Sources Of Funding And Financial Management Strategies For Hospitality Industry

Methods of Revenue Enhancement

Following are few sources of findings which could be used by the hospitality industry to raise the funds:

1. Private equity and angels
2. Debt finance
3. Personal finances
4. Enterprise investment scheme
5. Equity crow funding.  
6. Income generation method:

Following are few methods, on the basis of which the revenue of the company could be enhanced:

Methods	Advantages	Disadvantages Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Discounts	1. It would attract the customers. 2. Income would be higher. 3. Even in off season, company would be able to reach at BEP.	1. Total profitability level would be lower. 2. Not a good option for niche hotels. 3. Discounts can only be given in the off season.
Occupancy and room rates	1. The lower room rate would make more influence on the guest. 2. Even in off season, company would be able to reach at BEP. 3. Income of the hotel would be higher.	1. Not a good option for niche hotels. 2. Discounts can only be given in the off season. 3. Marketing cost would be higher.
Food and beverages	1. Income of the hotel would be higher. 2. Good taste of food would attract the customers. 3. Goodwill of the hotel would be enhanced.	1. Extra fixed cost would be occurred. 2. Marketing cost would be higher. 3. Depends on the taste of the food and choices.

Financial management in hospitality industry:

The main key decision maker in the hospitality industry is financial manager in context of finance. Finance manager evaluates all the financial transaction and performance of the company and make the new financial strategies on the basis of that. A financial manager is required to analyze every single factor related to financial position and performance of the company so that it becomes easy for them to make financial strategy for the business.

Following are few factors which must be considered by the companies which evaluating the cost:

1. Customers
2. Profit
3. Positioning
5. Gross profit margin or net profit margin:

Gross profit is calculated by deducting the cost of sales from total sales whereas net profit is calculated after deducting all the expenses of a particular period from total sales. Following is the formula to calculate the gross profit margin and net profit margin:

Gross profit margin = (Gross profit / sales) *100

Net profit margin = (Net profit / sales) *100

The profit margin of XYZ is as follows:

Calculation of profit margin
Sales	€ 25,310.70
Less: production cost	€ 17,360.00
Profit	€   7,950.70
Profit margin (profit / sales)	31.41%

Sources of finance:

Irish government could evaluate the following sources for the resorts:

1. Private equity and angels
2. Debt finance
3. Government funds
4. Enterprise investment scheme
5. Equity crow funding (Damodran, 2011).  

According to the study and evaluation, it is suggested to the company to consider the private equity and equity crow funding for the resorts.

1. Generating income from holiday resort:

The evaluation on the hospitality industry of the company briefs that the income could be generated by resort through many sources. The hotel, food and the adventures are the main sources of the company. These should be the main focus of the management of the resort.

1. Different income of sources:

There are various other different sources for a resort to generate the profits. Holiday resort of Irish government could generate the income through following the below methods:

1. Inside water park
2. Restaurant, nightclubs and bars
3. Retail shops
4. Family entertainment canter
5. Multipurpose theatre
6. A day spa
7. Coffee shops and eateries etc.

All these methods would help the resort to attract more guests and enhance the revenue of the resort.

1. Vat and its purpose:

VAT stands for value added taxes. It is a type of consumption tax which is collected incrementally and it directly bases on the value of a service or product at every stage of distribution and production. VAT is collected by the government of the country and it is an indirect tax form. The main purpose of VAT is to collect the tax amount on indirect activities and income of a business or individual.

1. Main challenges in hospitality industry:

Financial Management in Hospitality Industry

Stocktaking is a procedure to calculate the total amount of stock which is held by an organization. Various issues are faced by the hotels to measure the stocktaking. Some of them are as follows:

Lack of objectivity and confidentiality

Risk of accidents

Higher cost due to payment of overtime

Lack of necessary know-how

Lack of knowledge

Risk of getting wrong results

Failure to detect some losses etc (Brigham & Ehrhardt, 2013)

Corporation tax is company tax which is directly imposed by the government of a country on total income or capital of a business. These taxes are levied either at national level or local level.

Ireland is an attractive place for the companies because of lower corporate tax. The corporate tax of Ireland is 12% only (IDA Ireland, 2018).

