Analyzing Sources Of Funding And Sales Generating Methods For A Restaurant

Sources of funding

This report has been prepared to analyze the various sources of funding which could be used by a restaurant to enhance the finance in the business. And various sales generating methods have also been analyzed which could enhance the sales and the revenues of the company. In the given case, a company wants to open a new restaurant and for that purpose extra funds are required by the company. Funds are the main root of a business. Without funds, an organization could not run its business properly. Further, it has also been analyzed that the revenues of the restaurant is limited and for enhancing the level of the revenues what extra steps could be taken by the company.

Sources of funding:

              It is requisite for every organization to fund the cash so that a business could be run easily. A business could use internal as well as external sources to enhance the funds for betterment of the organization (Ross, Westerfield & Jaffe, 2007). According to the case, City Brasserie could take the use of following funding methods to enhance the funds:

Bank Loan:

             Bank loan is a traditional method to enhance the funds in a business. This is the most used source. Bank loan is total amount of money which is borrowed from bank for a particular period of time with an agreed repayment schedule. This is the most suitable source of financial structure (Schlichting, 2013). The associated risk with this funding source is quite less and the cost of the company is also lesser. If the City Brasserie would use the same source than the risk and the cost of the company would be lower.

Equity funds:

              Equity funds are the most used method to enhance the funds in a business. Equity funds are the total amount of money which could be generated by the company by issuing the stock in the market. This is one of the most suitable sources of financial structure (Ward, 2012). The associated risk with this funding source is quite lesser than any other sources but in this case the cost of the company would be bit higher. If the City Brasserie would use the same source than the risk of the company would be lower but the cost would be higher.

Retained earnings:

          Further, retained earnings are the internal funds to enhance the funds in a business. Retained earnings are the total amount of money which is kept by the company after paying the dividends to shareholder from net profit. This source is mostly used by the companies when companies do not want to enhance the cost (Weaver, Weston and Weaver, 2001). The associated risk with this funding source is zero and at the same time the cost of the company would also be zero. If the City Brasserie would use the same source than the risk of the company as well as the cost would be zero.

Bank Loan

           Through the above analysis, it has been found that the retained earnings are the most useful source to enhance the funds for new restaurant. As in this funding; associated risk is zero of the company and at the same time the cost of the company would also be zero (Ross, Westerfield, Jaffe & Kakani, 2008).

Further, this case evaluates that the management of the company wants to enhance the sales and for that the following methods could be used by the company:

Cookery Classes:

If the restaurant starts the cookery classes than the fees could enhance the revenue of the company as well as it would also assist the company to manage the fixed cost of the company. The revenue generation from cookery classes would be lower but it could run by the company for long term (Moles, Parrino & Kidwekk, 2011).

Merchandising with cookbooks and kitchen items:

Further, if the restaurant starts merchandising the cookbooks and kitchen items than the sales amount could enhance the revenue of the company but in this case, the variable cost of the company would be higher (Lord, 2007). The revenue generation from merchandising the cookbooks and kitchen items would be higher and the business could also run by the company for long term.

Events catering:

Lastly, if the restaurant starts doing event catering than the total amount could enhance the revenue of the company and in this case, the fixed and variable both the costs of the company would be higher. The revenue generation from event catering would be higher and the business could also run by the company for long term (Lumby & Jones, 2007).

Thus from the above evaluation, it has been found that event catering is the most appropriate way to enhance the revenue of the company as it would offer the highest revenue to the company.

Conclusion:

From the above evaluation, it has been found that the retained earnings are the most useful source to enhance the funds for new restaurant. As in this funding, associated risk is zero of the company and at the same time the cost of the company would also be zero and for revenue generation, event catering is the most appropriate way to enhance the revenue of the company as it would offer the highest revenue to the company.

This report has been prepared to analyze and evaluate the business and various financial and managerial accounts of the business. Mainly, this report focuses over the trial balance, income statement and balance sheet of a company. Further, in this report, budgeting analysis and variance analysis study has been performed to analyze the changes and the performance of the company. In the given case, a local restaurant wants to open a new restaurant and for that analysis over the market and financial performance of the company is required. It is requisite for every company to analyze the market and make a better decision about the performance of the company.

