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BTEC - Unit 2 - Characteristics of Different Types of T&T Organisations
Transcript of BTEC - Unit 2 - Characteristics of Different Types of T&T Organisations
Characteristics of Different Types of T&T Organisations
P2: Describe the organizational & financial characteristics of different types of travel and tourism organizations.
Business Structure & Control
Businesses are structured.
Businesses are controlled.
Businesses have a liability for debt.
Companies do not stick rigidly to one line of business. They tend to buy or merge with other businesses, always striving for greater commercial success and market dominance. When companies do this it is known as vertical or horizontal integration.
Documentation for business set up
Setting up a limited company requires you to complete several documents and submit them to Companies House.
How the organisation gains, spends and saves money. When companies are successful they contribute to the economic well being of a nation, increasing the GDP. The tourism industry's contribution to GDP is measured in terms of revenue generated by tourists. In 2009 the T&T economy generated 210 million jobs or 7.4 % of global employment.
The Sole Trader
Sole traders have the simplest structure with few regulations to worry about.
But it is often difficult for the sole trader to raise capital.
The sole trader has complete control and is therefore autonomous and receives all profits after tax.
The sole trader is liable for all debt.
Partnerships have a structure of at least two people who share liability for any debt.
There is no requirement for a partnership to be registered at Companies House.
Partners can limit liability for debt by setting up a LIMITED LIABILITY PARTNERSHIP.
Partners share control and the profits.
Limited Companies can raise capital, issue shares and limit risks.
There are more regulations governing the way they are run.
Accounts must be filed at Companies House.
Limited companies are controlled by a board of directors and shareholders.
The management is accountable to the board and to the share holders for any decisions they make.
The Board of Directors
The board of directors is a group of people who are elected by the shareholders of an organisation. They have the responsibility of overseeing the running of an organisation.
Public companies usually have executive directors and non-executive directors. One member of the board will be appointed chairman.
(Sometime the board may be referred to as a board of trustees / governors.
is usually a full-time employee of the company who also has management responsibilities.
Non-executive director is someone paid on an annual fee to attend a number of board meetings and contribute to decision making. They are invited onto the board because of their experience and skills.
Co-operatives are democratically controlled by their members.
They believe in supporting the community and campaigning for a fairer world.
Any liability for debt falls to the members.
Companies House is an executive agency of the Department of Trade and Industry (DTI) responsible for company registration in the UK. There are more than 2 million limited companies registered in the UK.
Vertical & Horizontal Integration
Principal -> Internet -> Consumer
Principal -> Tour operator -> Travel Agency -> Consumer
Principal -> Call Centre -> Consumer
Principal -> Tour Operator -> Television -> Consumer
Vertical Integration occurs when 2 companies at different levels of the chair merge or are bought.
This may be backwards (i.e. a tour operator buys a hotel) or forwards (i.e. a tour operator buys a travel agency).
Horizontal integration is when a tour operator buys another tour operator at the same level in the distribution chain.
Integration & Business
Integration can affect the organisation of a business as often all the different functions such as finance, marketing and human resources will be consolidated to cut costs.
Sometimes a business has a policy of acquisition - of buying other companies. Companies take over other businesses to grow and to reduce competition.
Takeovers happen constantly in travel and tourism.
Takeovers can be friendly or hostile - a hostile bid means that a company management does not want the company to be taken over, but the decision is made by shareholders.
Virgin Holidays bought Bales Worldwide. This is an example of horizontal integration as both companies are in the tour operator business.
Lufthansa completed its takeover of Austrian Airlines. A deal was made with the Austrian government to gradually take over share in the airline, resulting in a 90% holding by Lufthansa. Shareholders would get a payour of 166 million Euros. In addition 500 million Euros would be paid to the Austrian state to reduce the airline's debts.
Tour Operators can benefit from having its own airline, hotels or distribution channels. Example: Thompson is vertically integrated as it has its own airline, tour operations and travel shops.
Certificate of Incorporation
Incorporation is the means of registering a business as a company with Companies House.
An application is completed and submitted with all the company details.
If the application is successful the Registrar of Companies issues a Certificate of Incorporation - from this point the limited company is formed.
Articles of Association
This document explains how the company will be run, what rights the shareholders have and what rights the company directors have.
"The Company's 'Articles' give power to the Board to appoint directors, but also to require Directors to retire and submit themselves for election at the first Annual General Meeting following their appointment.
The Articles also contain specific provisions and restictions regarding the Company's power to borrow money.
Powers relating to the issuing and buying back of shares are also included. The Company is committed with ensuring that it keeps pace with changing legislation and regulation."
Memorandum of Association
This document gives the name and location of the company and describes the nature of its business.
It also shows the amount of share capital (the money raised by selling shares in a business) in a company and how it is divided.
If you are setting up a business you will decide on how many shares each will have and sign the memorandum.
The money paid for shares is kept by the company and does not have to be repaid - although dividends from profits will be paid to shareholders.
Employees are sometimes given shares in a business or an option to buy shares at a preferential price.
Distribution of Profits
If an organisation makes a profit, the directors have to decide what to do with it. The usual course of action is to distribute the profits amongst the share holders but the board must recommend ho much to pay. They may wish to retain some of the profits to expand their company or invest in new projects.
