Answer To: Unit identification (unit title, code), title of assessment, and student’s full name as per student...
David answered on Dec 27 2019
HOS3211Management of Hospitality Finance
Discussion of Feasibility Studies:
Feasibility study is that part of a project planning that identifies and validates if a project that is being undertaken would be successful in the future and render the anticipated / expected benefits to the investors as well as other stakeholders of the project. An effective feasibility study is designed well taking into account the past history of the business as well as the geography and economy pertaining to the operations. This study includes in detail the product / service that is being professed to be offered, accounting statements if any, details of management inclusive of the key management personnel, legal requirements, statutory compliances and main of all related financial parameters in an extremely detailed fashion.
In the present case the business / service that is being contemplated to be offered is to set up a restaurant at the Melbourne Central, Ground Floor and it would specialise in Indian and Asian cuisine which is a current trend in the area among students. The restaurant would be called “Bounty Asia” and would be run as a small diner in the shopping mall with good foot fall.
Technical Feasibility: The restaurant would be a 40 seater with a 1050 square feet being allocated for the seating area and a 350 square feet for the kitchen and pantry. The lighting and interiors would be designed to suit the nature of food served and would be minimal in context. The cutlery would be disposable in nature thereby reducing the cost of labour as well as maintenance, the kitchen ware could be leased at monthly basis until the business accumulates sufficient capital to self-source them. The seating would be orders out of standard furniture with low end wood being utilised for reduction of cost. The space would be leased at a cost of $2200 per week and would be payable at a monthly basis, the deposit for the same would be secured by way on loan on Bonds of the director Mr. Mark.
Economic Feasibility: The area is dotted with a number if colleges and office building, with the mall receiving an average foot fall of 200000 people in a working day and another 50000 on a weekend, This would guarantee an average footfall of 300 in a day to the diner with an average billing of $ 50 per individual resulting in a revenue amounting to $15000 in a day. The average net margin that is being enjoyed by the restaurants in this area amount to 30% , which would result in a monthly net margin after all expenses to be at $4500 a day which is well above the stake holder expectation of $ 100000 per month.
Legal Feasibility: The restaurant would be set up in the joint names of Mr. Mark and Mr. Singh who would be the founder members and the directors. The institution would be incorporated as a partnership entity with a share capital of $ 100000 each and the securities offered by Me. Mark for the lease. The partners would share the profit / loss equally and also act as Key Management Personnel that contribute actively to the entity. Required licenses to operate in the area has been obtained and would be displayed at the outlet.
Operational Feasibility: The staff required would be kept to a chef, one helper, a waiting staff and two cleaning and other staff. The entire operations would be supervised by Mr. Singh on a daily basis, who is qualified and experienced in this field. The raw materials would be imported for cost management and stored with a 10 day buffer.
Financial analysis refers to that wing of the project management that is considered to the central system of the entire process. Projects are initiated, invested and worked upon in anticipation of returns to the investors as well as other stake holders concerned. Even in this case the restaurant is established with a pre-determined goal and objective. In a project is found to be financially tenable and feasible only can the establishment benefit from undertaking the project.
In the present case under consideration, the budgeted expenses per day up to the level of Net Margin is as given below for the next 5 years period. The same can be extended based on the changes that occur in the economy and the business conditions for future periods also. The salary pertaining to the staff as well as the partners has been factored into the the daily expenses before gross margin. The business is expected to grow at a rate of 8% year on year and the expenses factoring the inflation index is anticipated to rise at 7% per annum. Foot fall is varied at 15% increase per annum. The month is assumed to have 30 days.
Chart 1: Financial Projections
The number of people that are expected to visti the Restaurant
Revenue per Cover
The average billing that is expected per plate on any day
Average Daily Revenue
Revenue that is anticipated to be billed on a daily basis
Average Daily Expenses except Finance Charges
Expenses inclusive of stock, salary, power and fuel as well as other operational expenses
Average Daily Gross Margin
Gross Margin retained in business
Interest on Loan
Expenses of loan taken for financiang the business by founder partners
Lease of Building
Outlet lease expenses to be paid to lessor on a monthly basis , split for daily rates
Average Daily Net Margin
Net Margin Retained in the business before distribution to the partners
Average Monthly Margin
Net Margin extended to a monthly basis for enhanced understanding
We can observe clearly that the project is highly feasible in financial terms if the assumed numbers vary by even between 10% and 20% on an average. All expenses are factored into average daily expenses inclusive of salary and wages, running expenses, power and fuel as well as other miscellaneous expenses that are to be shelled by the business.
Financial feasibility for a business assumes supreme importance over other forms of feasibility studies and can be called equally pertinent as the operational feasibility as the main objective of any commercial venture is value addition to all the concerned stakeholder devoid of which the entire purpose of the activity. In this case also the restaurant is found to satisfactory in terms of monthly average revenue, NPV and IRR the three primary numbers that indicate the health which a new business venture is kept under scanner with respect to its success. In this case we can infer that the financial viability of the business is found to be satisfactory after countering all costs that are related to the business and hence can be pursued by the partners and other related stakeholders.
Supply and Demand Analytics:
This refers to that wing of project feasibility study that related to the analysis of the supply as well as demand matrix of the respective product / service offered by the concerned company / business entity. This mainly relates to identification of the elasticity of demand for a particular product as compared to the culmination of the efforts planned to be undertaken by the organisation in terms of supply chain. This also related to the market dynamics wherein the product / service offered by the organisation concerned is compared in market positioning with that of the competitors to ascertain the marketing / product as well as service building efforts that would be required to be undertaken by the business house as part of the project feasibility study process. In the present case the locality in which the restaurant is purported to be situated does not have any other Asia kitchen at least for about 800 meters radius and hence the intensity of competition from similar businesses is anticipated to be medium if not low. Also the products that are offered at the restaurant are prepared from home ground, traditional and secret recipes that would result in assured differentiation in taste of the edibles offered in a positive manner. In the present case an added advantage that exists due to locational setting is that there are a number of educational institutions like colleges and universities that are set up within the vicinity of the business and hence there would be no dearth of customers for the restaurant. This would result in year round average foot fall being maintained as the breaks are different in case of each university. On the other hand looking at the supply point since the stocks have been contracted with standard suppliers to be imported and the spices are homemade, there would be no supply chain challenges that the organisation might face. In case of any import restriction in the future the raw materials can be sourced easily from local vendors also at a premium that ranges within 5 to 10%.
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