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Report outlining the Importance of Cash handling procedures, Cash flow budgeting and Capital budgeting for a small hospitality business

Number of Words : 2791

Number of References : 7

Contents

 Introduction 2
 Cash handling 3
 Record Keeping and Cash handling procedure 3
 Benefits of cash handling management 3
 Internal Control 3
 Organizational Culture 3
 Processes 4
 Cash Flow management 4
 Cash conversion period 4
 Advantages 5
 Steps for increasing Cash Receipts 5
 Influencing Consumer spending 6
 Credit Policy 6
 Operational Efficiency 6
 The collection period 6
 Managing High/Low Cash Reserves 6
 Capital Budgeting 7
 Methodologies 8
 Managing Capital Budgeting Risk 9
 Decision for Capital budgeting exercise 9
 Conclusion 9
 References 10

Description

Hospitality sector has witnessed an increased innovation and competition lately. This process has only hastened more with the increased globalization. Hence, it becomes important for participants in the hospitality sector such as hotels and restaurants to manage themselves effectively. One of crucial aspect which is generally ignored by smaller players relates to financial planning and budgeting exercise. Budgeting is an important organizational exercise and involves making a detailed financial plan at organizational level. This is done so that organization can deal with any financial insecurity that might come on its way and for best use of its resources. This is done via three stages namely planning, execution through guidelines and finally control/review. The last step ensures that there is monitoring and comparison to evaluate if the results are desired. Budgeting exercise makes use of historical data points in case of an existing business for evaluating future trends. If this exercise is being conducted for a completely new business, it is known as Zero based budgeting. Budget exercise involves the top management including the liner managers who detail the cost and revenue estimation for their respective units. The decision making process may be from top to bottom if the senior management is dictating the process, while it is from bottom to up if this process is based on an enlarged role of line management giving the estimates. <br />Item based budget estimation is important since it focuses on operational expenses which are crucial in a managing a hotel. It accounts for sundry items such as salary, linen, add-on, and other miscellaneous expenses which are needed for providing the products and services. It requires input of line managers to arrive at these figures. <br />Capital budgeting within an organization involves decision regarding asset purchase such as machinery, maintenance and development of the premises. Ashley et al (2000) have surveyed the application of the capital budgeting practices in the hotel and hospitality sector. Collier et al (1995) and Parkinson (1995) have noticed that the hospitality sector have a large expenditure on fixed assets and the majority of it is not subject to obsolescence making capital budgeting exercise an important one. Robust cash management guidelines are also crucial for the effective running of any business unit. This includes details regarding managing cash, business day closure collection, policies for cash for expense usage etc. Last but not the least, cash flow is akin to blood circulation within an organization, and it is important to make sure that an effective cash management policy is operational. Understanding the cash flow cycle is important to manage the receivables and outgoing which is important for day to day running and survival.<br />

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