Equity funds

Business evaluation:

Business evaluation is a process which assists the analyst and the financial manager to make better decision about the position and the performance of the company. This process evaluates the financial as well as non financial information of the company and considers the information to make a better decision about the performance of the company (Kaplan and Atkinson, 2015).

Source and structure of trial balance:

Firstly, the report has been prepared over trial balance. Trial balance is a rough statement which is prepared to analyze that whether the entire statements have been properly reported or not. It is a statement with all the debits and credits in a book of double entry along with a disagreement containing an error (Higgins, 2012). The sources of the trial balance are the double entry books of the company and the subsidiary books of the company as it concerns all the financial transaction of the company and record them to analyze the performance of the company. Following is the sample of trial balance:

Worksheet	Trial Balance
Accounts	Debit	Credit
Buildings	31,483
Bank	1,900
Accounts receivable	3,700
Accounts payable		5,000
GSR collected		2,600
GST paid	2,000
Sales		44,593
Cost of goods sold	21,118
Office equipment	950
Inventory	13,832
Delivery expenses	475
Insurance	228
Electricity	532
Telephone	190
salaries	2,470
Rates	238
Discount allowed	1,007
Rent	484
Commission income		807
Capital (opening)		27,607
Net profit
Total	80607	80607

From the above statement, it has been found that trial balance is also one of the important statements of the company which helps the company to prepare financial statements.

Further, the business accounts of the company have also been analyzed to identify the performance of the company. For evaluating the business accounts which are income statement and balance sheet, various articles and studies have been studied.

Usefulness of income statement and balance sheet:

Income statement and balance sheet are the main statement of the company to evaluate and analyze the performance of the company. Income statement is useful to identify the total profit of the company and the operations of the company. Further, it also assists the company and the investors to make various decisions about the financial position of the company (Glajnaric, 2016). Further, the balance sheet usefulness has been analyzed and it has been found that balance sheet is useful to identify the total assets, liabilities and the shareholder equity of the company and the operations of the company. Further, it also assists the company and the investors to make various decisions about the financial position of the company.

SLM method:

Further, straight line method is one of the depreciation methods which assist the company to depreciate the amount from total assets amount. It is a default method which is usually used to reduce the carrying amount of the machinery and various other fixed assets. This method has been designed to reflect the underlying asset’s consumption pattern. The straight line method is the most suggested method due to its simplicity and better result (Gapenski, 2008).

Retained earnings

For instance, if machinery is worth of $ 50,000 and the salvage value of the assets after 5 years is $ 10,000 than the total depreciation of the machinery per month would be

= ($ 50,000 - $ 10,000)/5

= $8,000 per month (Brigham and Michael, 2013)

Importance of accounts notes:

Account notes are the important notes which are provided in the annual report of the company to explain each important figures of the company. Accounting notes plays an important role for auditors as well as stakeholders of the company to make better various decisions according to the performance of the company (Deegan, 2013). It helps the auditors to analyze all the financial and non financial activities of the company with efficiency as well as it assist the investors to analyze the performance of the company and understand the financial statement of the company in a better way (Brealey, Myers and Marcus, 2007). 

Further, it also assists the company to take loan from bank as bank evaluates the financial statement and the annual report of the company and on the basis of financial figure, loan is allotted to the holders. These notes contain the reasonable assumptions and the important explanation about the figures.

Purpose of financial budget and process:

Financial budget is crucial for every organization and the country as it assists the company to evaluate the market and analyze the future changes of the company. Further, it is also useful for the company to alter the strategies and policies according to the budgetary reports. Following are some of the main purposes of financial budget:

• Forecast of income and expenditure
• Monitor the business performance of the company
• Decision making tool (Gitman and Zutter, 2012)

The process of financial budgetary making is crucial as various assumptions are taken while preparing the reports as well as the historical data, future changes and the present condition of the market. The process of financial budget reporting is as follows:

1. Analyze the sales opinion
2. Market research
3. Pricing policy of the company
4. Competition
5. Analysis over the strategies
6. Make the reports (Du and Girma, 2009)

According to the above process, it is bit tough for the company to prepare the exact report but once the reports are prepared in a better way, the reports could assist the company to make the better decision for the future performance of the company (Arnold, 2013).