Sources of finance
If you are setting up a business you will need enough set up capital to run the business until it begins to make a profit.
Companies of all sizes also have to raise funds to finance growth, new ventures or takeovers.
Supplying products & Services
Products and services may be supplied to make a profit for a business, or they may be supplied at a cost. They are usually supplied to meet a specific demand in the market and may be supplied for individual customers, other business or even government agencies.
T&T organisations make their profits through the provision of products and services to customers or other businesses. For example, an airport: likely to be a public limited company and provides services to airlines, retailers and catering companies. It also provides services to customers who use the airlines and the airport. Through the provision of these services the airport makes a profit.
HM Revenue & Customs is a government department. It collects VAT on sales of goods and services.
The current rate of VAT is 17.5%, although it can change.
All VAT registered businesses have to complete a VAT return form for each tax periods (every 3 months).
A business must be registered for VAT once its turnover reaches £68,000 and must charge VAT on its goods and services and keep records of VAT paid on purchases.
The following info is included on the VAT return:
VAT charged to customers
VAT paid by the business to suppliers
The difference between the amount of VAT received and the amount paid out must be calculated.
If a business pays out more than it receives, it can claim this back.
If a business receives more than it pays, this amount must be paid to HM Revenue & Customs.
Dividends are paid to shareholders each year or half year. Sometimes, if a company is doing badly, they are not paid at all.
Once a business has paid dividends to its shareholders, surplus is reinvested in the business, either to pay off debt or to improve the business. A company may choose not to make a payment to shareholders, but to keep the profits for investment.
The European Regional Development Fund was set up in 1975 to stimulate economic development in the poorest areas of the EU. The EU offers "European Social Fund" (ESF). The National Lottery is also a source of grants. There are 16 independent distributing bodies responsible for awarding Lottery grants. They include the Olympic Lottery Distribution, the Heritage Lottery Fund and the Arts Council.
There are many sources of grants. The Regional Tourist Board is able to advise on possible sources for those in the T&T industry.
Grants are usually from the government or EU funds and are one-off payments which do not have to be repaid.
There are strict criteria for eligibility when applying fro grants. A grant will not usually be given for the full cost of a project or venture.
Friends & Family
One way of raising funds is shares in company. Individuals buy shares and become part owners of the business with voting rights.
When profits are distributed they are shared amongst the shareholders as dividends. If the company does not make any profit there are no dividends.
Issuing shares is a type of private equity finance, that is finance raised from shareholders in return for ordinary shares. Public companies must have at least £50,000 of share capital. Is a company needs more money to expand or to undertake a new venture, it can issue new shares to raise the finance.
Sometimes shares are owned by employees, this gives them an incentive to help the company to be successful as they will get dividends on top of their salary.
Banks offer loans for a set period and with an agreed repayment schedule (repayment depends on size of loan and interest rate).
Normally need a guarantor (family member) or house as guarantee
The bank will ask to see a business plan.
Many small businesses are financed by families and grow to be a huge enterprises.
Families may wish to invest in a business and reap profits without hands on commitment.
The Heritage Lottery Fund
The Heritage Lottery Fund has 3 aims which relate to learning, conservation and participation:
1. Conserve the UK's diverse heritage for present and future generation to experience and enjoy.
2. Help more people and a wider range of people to take an active part in and make decisions about their heritage.
3. Help people to learn about their own and other people's heritage.
From museums, parks and historic places to archeology, natural environment and cultural traditions, it invest in every part of our diverse heritage.
Every sole trader must complete a self-assessment tax return. Tax has to be paid on profits from the business. Expenses can be deducted from income to calculate how much profit is left (if any). If all the internal accounting systems have been properly managed, it is relatively easy to complete the tax return.
Every organisation has to produce financial records. A sole trader must, at least, record incoming cash and outgoings and produce a tax return.
A plc is required to publish a full set of accounts.
Sole traders do not have to make their annual accounts public, although they are likely to keep them for their own use.
Private and public limited companies must comply with the Companies Act and complete an annual return.
Most large organisations incorporate their annual accounts into an annual report. This gives information about the current activities in the business, as well as the figures in the accounts.
All shareholders receive a copy of their annual report.
All companies in the UIK have to have their final accounts audited by a professional accountant from outside the company.
Since Jan 2005 Europe's listed companies have to conform it International Financial Reporting Standards.
Audit is a check on the accounts and the accounting system of an organisation. An audit checks that the accounts show a true and fair view of the affairs of the company.
Annual Return is the record of key company information which must be provided annually. Annual returns are filed at Companies House in London and are publicly available.
Activity: Annual Report
Study the annual report of a company that interests you. You can ask for a free copy of any annual report from the Financial Times Annual Reports service (ft.ar.wilink.com) or you can find an annual report on a company's website.
Look at the cashflow. Can you make any judgements about the financial status of the company? Who are the major shareholders?
Two different types of T&T organisations
Begun as a partnership....now a PLC.
What sector do they work in?
How do they contribute to the UK economy? (GDP)
How are they organised? (i.e. PLC/ partnership etc)
How are they funded?
Acquisition? (organic growth)
Distribution of profits?
How do they supply products and services?
How are they financially accountable?
Questions to Answer
Travel and Tourism Businesses