),
franchising is a method of marketing goods and services which knows no
boundaries in terms of business categories. * Lease Schemes and Hire Purchase:
Leasing schemes and hire purchasing are financial facilities which permit a
business to use an asset over a fixed period. With leasing schemes ownership is
never passed to the business customer as with the hire purchase the business
customer will normally be responsible for maintenance of the equipment. They
are both similar in a sense but both have different characteristics.
1.2 evaluate the contribution made by a range of
methods of generating income within a given business and services operation
In every business or service operation the main goal is growth. Therefore,
having a method or strategy of generate income is vital. There are a number of
methods and strategies to generate income, a few are listed below: 1. Expansion
of Service: Providing catering services at a different price for special events.
For example, if you own a business that supplies buffet menus to parties
(£12.00 per guest) and are called to buffet a special event you can slightly
increase your prices (£22.00). The fact that you have expanded you services to
also catering for special events will also help generate income. 2. Website:
Technology as we now know it is not the same as it was 10 years ago. The new
generation of technology has meant that most of our needs can be completed
through the work wide web which we now have access to on a variety of device
such as tabloids, smart phones, laptops etc. Websites are a massive way to
generate income, now only is it a way of marketing but it is also a huge way to
increase revenue. For example, a hospitality company such as Pizza Hut have
wide range of outlet stores across the UK and also has a website. As well as
customer visiting the stores to buy a take-away or eat in, customers are also
able to order their food online and book tables. In simple words, hospitality
companies who have websites as well as outlets find that their income if highly
generated as the website attracts more customers. 3. Lend out you Staff: If you
find that your business had grown and you have a sufficient number of staff,
you can loan them to another company for a particular even needing extra staff
or for a set period of time and then getting them back when you need them.
Task 2 & 3
LO2 Understand business in terms of the elements of cost2.1 discuss
elements of cost, gross profit percentages and selling prices for products and
services
2.2 evaluate methods of controlling stock and cash in a business and
services environment
LO3 Be able to evaluate business accounts3.1 assess the source and
structure of the trial balance
3.2 evaluate business accounts, adjustments and notes
3.3 discuss the process and purpose of budgetary control
3.4 analyse variances from budgeted and actual figures, offering
suggestions for appropriate future management action
Every business primarily goal is profit. If a business finds that it is making
a loss rather than a property than there is a big cause for concern. Businesses
that don’t make profits mind that they are not using the correct methods,
strategies or don’t have the correct managerial skills. Profit is usually calculated
by deducting the total costs from the revenue. The cost of services and
products can be classed as either fixed or variable. With a fixed cost being a
cost that does no change in the amount of service or products produced whereas
a variable cost is an expense that changes in proportion to the activity of a
business. The gross profit percentage is represents how much of sales revenue
is spent on providing products or services The selling price is the market
value that will buy an amount of product or service.
There are various methods for controlling stock in the business and service
environment, two of which are listed below: 1. Fixed re-order stock level: This
method of stock controlling is where the business makes a decision on the
minimum level of stocks it can take and then re-orders before the stock reach
this level. 2. Fixed time re-ordering: With this method of stock controlling
the company will re-order stocks at a fixed time of the week or month.
Controlling cash in any business or service environment involves careful
bookkeeping and security. There are also various methods for controlling cash
in the business and service environment, three of which are listed below: 1.
Hiring the right people: Cash controlling starts with people therefore it is
vital that you hire the right people who don’t have criminal records and
backgrounds of theft. 2. Records of transactions: Keeping receipts of cash
transaction permits accuracy in bookkeeping. 3. Securing Cash: Placing CCTV
camera and using drop safes to store cash are ways of protecting cash when a
transaction takes place.
According to Pandey (2002) a trail balance is a list of general ledgers
accounts contained in the ledger of the business. Trail balance is used to
final accounting. The structure of the trial balance
There are two sides in the trial balance, the debit and the credit side. The
debit side outlines all debit balance figures and the credit side outlines all
credit balance figures in the ledgers.
TRIAL BALANCE STRUCTURE
DRCR
Assets xxx
Expensesxxx
Income (e.g. sales)xxx
Purchasesxxx
Capitalxxx
Liabilitiesxxx
xxxxxx
The whole process is straight forward and is for the accounts to be balanced
off. The balancing of accounts involves the following steps: 1. Add amounts on
both sides of the accounts.
2. Find the difference between the two sides by deducting the lesser amount
from the greater amount of the two sides. The balance brought forward is used
to tell whether the account has a credit balance or a debit balance. If it is
on the credit side, it is said to have a credit balance and if the account is
having its balance brought down on the debit side, it is said to have debit
balance.
Business accounts should be the first task to tackle one started a business as
the main purpose of running a business is to take cash from customers for the
products or services in which you provide. A business account is a way to
manage a company’s finances in an efficient manner. Adjustments are
transactions that have not yet been journalised, appended to the trial balance.