Variance analysis:

Further, the study of variance analysis has been done over the company and the following statement of the company has been analyzed for analyzing the performance and the changes in the actual figures of the company.

	Budgeted figures	Actual figures
Sales	70000	65000
Cost of goods sold	15000	13500
Gross profit	55000	51500
Labour cost	15000	19000
Direct expenses cost	7000	6500
Overhead cost	8000	8500
Net profit	25000	17500

(Damodaran, 2011)

Below is the evaluation of variance analysis of the company:

Evaluation of sales generating methods

	Budgeted figures	Actual figures	Variances
Sales	70000	65000	-5000
Cost of goods sold	15000	13500	-1500
Gross profit	55000	51500	-3500
Labour cost	15000	19000	4000
Direct expenses cost	7000	6500	-500
Overhead cost	8000	8500	500
Net profit	25000	17500	-7500

(Bromwich and Bhimani, 2005)

According to the above evaluation, it has been found that the gross profit and the net profit of the company have been lowered than the expected amount. The gross profit of the company was 51,500 but while preparing the budgetary reports, it has been analyzed that the gross profit of the company would be $ 55,000 (Davies and Crawford, 2011).

According to the table, it is suggested to the company to make few change into the marketing policies so that the sales of the company could be enhanced as well as the labour cost of the company must also be controlled to enhance the net profit of the company. Company is suggested to make few changes to enhance the level of the profits and the position (Brigham and Ehrhardt, 2013).

Conclusion:

Thus, through the above study, it has been found that managerial accounting is crucial for a company to make better decision about the position and the performance of the company. Company is suggested to make few changes to enhance the level of the profits and the position.

This report has been prepared to analyze the performance and the various position of the company such as liquidity, efficiency, profitability and solvency etc. ratio analysis is a crucial and important method to analyze the performance and the position of a company. This method assists the analyst to measure the performance of the company through various levels such as liquidity, efficiency, profitability and solvency etc.  

Ratio analysis:

Calculations of ratio analysis of company are as follows:

Ratio and Formula	Calculations	Answer	Measure/ interpretation
Current Ratio	154/146	1.054795	The current ratio of the comapny is quite better and depict that entire obligation could be paid by the comapny.
Quick assets	(51+92)/146	0.979452	The quick ratio of the comapny is quite better and depict that entire obligation could be paid by the comapny.
Return on capital employed	[154/(425+203)]	24.52%	it depicts that the higher return would be provided by the comapny
Gross profit margin	(500/920)	54.35%	gross margin ratio of the comapny is quite competitive
net profit margin	(103/920)	11.20%	Net margin ratio of the comapny is quite competitive
Debtors collection period	92/920	36.50	Cash conversion cycle of the comapny would be better as the receivable days are quite lower.
Creditors collection period	45/420	39.11	Cash conversion cycle of the comapny would be better as the payment days are quite higher.
stock turnover ratio	51/420	44.32	comapny is required to look over the stock management and reduce the time of stock order
debt to equity ratio	425/203	2.093596	It depicts that the risk level of the company is quite higher.

Through the above calculations, it has been found that the current ratio of the company 1.05:1. Through the calculations, it has been found that according to the industry level and depict that the company could pay entire current obligation. Further, the quick ratio of the company is 0.97:1 currently and it has been found that this is bit higher than the industry and thus the company could reduce the level to manage the cost. From the other ratios such as profitability ratios and efficiency ratios, it has been found that the return on capital employed is quite attractive and the total return on capital of the company is 24.52% which depict about a better profitability position of the company. Through this ratio, it has been found that the return of the investors is quite higher and it would attract the investors.

