Finance In Hospitality
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5253 Downloads I Published: 17 May ,2017
Finance in any industry is an essential element as it assists in performing business operations effectively and efficiently. Hospitality industry is customer oriented industry in order to fulfill targeted customers needs and wants financial resources plays major role (Pitt, Collins and Walls, 2006). In the first part report will focus on small business sources of finance in order to expand their business of chain of restaurants. In second part report will discuss about the monitoring and controlling stock and cash at Mark & Spencer Plc. In the third part report will study about the financial position of R. Riggs and in last part importance of costing in a small ltd business will be discussed.
Finance refers to funds or money required by an organization in order to accomplish their business operations effectively and efficiently. There are several sources of finance available to an association in order to fulfill their financial needs and wants (Power, 2010). In other words finance can be termed as managing of mammoth amount of money or liquidity available to company for performing their business operations. There are two types of sources of funds available to company such as internal and external sources.
Internal sources – Sources which can be raised or arranged within the firm is termed as internal sources. Internal sources for small business can be owner’s capital, retained earnings, sale of fixed assets etc. The main aim of these sources is to raise funds for short term obligations (Dittenhofer, 2001).
External sources – Sources which are raised from outside organization in order to meet firs long term liabilities are termed as external sources. External sources for a small business enterprise can be bank loan, creditors, hire purchase and government grants (Wildavsky, 2006).
According to the given case, finance in hospitality industry can be raise through above sources in order to accomplish their business activities effectively and efficiently. For small business enterprise operate as a sole trader, requires new machinery for improving its performance. Cost of machinery is £50000, which means in order to acquire this much business enterprise have to adopt external sources of finance for making decision regarding capital investment appraisal. Bank would the most appropriate sources as it can be acquired easily and the fluctuating interest rates can assist firm’s course of action.
On the basis of generating income for large chain of restaurants, organization can use focus on adopting external sources. These sources are suggested because in the present situation, position of firm is low and it is because they operating at lower level and through internal sources company cannot raise or generate large amount for the expansion (Jara and Ebrero, Zapata, 2011). There are different types of means of sources through which small business enterprise can raise funds for expanding their large chain of restaurants such as bank loan or leasing. Both of these external sources would be suitable for firm in order to generate and repayment of funds. But before indulging into these sources manager should critically evaluate the advantages and disadvantages of sources.
Through this external source company raise funds quickly by performing just mere formalities. Effectiveness of bank loan is that it can be available easily and repayment of loan can be done on monthly installments. Firm can adopt this source of finance for expanding their chain of restaurants because from bank loan large amount can be acquired which could be feasible for company to perform their future business operations effectively and efficiently (Vance, 2002). disadvantage of this source is that even if chain of restaurants are unable to generate revenues than also company has to incur payment of monthly installment with interest charged.
Leasing refer to the process of acquiring land, machinery or assets which are essential for an organization in order to perform their business operations for specific period of time and after completing the operations those assets can be returned to owner or financial institution. In other words, leasing can assist small business enterprise to acquire land, machinery and latest technology in order to upgrade their services offered in restaurants (Alexander, 2007). For expanding firm will require building or place to locate their restaurant leasing can be used their also. Disadvantage of this source of finance is that acquired will always belongs to financial institution and it can be used for limited period of time.
Cost refers to the value of money which utilized in order to have something. In the context of business enterprise, cost can be termed as valuation of several elements such as efforts, material, resources, time and utilities consumed. Cost has different types of elements through they specify for each operations that company indulge in achieving their goals and objectives such as material cost, labor cost and overheads (Power, 2010).
Material cost refers to the cost which Mark and Spencer incur in order to produce finished products. This cost includes costing relating to raw materials is termed as material cost. This cost is categorized into two subheads direct material and indirect material.
Labor cost refers to the cost relating to the human efforts indulged in producing the finished goods from raw material. In other words, labor cost is the payment made to employees for performing their task effectively and efficiently by Mark & Spencer. This cost is further classified into direct labor and indirect labor.
Overheads refer to the costs incurred by firm excluding material and labor in order to produce goods and services. Overheads are further broadly divided into direct and indirect overheads.