Adjustments are also transactions relating to the business. Notes examine the
balance sheet and profit and loss account and provide explanations, details,
definitions and associated theories. Budgetary control is controlling a company’s
operations through standards and target regarding income and a continuous
visual and adjustment of performance against them. There are three main process
of the budgetary control involves planning, coordination and responsibility and
performance evaluation. Any discrepancies that exist between the budgeted
figures and the actual results are known as variances. Variances can be either
positive or negative. A positive variance means that the budgeted amount was
less than the actual amount spent and a negative variance means that the budget
amount was greater than the actual amount spent. An appropriate future
management is to first flex the budget, then analyse the variance, then
identify the cause and finally take the appropriate action.
Task 4
LO4 Be able to analyse business performance by the application of
ratios4.1 calculate and analyse all ratios to offer a consistent interpretation
of historical business performance
4.2 recommend appropriate future management strategies for a given
business and services operation
4.1
Profitability Ratios
Efficiency Ratios:
1. Stock Turnover (ST)
Cost of sales
Average stock
Cost of sales
Average stock
ST =
40,000
50,000
40,000
50,000
16,000
15,000
16,000
15,000
Grimes Theme Park 2010: Giant House Theme Park 2010:
ST = =1.1 timesST = =0.8times
40,000
48,000
40,000
48,000
17,600
14,000
17,600
14,000
Grimes Theme Park 2011:Giant House Theme Park 2011:
ST = =1.3 timesST = =0.8times
Analysis: From the above calculation we can see that Grimes theme park has
improved its stock turnover with the ratio rising from 1.1 times to 1.3 times,
from 2010 to 2011. The fact that the stock turnover in 2011 is not too high
shows that the business has good stock management. The above calculation also
shows that Giant house theme park has kept its stock turnover ratio constant
with a ratio of 0.8 in both 2010 and 2011. This indicates that there is a
constant flow of the money coming in.
2. Trade Creditors Payment Period (TCPP)
TCPP = (creditors / sales) x 365
Grimes Theme Park 2010: Giant House Theme Park 2010:
TCPP = (2,100 / 16,000) x 365TCPP = (5,200 / 40,000) x 365
= 47.91 Days= 47.45 Days
Grimes Theme Park 2011:Giant House Theme Park 2011:
TCPP = (2,016 / 17,600) x 365TCPP= (5,120 / 40,000) x 365
= 41.81 Days= 46.72 Days
Analysis: The above figures indicate it took less time for the two theme parks
to pay their creditors in the 2011. This is a good sign because Pendlebury
(2003) stated that “if too long a period is taken to pay creditors, the credit
rating of the company may suffer”. As the time taken to pay the creditors
reduced in 2011, it will be less difficult for both theme parks to obtain
credit.
Liquidity Ratios:
1. Acid Test Ratio (ATR)
ATR = (Current assets – inventory) / Current liabilities
Grimes Theme Park 2010:
ATR = (38,000 – 15,000) / 44,000
= x0.5
Grimes Theme Park 2011:
ATR = (37,000 – 14,000) / 35,000
= 0.7
Giant House Theme Park 2010:
ATR = (120,000 – 48,000) / 110,000
= 0.6
Giant House Theme Park 2011:
ATR = (125,000 – 48,000) / 105,000
= 0.7
Analysis: The acid test ratio is the stringent test of liquidity. It removes
inventory as inventory is the least liquid of the current assets. According to
the figures above we are able to say that both businesses were in a better
position in the year 2011 than of 2010. Although the acid ratio for both theme
parks is not above 1.0, it is an improvement and a step closer to reaching
above 1.0. An acid ration of over 1.0 is a good sign and indicates that a
business is well placed to be able to pay what it owes.
2. Current Assets Ratio (CAR)
CAR = current assets / current liabilities
Grimes Theme Park 2010:
CAR = 38,000 / 44,000
= 0.7
Grimes Theme Park 2011:
CAR = 37,000 / 35,000
= 1.1
Giant House Theme Park 2010:
CAR = 120,000 / 110,000
=1.1
Giant House Theme Park 2011:
CAR = 125,000 / 105,000
= 1.2
Analysis: With both theme parks we see that there is an increase in the current
asset ratio from the 2010 to 2011. This clearly shows that the liquidity
position for both theme parks has improved.
