Introduction
The paper will discuss how cost volume profit analysis, pricing, budgeting or working capital management might be used in the hotel business. The paper will then choose which among the different concepts can greatly affect the hotel business. As the world enters the twenty-first century, the most significant trend to impact successful corporate financial management will be the continuing globalization of business in general and financial management in particular. There are no major U.S. or foreign corporations that do business solely within the confines of their own country. The need to deal with multiple currencies, worldwide money and capital markets where investment capital moves across borders at an increasing pace facing fewer and fewer barriers, a wide variety of accounting systems and tax laws, and a multitude of political risk environments is now a normal part of the responsibilities of a corporate financial manager. This globalization of business does not change the fundamental theories of corporate financial management, but it does have a substantial impact on corporate financial practice and domestic financial markets (Dorms 1997).The only thing certain about the future is that finance and industry will continue to change, offering new challenges and opportunities to financial managers. The importance of competent financial management to the success and even survival of the modern business organization cannot be overemphasized.
It is no accident that presidents and board chairpersons of large, successful corporations increasingly rise to their positions by coming up the finance side of the house. In smaller business, experience has shown that the early survival of a new business and prosperity in its developing stages is strongly dependent on effective financial planning and control. The most common reason cited for the high failure rate experienced by new ventures is lack of financial expertise. Similarly, financial administration is receiving increased attention by governmental units at all levels. Financial management in all types of nonprofit corporations and organizations is also benefiting from increased attention. Competent financial planning and management are critical components of success in any organization that brings people together to achieve a common goal (Dorms 1997).
The impact of inflation and high interest rates has focused increased attention on the financial implications of nearly all business decisions. A knowledge of financial management principles and techniques has become even more important during our current era of economic uncertainty. Functional specialists in such diverse areas as marketing, production, and human resources management have become increasingly sensitive to the bottom-line implications of their management decisions (Dorms 1997).
How the concepts might be used in the hotel business
Cost volume profit analysis
The cost-volume-profit analysis is a normative model for understanding the relationships between the cost, revenue, and profit structures of a firm. It is a key factor in all decisions based on selling prices, variable costs, and fixed costs (Holier & Riahi-Belkaoui1986). The cost volume profit analysis can be helpful for the hotel in terms of providing assistance in determining how much the organization earns and how much is the loss of the organization. This kind of analysis can be helpful in balancing the organizations finances.
Pricing
Pricing strategies generally fall into one of two groups: cost-based and market-based. The market-based approaches tend to focus either on the competition, customer demand, or both. There is no one best price to charge for a given product. Once the need to set or change a price has been recognized, the manager must determine what he or she is trying to accomplish with this particular price. The answer might seem obvious: to sell more products or services. But this response is too general, and may not even be the case. In fact, companies can have a number of different pricing objectives (Morris, G & Morris, M 1990). Clients depend on pricing for what product to buy. A company needs to have more clients to increase its income and improve its market status. Pricing affects competitors. When one company increase prices others follow so they won’t lose clients. Competitors can base their products on another companies’ price. When a products price is too low a competitor may have no choice but to cease to match a company’s price thus advantages can be acquired. Pricing helps in determining the hotel’s status in the market. When its prices are affordable to more people the hotel will have an increase in profit thus its status in the market changes.
Budgeting
Budgets are forecast of expenditures and revenues for a specific period of time. As a planning document, a budget enables businesses, governments, private organizations, and households to set priorities and monitor progress toward selected goals. To achieve budgetary objectives, it may be necessary to set aside savings or to borrow from outside sources (Lowe 1999). Budgets and budgeting help the hotel business gain more profits without spending more. It helps in making sure that the employees responsible for the financial issues of the company will not overspend and will make good use of the finances of the company.
Working capital management
The difference between current assets and current liabilities is the firm’s investment in net working capital. Short-term financial, or working capital, policies are directed towards managing the firm’s overall investment in net working capital. Like any investment, the firm’s investment in net working capital must earn a rate of return commensurate with the risk and add to the market value of the firm. This area of financial management is alternatively called working capital management. For the financial manager, working capital management means developing and implementing policies which govern and guide the management of the firm’s short-term assets and liabilities (Macmenamin 1999). The working capital management helps in ensuring that the hotel’s capital will earn a rate of return commensurate.
The concept that is greatly needed in the hotel business
Among the different concepts that has been mentioned the one concept that is greatly needed by the hotel business is the concept of budgeting. Budgeting is important to any business because it is the one that can make sure that the business will operate for years to come. When there is no budgeting the company might over use their resources and this may lead to bankruptcy for the hotel business. Budgeting can also make sure that the hotel business can have a balance of the amount it spends and the amount it gets from doing business. Through budgeting the hotel business can make sure that the amount that it spends will have an equal rate as the amount that comes in it.
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