Review sources of funding available to business and services industries

Assignment Brief

Unit 2: Finance in the Hospitality Industry  

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 1.2 evaluate the contribution made by a range of methods of generating income within a given business and services operation
LO2 Understand business in terms of the elements of cast	2.1    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 accounts	3.1   assess the source and structure of the trial balance 3.2   evaluate business accounts, adjustments and notes 3.3   discuss die process and purpose of budgetary control 3.4  analyse variances from budgeted and actual figures, offering suggestions for appropriate future management action
LO4 Be able to analyse business performance by the application of ratios	4.1 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
LO5 Be able to apply the concept of marginal costing	5.1 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-ever) calculations for a given business and services operation

Sample Answer

Unit 2: Finance in the Hospitality Industry

LO1: Understanding sources of funding and income generation

1.1 Sources of Funding in Hospitality

In the hospitality industry, businesses can access various types of funding to support their operations and growth. Common sources include:

• Bank Loans – Most hotels and restaurants use bank loans for large purchases or renovations.

• Owner’s Equity – Money invested by the owner(s) themselves.

• Investors – External individuals or groups who invest in return for a share of the business.

• Government Grants – Sometimes offered to boost tourism or help local businesses.

• Leasing – For equipment and furniture, leasing helps reduce upfront costs.

1.2 Methods of Income Generation

Income in the hospitality industry comes from different activities:

• Room Bookings – Main income source for hotels.

• Food and Beverage Sales – Restaurants and hotels earn from food and drink.

• Events and Conferences – Hotels often hire spaces for meetings or weddings.

• Additional Services – Like spa, laundry, or transportation services.

Each method contributes to the overall income. For example, a hotel may make more from conferences during weekdays and from rooms on weekends.

LO2: Understanding Costs in Business

2.1 Elements of Cost, Gross Profit and Selling Prices

• Cost of Goods Sold (COGS) – The cost of making or buying the products sold (e.g., ingredients in a meal).

• Labour Costs – Wages and benefits paid to employees.

• Overheads – Costs like rent, electricity, and cleaning.

Gross Profit is calculated as:

Gross Profit = Sales – COGS

Gross Profit Percentage helps measure profitability:

Gross Profit % = (Gross Profit / Sales) x 100

Selling prices are usually set by adding a markup to the cost to ensure profit.

2.2 Controlling Stock and Cash

• Stock Control – Done using inventory systems, stock rotation (FIFO), and regular stock checks.

• Cash Control – Using cash registers, receipts, and regular audits to prevent theft or errors.

LO3: Evaluating Business Accounts

3.1 Trial Balance

A trial balance lists all ledger account balances. It checks that total debits equal credits, ensuring the records are accurate.

3.2 Evaluating Accounts and Adjustments

Adjustments like depreciation, prepayments, or accrued expenses help give a true picture of the business’s financial position.

3.3 Purpose of Budgetary Control

Budgetary control compares actual results with planned results. It helps businesses:

• Stay within their budget

• Identify where spending is too high

• Make informed financial decisions

3.4 Analysing Variances

A variance is the difference between budgeted and actual figures.

• Favourable Variance – When income is higher or costs are lower than expected.

• Adverse Variance – When costs are higher or income is lower.

By analysing variances, management can take actions like cutting costs or increasing promotions.

LO4: Analysing Performance with Ratios

4.1 Key Financial Ratios

• Gross Profit Margin = (Gross Profit / Sales) x 100

• Net Profit Margin = (Net Profit / Sales) x 100

• Current Ratio = Current Assets / Current Liabilities

• Return on Capital Employed (ROCE) = (Net Profit / Capital Employed) x 100

Ratios show how well the business is doing financially.

4.2 Management Strategies

If a hotel’s profit margin is low, they might:

• Raise prices slightly

• Reduce waste

• Offer bundle deals to attract more guests