1. Examples of cost:

Cost	Examples	Suggestions
Direct cost	Direct Material Direct Labour Direct Expenses	These costs could be reduced by the company through reducing the level of scrap.
Indirect cost	Indirect Labour Indirect Material Indirect expenses	These costs could be reduced by the company through focusing on the extra expenses of the company.
Fixed cost	Plant and equipments Building Machineries Wages to employees Advertising cost Payroll	Fixed cost could not be reduced by the company. Though, the companies could utilize them on fullest.
Variable cost	Flower arrangements Guest room amenities Banquet HVAC costs Food, beverages, housing keeping ((Brigham & Michael, 2013)	Variable costs could be controlled by the comapny through using some new technology.

1. Calculations:
2. Breakeven point:

Calculation of breakeven point
	Per unit	Total
Selling price	€               8.00	€     3,20,000.00
Less:
Direct Material	€               3.00	€     1,20,000.00
Direct Labour	€               1.10	€        44,000.00
Variable cost	€               0.70	€          5,600.00
Contribution (Sales – variable cost)	€               3.20	€     1,50,400.00
Fixed cost	€      65,000.00
Breakeven point (Fixed cost / contribution)	20312.5	€     1,62,500.00

1. Profit calculation:

Profit (Sales – Break even sales)

€     1,57,500.00

1. Sales units:

Calculation of sales unit on the basis of desired profit
	Per unit	Total
Selling price	€               8.00	€     3,20,000.00
Less:
Direct Material	€               3.00	€     1,20,000.00
Direct Labour	€               1.10	€        44,000.00
Variable cost	€               0.70	€          5,600.00
Contribution (Sales – variable cost)	€               3.20	€     1,50,400.00
Fixed cost	€      65,000.00
BEP	20312.5	€     1,62,500.00
Desired Profit		€        50,000.00
Sales units to achieve the desired profit (Desired profit / contribution + sales units)	35937.5	€     2,87,500.00

 Limitations:

Cost volume profit analysis explains about the approximate results only. It is based on many assumptions such as total sales and total cost is linear to each other.

1. Pricing strategies:

Hotel Cocana could use the penetration pricing strategies. This pricing strategy explains that the initial pricing must be set low and with the time, the price of the product or the service should be higher. It makes it easy for the hotel to grab more customers and make loyal customers.

1. Stock and cash flow controlling techniques:

The stock and the cash flow would be controlled by the comapny through following some methods such as LIFO, FIFO, better credit policies etc. In case of souvenir shop, it is recommended to use the weighted average method to control the stock and better cash conversion cycle should be maintained for better cash flows.

Task 3:

1. Explanation:

Name	Explanation
Trial Balance	Trial balance is a statement of all financial transaction of a company. It bases on the double entry account book.
Sole trader	Sole trader is a form of business. It is run by an individual.
Trading account	Trading account is a statement to evaluate the gross profit of the company.
Profit and loss account	It is one of the final financial statements which explain about the financial position of the company.
Balance sheet	It is one of the final financial statements which explain about the financial performance of the company.
Assets	Assets are the property and the resources which are owned by a company.
Liabilities	Liabilities include all the debt amount of a company.
Expenses	Expenses stand for all the cost which is incurred for something (Bromwich & Bhimani, 2005).

Financial consultant:

Trial balance is a statement of all financial transaction of a company. It bases on the double entry account book. Structure of trial balance is as follows:

(Web’s Solution’s Bank Account)
		DR	CR
1000	Assets
1010	Cash (Web’s Solution’s Bank Account)	$        12,065.00
1100	Accounts Receivable	$           6,520.00
1500	Supplies	$              150.00
1550	Prepaid Insurance	–
2000	Equipment	$           1,800.00
2100	Land	$        20,000.00
3000	Liabilities
3100	Accounts payable		$               1,850.00
3300	Unearned Revenue		$               4,500.00
3400	Unearned Rent		$                   240.00
4000	Equity
4100	Owner’s Capital		25000
4200	Withdrawals	2000
5000	Revenues
5100	Service Revenue		17990
7000	Expenses
7050	Rent Expense	$              680.00
7100	Phone Expenses	$              310.00
7150	Electric Expenses	$              225.00
7200	Salary Expenses	$           3,100.00
7250	Internet Expenses	$              150.00
7300	Advertising Expense	$              180.00
7350	Insurance Expenses	$           2,400.00
		$        49,580.00	$             49,580.00

Further, budgetary control process is a procedure to evaluate and predict the future performance of an organization. These procedures evaluate the future sales, expense, profits etc of the company and make it easy for the manager of the company to make future strategies and better decisions about the future performance of the company.

