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Sources of Finance for Hospitality and Tourism

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Daniel Evans

on 11 April 2016

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Transcript of Sources of Finance for Hospitality and Tourism

Sources of Finance for the
Hospitality and Tourism Industry

Starter Question
Where does the Hospitality and Tourism Industry rank in terms of an investment opportunity?

Why is this an important factor acquiring finance for a business?

What sectors of the industry are in growth or decline?

Lesson Objectives


LO 1 Understand the economic and financial climate of Hospitality and Tourism Industry

LO 2 Describe the sources of finance for the Hospitality and Tourism Industry.

LO 3 Discuss the advantages and disadvantages of the varied sources of finance available to business.




Analysis of the Financial Climate
Investor perspectives:

If tourism and hospitality is growing faster than the national average then what does that mean for the availability of finance within the sector?

If you were wanting to invest your money in a hotel, would it be a good investment?

What other options would be available to you?

Where would you invest your money?


The industry employes around 7% of the working population. (1 in 14 jobs)
The industry is set to continue to grow particularly in the restaurant sector.
In terms of gross value added (GVA) the sector added £40.6bn in GVA to the UK economy in 2011. This represents 4.2% of the country's total GVA
The sector has grown by 13% between 2010 and 2011. Compared to the overall economy which grew by 4%
SOURCE: http://www.people1st.co.uk/getattachment/Research-policy/Research-reports/State-of-the-Nation-Hospitality-Tourism/SOTN_2013_final.pdf.aspx
Financial Climate of the Hospitality Industry
Sources of Finance
Considerations of a business

Q1 Why do we need finance?

Q2 Where can we get finance from?

Q3 What are the risks involved in acquiring finance?
Business Needs
Finance is needed to

Acquire assets
Ensure cash flow and liquidity
Restructuring
Acquisitions and mergers


Q1 Why do we need finance?
Finance is needed to meet the needs of the organisation.

Without finance the business will not be able to function or exploit opportunities to grow or develop.

Finance will give the company flexibility to perform at its optimum level.

However there are
risks
involved in acquiring finance.
Consider you receive a credit card in the post and sign up with an agreed credit limit of £500

You will have to pay interest on this at 20% APR. This is the cost of your finance

The risk is that you may not be able to pay your debt should your circumstances change.

Two years later this has increased to £2000. You consider your options?
Interest Rates
APR- Annual Percentage Rate

AER- Annual Equivalent Rate

EAR- Equivalent Annual Rate
Entering into an investment
What are the risks of the investment?

What is the return on the investment?
Q2 Where can we get Finance from?
Banks
Shareholders
Investors
Trade Credits
Factoring Debt
Hire Purchase
Debentures
Business Angels



Short Term
Banks- Overdrafts,
Factoring- selling dept to third parties
Trade Credits- Buy now pay later

Long term
Banks- Loans, Mortgages,
Owners- Personal Savings (share capital)
Friends and Family- Loans
Hire purchase or Leasing equipment
Grants- government and charities
Cost of Finance
What are the benefits V cost to business?

What are the terms of the finance arrangement?

Investment will decrease the equity of the owners. Owners will therefore have less control.
Sectors of the Hospitality and Tourism Industry
Pubs, Bars and Nightclubs
Restaurants
Hotels
Food and service management
Gambling
Events
Visitor attractions
Tourist services
Self catering, holiday parks
http://www.people1st.co.uk/getattachment/Research-policy/Research-reports/State-of-the-Nation-Hospitality-Tourism/SOTN_2013_final.pdf.aspx
Pg 12
Q3 What is the risk of the Finance agreement
If a business is heavily financed through debt then this may cause long term issues in
Profitability- If the cost of finance is to high
Liquidity- as Banks often have strict agreed terms on repayments
Acquiring more finance or investment though Equity
Advantages of finance for a business?
Debt is repaid and owners still retain their stake in the business at the end of the finance agreement.
Debt may allow the business to grow therefore improving the value of any shares in the business
Internal Sources of Finance
Internal Sources Of Finance
How can we generate finance as a business?
Sale of Assets
&
Retained Profits
Question: The Hospitality and Tourism Industry is ranked as the

A Largest Industry in the UK
B Second Largest Industry in the UK
C Third Largest Industry in the UK
E Fourth Largest Industry in the UK
External Sources of Finance
Q3 What is the risk of the Finance agreement
If a business is heavily financed through Equity then this may cause long term issues in
Advantages of finance for a business?
The owner may not hold the casting vote on any future decisions

Equity is not repaid and therefore can only be acquired if the shareholder wishes to sell the shares

Equity is a risk to the investor rather than the business.

Dividends to shareholders are agreed by the directors and are only paid if the business makes a profit for that period
Full transcript