Unit 1 Finance Hospitality Industry | Online Hospitality Course

Introduction

Unit 1 Finance Hospitality Industry will enable learners to develop practical understanding of the accounting techniques used to control costs and Unit 1 Finance Hospitality Industry | Online Hospitality Courseprofits, and to support managers in making effective short-term decisions.

Task 1

1.1 Sources of funding available to finance the theme park project

Any capital project either it is opening a theme park or else establishing a factory or industry needs finance. As, finance is the breath of any business either it is a manufacturing business or a  service industry  i.e. hospitality industry. Whether to initiate a business or to run an already initiated business any industrialist needs money, capital, or we can say funds. The adequate amount of funds are needed in a business for various purposes like to purchase capital equipment and land to initiate business, employing experts and employees and labors and payment of their wages, various running and maintenance costs, and so on.  (Hussain, 1989).Thus, it is very important for a business man to procure proper amount of funds for its business. To procure funds various options are available to him in the market. He can either procure it from:

  • Internal sources of Finance
  • External sources of finance

Its up to the owner of the business to choose appropriate source of finance according to its needs and considering various implications of sources like legal, financial implications, dilution of control or bankruptcy implications. Similarly, to initiate the Theme park project the government of Hong Kong may look ate following funding options:

Internal source of finance: The various types of financing options within the organization i.e. intra organizations are:-

  1. Retained Earnings: This option is generally practiced by growing firms. They have 100% retained policy. Retained earnings are referred to as the collection of funds by the organization i.e. collecting funds by not distributing it to the members as dividend.
  2. Working Capital Management: The funds used to manage the routine expenditure of the organization are called working capital funds. A business may generate funds by considering its working capital needs by:
  • Increase in revenue: For any organization whether it’s manufacturing or the service industry the prime source of income is sales. And the sales of any organization are the factor of demand and supply conditions of the market. However, it is not in the control of the business owner either to increase or decrease the sales.
  • Delay in making payments: By delay in making payment to the creditors and the parties to whom they are liable to make payments, the company may retain funds.    But for any organization it is not in its favour to delay the payments of its creditors and lenders as it may fend the creditability of the business. So, we can’t suggest the organizations to delay the payment of their dues as for any business to increase, its creditability is the foremost and the vital thing.

External source of finance: The various sources of procuring of funds that are not within the organization are:

  1. Preference Shares: The preference share holders have the dual benefit of the repayment of capital on liquidation of the company as well as payment of fixed amount of dividend. They also contribute to the core capital base of the company.
  2. Right Issue of sharesIt is a benefit given to the existing shareholders of the company. As compared to the hazels company use to face during the issue of normal shares, it is much easier to issue right shares. These type of shareholders are given the benefit to subscribe to the shares at concessional price but have to fulfil certain conditions prescribed by the company. Also the shareholders may renounce their right to subscribe theses share to some other person.
  3. Asset securitization: This procedure may contain any type of financial asset. It promotes liquidity in the market. It is a procedure where an issuer creates a financial instrument i.e. a security by making a pool of various financial assets and then marketing it to different investors in the market to invest. It takes the illiquid asset or the group of asset and converts them into financial security by financial engineering.
  4. Term Loans:  Term loan refers to procuring funds from commercial and merchant banks and large financial institutions. It consists of periodic interest charge that is to be paid on top of the principal sum due.

Factors to be considered to decide the final source of finance:

  • The cost factor of each source of finance: Either it is any source of finance; cost is always associated with it. We can’t imagine a source of finance without cost. Foe e.g. if we talk about loans the payment of interest is the associated cost with it. Among all the sources of finance the cost of loan and debt is the most, either it is equity of working capital finance or else. Thus, the government of Hong Kong may consider the cost of particular source of finance before choosing the correct option.
  • The exigency of funds: As compared to the external source of fiancé the internal source of finance mainly works upon the principal of accumulation. Thus, if we need immediate funds we may go for internal source of finance. If the purpose is not solved by the internal source of finance then we may go for external source of fiancé. Thus, the government may peep into the balance available into the accounts and then opt for external source (Holtz, 1983).
  • The amount of money needed: this is one of the major factors to choose the appropriate source of funds. As external source of funds have wider scope as compare to internal source. Thus, when it is needed to finance large projects then the company may go for the external source of finance and for small projects it can go for small projects.
  • The control of the business: Equity share holders have voting rights so they have control over the management of the organisation on the other hand debt holders do not have any role in the management. So while procuring finds from the various sources of finance the government of Hong Kong must consider this factor as it may dissolve the control of the business.

Unit 1 Finance Hospitality Industry | Online Hospitality Course

1.2. Different (possible) sources of income for theme park

A theme park industry has various sources of income available to them like:

  • Admission Price
  • Food safety  and drink
  • Merchandise
  • Games
  • Parking
  • Sponsorship

The primary source of income available to the theme park industry is the admission price. It constitutes up to 50% to 60% of the total revenue. It also decides the percentage of other sources of revenue. As more the Guests admissions, more will be the food and drinks and merchandise purchased by them and more will be the games played by them and thus, higher will by the parking and other facilities used by them and higher will be the concession charges paid by them and thus, generating higher revenue for that Theme Park. This makes a theme park more popular and high cash generating cash cow which attracts various sponsors which will increase the sponsorship funds percentage. So, it is the primary source of income for the theme park industry. Since the huge amount of revenue of theme park can be generated from the receipt of admission charge, the theme parks could have presumed various admission pricing options to generate revenue on large scale from various different market segments. Merchandise sales, games, parking and other sponsorship, etc. source accounts for approximately 6% to 10%, 4% and 15% respectively.

Unit 1 Finance Hospitality Industry | Online Hospitality Course

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