Notes to the accounts brief that how the amount has been calculated and the relevant information about the figure. Notes to account should be evaluated by the company to measure and evaluate the performance of the company.

1. Calculations:

Material Cost Variances		Variances
Direct Material Price Variance	(actual quantity * Standard price) – (actual quantity * Actual price)	€          6,600
Direct Material Usage Variance	(Standard quantity * standard price) – (Actual quantity * standard price)	€      -31,200
Labour Variances
Direct Labour rate Variance	(actual hours * Standard rate) – (actual hours * Actual rate)	€        -8,040
Direct Labour efficiency Variance	(standard hours * standard rate)- (actual hours * standard rate)	€        -7,920

(Arnold, 2013)

These material variances have taken place due to lower material price and huge product requirement. On the other hand, labour variances have taken place due to high labour cost as well as lower labour hours. It explains that the company is required to focus on the labour cost as well as material requirement to manage and reduce the level of cost.
Task 4:

1. Financial ratios:

Ratio Calculations		2003	2002
Profitability Ratios:
Return on Capital employed
Operating profit /		€          5,750	€          6,515
Capital employed (total assets – current liabilities)		€        47,505	€        34,912
Answer:	%	12.10%	18.66%
Gross Profit Margin
Gross profit /		€        33,092	€        28,800
Sales Revenue (note used operating revenue)		€      2,05,157	€      1,82,530
Answer:		16.1%	15.8%
Asset Efficiency Ratios
Trade payable payment period ratio
Accounts payable/		€        17,048	€        13,585
Cost of sales		€      1,72,065	€      1,53,730
Answer: (note the above needs to be x 365)		36.16	32.25
Inventory Turnover (days)
Average Inventory /		€        12,482	€        11,862
Cost of Sales	# days	€      1,72,065	€      1,53,730
Answer:  (note the above needs to be x 365)		26.48	28.16
Receivables Turnover (days)
Average trade debtors /		€        32,287	€        28,410
Sales revenue  (note used operating revenue)	# days	€      2,05,157	€      1,82,530
Answer:  (note the above needs to be x 365)		57.44	56.81

1. Recommendation on financial strategies:

The above analysis on financial statement briefs that the gross profit margin of the company has been enhanced but on the other hand, return on capital employed of the company has been lower. It briefs that the profitability position of the company has been better but it is required for the company to reduce the level of debt amount so that the better position could be maintained.

Further, it explains that the current cash conversion cycle of the company is quite higher and it is required for the company to manage and reduce the level of cash conversion cycle.

Task 5:

1. Explanation:

Name	Explanation
Fixed cost	Fixed cost is the total cost which is not affected by the total sales volume of a company.
Variable cost	Variable cost is the cost which gets affected by the changes in the sales volume of a company.
Breakeven point	It is the point where total cost of a company and the total revenue of the company are equal.
Sales revenue	Total amount from sales is known as sales revenue.
Contribution	Contribution is the amount which is got by deducting the variable cost from sales revenue (Brealey, Myers & Marcus, 2007).

1. Breakeven point:

a) Calculation of breakeven point
	Per unit
Selling price	€              8.00
Less:
Variable cost	€              4.50
Contribution (Sales – variable cost)	€              3.50
Fixed cost	€     65,000.00
Breakeven point (Fixed cost / contribution)	18571

1. Calculation of sales unit:

b) Calculation of breakeven point
	Per unit
Selling price	€              2.00
Less:
Variable cost	€              0.50
Contribution (Sales – variable cost)	€              1.50
Fixed cost	€  2,50,000.00
Breakeven point (Fixed cost / contribution)	166667

References:

Arnold, G., (2013). Corporate financial management. Pearson Higher Ed.

Brealey, R., Myers, S.C. & Marcus, A.J., (2007). FundamentalsofCorporate Finance. Mc Graw Hill, New York.

Brigham, E.F. & Ehrhardt, M.C., (2013). Financial management: Theory & practice. Cengage Learning.

Brigham, F., & Michael C. (2013). Financial management: Theory & practice. Cengage Learning.

Bromwich, M. & Bhimani, A., (2005). Management accounting: Pathways to progress. Cima publishing.

Damodaran, A. (2011). Applied corporate finance. 3rd edition, John Wiley & sons, USA

IDA Ireland. (2018). Corporate Tax. (Online). Retrieved as on 14^th April 2018 from https://www.idaireland.com/invest-in-ireland/ireland-corporate-tax.