Investment Ratios:
1. Dividend per Share
The dividends per share are given and are as follows:
Grimes Theme Park 2010 = 8p
Grimes Theme Park 2011 = 10p
Giants House Theme Park 2010 = 12p
Giants House Theme Park 2011 = 10p
4.2
Future Management Strategies
With regards to the results gained from the stock turnover ratio, Grimes theme
park improved its stock turnover from 1.1 times to 1.3 times from 2010 to 2011
which is a good sign. On the other hand, Giant House them park kept a constant
stock turnover for the two years which indicates that the theme park needs to
improve on the number of times in which stock converts to sale in a period as
the quicker the theme park turns over its sales the better. One way in which
Giant House theme park can boosts in stock turnover are: 1. Giant house theme
park can offer sales promotions for example; one child (under the age of 12)
gets a free entry for every two adults. These promotions should be highly completed
during holiday breaks and festive breaks in order to attract more customers.
The results obtained from trade creditor’s payment period for both theme parks
showed that there time taken to pay back what they owed reduced throughout 2010
to 2011 was is a very good sign as it helps their chances of getting credit in
future and trust. With regards to future management strategies the two theme
parks should continue in the direct of continuing to pay the creditors within a
less period of time. From the results obtained from the acid test ratio, both
companies will have to continue improving their liquidity. So, both theme parks
will need to improve their ability to pay their bills as they come and get
their acid test ratio above a 1.0. Below are three ways in which the companies
can improve their liquidity: 1. Both theme parks can appraise the profitability
on the company’s services and products. Find out where they can increase prices
in order to help raise or maintain profitability. 2. The two theme parks can
also review their overheads and find if they can be reduced as decreased
overhead costs have a huge effect of the profit. Two examples of overhead are
professional costs and advertising. 3. Another suggestion is that the two theme
parks should monitor the amount of money deducted from the accounts for
non-business and business uses.
UNIT 14: HOSPITALITY CONTRACT AND EVENT MANAGEMENT
Task 5
5.1
Cost Categories:
* Fixed - £450
* Variable -£13.50
* Semi-variable - £21.00
60 guests are required for the restaurant to reach breakeven. * Calculation:
450 / (21-13.50) = 60
Value of the revenue:
Total revenue = sales price x r of units
= 21.00 x 60
= £1,260
5.2
Every guest makes a contribution of £7.50 towards the fixed cost of the
business. * Calculation: 450 / 60 =£7.50
The cost/profit/volume relationship in this scenario will help the restaurant
owners understand and manage the interrelationships with the cost, volume and
profit. It will strongly help them in decision making in what products they
should sell, the pricing policy in which they should follow, other product
facilities in which they should include or what sort of marketing strategy they
should use. If 80 people were booked the profit and margin of safety will be as
follows: * Profit = Revenue – Costs
= 21.00 x 80
= £1,680
=1,680 – 1,260
Profit = £420.00
* Margin of Safety (MOS)
MOS = Actual unit – breakeven unit
= 80 – 60
= 20 guests
In regard to this scenario the number of guests can fall by 20 before the
restaurant reaches its breakeven point. If 100 people were booked and the price
per ticket was reduced to £18.50, the profit and margin of safety will be as
follows: * = 18.50 x 100
= £1,850
Profit = 1,850 – 1,260
= £590.00
* MOS = 100 – 69
= 31 guests
At this rate the restaurant is able to reduce the number of guests by 31 before
the restaurant reaches its breakeven point. * Calculation:
= 31 x 18.50
= 573.50
= 1,850 – 573.50
= £1,276.50
The above figure of £1,276.50 clearly is above the original breakeven point of
£1,260 and that there is still a profit of £16.50. If the restaurant were to
reduce the number of guests by 32 the restaurant will be below the breakeven
point and a loss of £22.00 will incur. * Calculation:
= 32 x 18.5 = 592
=1,850 – 592 =1,238
= 1,260 – 1,238 = 22
5.3
A profit is the money a business or service operation keeps after paying of all
expenses and a loss is when the expenses exceed the amount of sales a business
makes in a certain period. A review and assessment of the business’s present
financial position is the first step to managing profit and loss. A historic
review on the business or service operation (last two or three years) and
compare it with the current profit and loss. An example of very strong tool
used to manage and calculate the risk of loss on a specific portfolio or assets
is called Value at Risk (VaR).
LO5 Be able to apply the concept of marginal costing5.1 categorise costs
as fixed, variable and semi-variable for a given scenario
5.2 calculate contribution per product/customer and explain the
cost/profit/volume relationship for a given scenario
5.3 justify short-term management decisions based on profit/loss
potentials and risk (break-even) calculations for a given business and services
operation
The
formula used to calculate the level of activity needed in order to make profit
is: = (Required Profit + Fixed costs) / contribution per unit
M32HRM Taking on board that the margin of safety
is the difference between the budgeted level of activity and the breakeven
level of activity. The level of activity recommended for the restaurant is that
they should reduce the price as it a higher turnout including profits and the
number of guests will still be above the number of guests at the breakeven
point. In simple words, the restaurant should set its prices to £18.50 instead
of £21.00 as there will be a higher turnout.