Cookery Classes

More, the gross profit margin has been analyzed and it has found that the gross profit of the company is 54.35% and net profit margin of the company is 11.20%. It depicts about the better position of the company and express that the company is earning good profit. Further, the liquidity position of the company has been analyzed through investing over the Debtors collection period, creditors’ payable days and inventory turnover ratio. Through the calculations, it has been found that the Debtors collection period, creditors’ payable days and inventory turnover ratio are 36.50 days, 39.11 days and 44.32 days respectively. Though, thorough these calculations, it is suggested to the company to reduce the level of the payable days so that the cost of the company could also be reduced.

Further, the above ratio depicts about the cash conversion cycle of the company and express that the cash are managed by the company in a proper way and lastly debt and equity ratio of the company has been analyzed and it has been found that the debt and equity level of the company is 2.09. It depicts that the company is required to reduce the level of the debt to reduce the risk level.

Conclusion:

Thus, through the above study, it has been found that various changes must be done by the company to manage the position and enhance the level of the profitability position of the company. Further, it is suggested to the company to reduce the level of the payable days so that the cost of the company could also be reduced. More, the quick assets of the company must be lower as the quick ratio of the company is bit higher than the industry and thus the company could reduce the level to manage the cost.

In this report, various cost and cost elements have been analyzed and the strategies and policies of the company have been evaluated in concern of manufacturing. Further, the evaluation study has been done on various options to make a better decision.

Types of cost:

Cost is the total amount which takes place while manufacturing a product. A cost involves fixed cost, semi variable cost and variable cost. Following are few examples of the cost:

Fixed cost:

Fixed cost is the total cost which never gets change with the changes in the total units of the manufacturing company. Fixed cost is the total expenses which is required by the company to pay whether the production is done or not. For instance, building rent, office expenses, electricity bills, salaries, depreciation etc are the fixed cost of city Brassiers.  

Merchandising with cookbooks and kitchen items

Variable cost:

Variable cost is a corporate expense which changes with the changes in the production level of a company. These expenses rise with the increment in the production level and fall with the production level. For instance, direct material, commission, labour price, freight out, credit card fees, production supplies etc are the variable cost.

Semi variable cost:

Semi variable cost is the mixed cost of variable ad fixed cost. Semi variable costs are fixed at a particular set of production and become variable after a particular set of production level. For instance, wages, commission, warehousing charges, electricity of factory etc are the semi variable cost of the company.

Cost evaluation:

Contribution per customer:

Ticket price	80	per person
Fixed cost of the event	500
Variable cost per customer	30
contribution margin per unit = Sales price - variable cost
80- 30 = 50

This depicts that the contribution margin per unit of the company is £ 50.

Relationship between cost, volume and profit:

Further, the relationship of cost, volume and profit of the company has been analyzed and the evaluation is as follows:

Cost-Volume-Profit Relationships - Breakeven
	Per Unit Amounts
Selling price	$   80.00
Variable costs	30.00
Contribution margin	$   50.00
Total fixed costs	$     500
Breakeven in units	10
Breakeven in dollars	$     800

 
Thus depicts that the company is required to sell at least 10 units to reach over the breakeven level.

Short term management decision:

Evaluation 1:

From the calculation of breakeven analysis, it has been found that the company is required to sell at least 10 units to reach over the breakeven level. At this level, the profit and loss of the company would be zero.

Evaluation 2:

Further, the evaluation study has been done to analyze the total units which would be required by the company to make the profit of £ 5,000. Through the calculations, it has been found that company is required to sell 110 units for achieving this level. Following are the calculations of total unit:

Calculation of sales unit on the basis of desired profit
	Per unit	Total
Selling price	£           80
Less:
Variable cost	£           30
Contribution (Sales - variable cost)	£           50
Fixed cost		£           500
BEP	10	800
Desired Profit		$        5,000
Sales units to achieve the desired profit (Desired profit / contribution + sales units)	110	$        8,800

 Conclusion:

Thus through the above calculations, it has been found that the company is required to evaluate each decision through statistical and mathematical methods to reach over the best conclusion.

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