Managing and controlling of liquidity and materials are the major task or operations for Mark and Spencer Company because of their dealing is retail sector. There are several departments which are managed and monitored by manager (Zuashkiani, Banjevic and Jardine, 2009). Therefore, every manager is making valiant efforts for improving company’s performance on regular basis such as sales manager is focusing on increasing the sales of Mark and Spencer in order to meet out firm’s desired financial needs and wants. Secondly, human resource manager is focusing on managing human workforce of business enterprise effectively and efficiently for favorable outcome. Thirdly, financial manager is focusing on managing the inflow and outflow of cash or cash equivalent. Mark & Spencer Company incurs several costs which can be identified and evaluated with sales volume quite easily such as direct cost including carrier bags provided to customers for their comfortability in handling products. Moreover cost relating to recruitment process because firm focuses on recruiting qualified and individuals from different ethnic are background so that each customer’s need be satisfied with efficiency (Stanek, 2002). Furthermore, focusing on controlling stock will assist Business Corporation to offer quality and quantity products and services to its targeted clients. Managing inventory firm can identify and evaluate the actual requirement of raw materials or resources required which could assist them in maintaining their cost.
Budget process can be defined as the process of preparing and approving budget regarding the flowing of funds or money in business enterprise. The main aim of budget is that it assist companies to prioritize their activities an according to that incur expenditure and furthermore reviewing business operations feasibility (Foo, 2008). In the context of Business Corporation, budgets are prepared to judge actual financial performance to desired one. Managers focus on preparing budget because it help in indulging several essential operations like goal setting, utilization of available resources for achieving targets etc. On the other hand budget provides financial information in order to make decisions regarding futuristic strategies in accomplishment of goals and objectives. There are several budgets that are prepared by an corporation for managing and controlling their operations effectively and efficiently are as follows: sales budget, cash budget, material and labor budget and master budget. All these budgets assist in identifying and evaluating the actual financial performance of any organization and if required than measures can be taken accordingly (Wildavsky, 2006).
Secondly business enterprise expected material cost to be at 15000, but the actual cost incurred in producing set of spoons was 22500, this variance of (7500) indicates that financial manager was unable to focus on pricing strategy while purchasing of raw materials or the production process indulged was not suitable and increased the cost.
Thirdly, labor cost was budgeted at 22500 which increased during the process to 24735 with the variance of negative 1857. This could be because HR or Operational manager did not assign duties to their subordinates, that impacted their performance and overall expenses were increased.
Total price variance and usage variance can be identified, which indicates that pricing strategy and utilization of resources were not made effectively and efficiently.
From the above calculation ratios it can be concluded that existing market position of R. Riggs is effective and sustainable. On that note fir should concentrate of their existing strategies like pricing, marketing, distribution and selling. When company thinks of expanding their business operations than they should focus on pricing strategy along with that marketing and promotions of products would also be essential for them sustain for longer period of time. Through indulging marketing strategies such as differentiation and segmentation strategy R. Riggs can have more control on their products and services and with that customer base can also improved.
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Cost refers to the value of money which utilized in order to have something. In the context of business enterprise, cost can be termed as valuation of several elements such as efforts, material, resources, time and utilities consumed (Zuashkiani, Banjevic and Jardine, 2009). Furthermore, cost is categorized under three sub heads: fixed cost, variable cost and semi variable cost.
Fixed cost – Fixed cost is a cost which does not change with the change level of production. In other words, fixed expenses refer to the cost which a manufacturing company has to incur while producing goods and services (Dittenhofer, 2001). It is a periodic cost which remains unchanged as the level of output changes such as depreciation, rent, interest, salary etc.
Variable cost – This is the cost which is changed according to the level of production. In general words, variable cost refer to the cost which changes as there is increase in the units produced by manufacturing company. Variable cost includes several elements such as raw material, energy usage and labor costs etc.
Semi variable cost – Semi Variable cost refers to the cost which indulges both fixed and variable cost. In other words, this type of cost can be termed at partly fixed and partly variable.
From the above research report it can be concluded that finance in hospitality industry also plays a vital role because in this industry trends changes very quickly and to meet out those changes companies needs to have efficient amount of financial resources (Stanek, 2002). Several sources of finance can be used in the future operations of hospitality industry such as internal and external. On the basis of case it is recommended that external sources for small business are appropriate in order to expand their chain of restaurants. In the last part report discussed about financial position of R. Riggs Ltd by calculating their ratios and analyzing their financial statements.
Dittenhofer, A. M., 2001. Behavioral aspects of government financial management. Managerial Auditing Journal. 16(8). pp.451 – 457.
Foo, T. C., 2008. Conceptual lessons on financial strategy following the US sub- prime crises. Journal of risk finance. 9(3). Pp. 292-302.
Jara, E. G., and Ebrero, A. C., Zapata, R. E., 2011. "Effect of international financial reporting standards on financial information quality". Journal of Financial Reporting and Accounting. 9(2). Pp.176 – 196.
Pitt, M., Collins, N., and Walls, A., 2006. The private finance initiative and value for money. Journal of property investement &finance. 24(4). Pp. 363-373.
Prior, P. B., 2004. Managing Financial Resources and Decisions. BPP Professional Education.References
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