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Unit 2 Finance In Hospitality Industry Level 5 HND Diploma Business


Finance is the only element that helps to execute business operations and management in an effective and professional manner. Proper management of financial resources is the only key factor to attain organisations aim and objective in desired timeline. Finance is also becoming an essential factor in organizational context to explore the hospitality sector. This report defines the scope of finance in the hospitality industry. Sources of funding available for business, contribution ranges, and income generations explained in this context with briefly. Methods of controlling stock and the prices of products with cost and gross profit analysis illustrated in the organisational context. Budgetary control and the trial balance analysis done in an effective manner. ( Harris, 2010)

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Cost concept as a fixed cost, the variable cost, semi-variable cost, and variable cost aspects are also defined in this report. Calculation of contribution per unit, short term management decision and strategic planning also defined in this context. Saba Hotel is they give organization to analyze the subject of finance in hospitality.

Task 1

1.1 Sources of funding available for business and services industry

Every business or service industry requires finance in order to initiate and perform business operations efficiently and effectively. There are various sources from where the companies can consider when they are looking to finance for starting up businesses. These are  discussed as under:

Equity financing: Financing through equity means sharing part of the company's ownership for this purpose of investing funds in the business. The equity investment in companies allows the investor a stake of share in earnings of the company. The equity of the company can be issued in two ways, common equity, and preferred equity. The preferred stockholders of the company have a preference over the common stockholders, the preference shareholders of the company receive a pre-determined rate of dividend, which is given to them before the common shareholders. ( Legrand, Chen, and Sloan 2013)

Personal savings: The first source from where the owner looks for financing the business is his own personal funds that he has saved. Personal sources from where the business person can include are shares in profits, retirement funds, real estate equity loans, and insurance policies.

Venture capital: This is the type of source of capital that arises from the companies or individuals who invest in young and privately held startups. These ventures provide funds for a large stake of ownership in the profits of the company. These ventures capital firms generally do not provide financing to the company in the initial phase, they invest in those companies who already have equity funding and have a proven track record and are profitable.

Debt financing: Financing the funds by debt includes borrowing from the creditors with the promise of repayment at a pre-specified date, the principal amount plus the interest. The debt financing is cheaper and more suitable when the companies have a fixed source of income to pay regular interest payments. Debt financing can be obtained through bank loans, relatives, financial institutions, and bonds.( Jang, and Park, 2011)

Debentures: The companies issues debentures to raise the capital in the company. These are debt instruments on which the company is required to pay fixed interest and these papers are issued to the general public just like the equity but the debenture holders are the creditors of the company and not owners.

Bank loan: This is the most common kind of debt financing that is used by many companies, but the only drawback of this kind of financing is that they require the collateral or solid business plan on which the banks can trust and issue the loan.

Credit purchases: This is a very essential type of credit that every company should take in order to improve the working capital position of the company. In this system, the raw material is purchased by the company on a credit period of a particular period and the cash is paid after the completion of that period which helps in the retention of cash in the company.

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