Financial management in managing a destination Pertemuan 21-22

Matakuliah : G1174/Tourism Management and PlanningTahun : 2007

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Topics

• Main issues relating to financial management• Technical aspect of financial management

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Objectives

1. To recognize the need of financial aspect in managing a destination

2. To identify the issues on financial management especially investment concern

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What is a financial management?

• For most organisation, financial is rephrased as profit, but in broad sense, financial is concerned with ensuring funding available for day-to-day operation of a tourism destination.

• The term of financial management is an umbrella phrase which consists of management function as– Financial planning– Financial control– Management accounting– Cost accounting– Financial report

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Stakeholder financial management

• Shareholder & owner– dividen, kegiatan usaha

masa lampau & jaminan keuangan masa depan

• Lenders & capital market– bunga & pengembalian

modal• Employees (staff)

– keuntungan perusahaan

• Financial Advisors– untuk analisa & prediksi

kegiatan ekonomi -– pendapatan & arus kas

• Commercial Parties = customer, supplier, competitors (takeover atau merge)

• Government – pajak & statistik

• The Public

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Financial management objectives

Private Public

Profit, enough income to cover cost and crease surplus

Liquidity, enough income to pay the bills

Achieving the highest possible price for the product to maximise revenue

To charge a price that socially and politically acceptable

Forcing costs down to the lowest possible level

Cost reduction through efficiency operation

Maximise utilisation providing it is profitable used of the resources

Maximising utilisation within resource constraint

Meeting financial targets Living within the budget

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The need of financial in a destination management

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Budgeting

• The main framework in financial management is budget and it can be used as– Guide everyday financial management– A basis for evaluting performance and taking decision on

corrective action– Impression for stakeholder

• Two types of budgets:1. Capital budget - concerned with investment2. Revenue budget – cover expenditure and income

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Capital budget

• Internal– Retained profit– Accummulation depreciation

• External– Additional share capital

• Stock exchange quotation

• Right issues• Merchant bank placing

• External– Additional debt capital

• Bank overdraft• Leasing• Loan• Mortgage • Factoring• Sale & lease back• Hire purchase• Commercial paper

– Capital management

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Revenue budget on a tourism destination

Income• Entrance fee• Extra income from onsite

attraction and rides• F&B operation• Souvenir and other shop sales• Meeting room rental• Accommodation rental• Car hire• Guided tours• Rent and tenancies• Franchise and concession• Grant• Sponsorships, etc

Expenditure• Salaries• Operational cost i.e. staffs’

benefits• Training• Recruitment• Purchase of goods for sale• Equipment• Services i.e. cleaning services• Transport• Marketing• Maintenance• Administration• Licenses• Depreciation, etc.

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Problems with budgeting at destination and attraction

• Budgeting is based on the past experience whilst tourism is a dynamic activity which can not re-run the past

• Tourism market is volatile, depends on seasonality

• Many factors influence tourism activities that beyond control of budgeting

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Profit maximisation

Revenue generation + Cost control and reduction

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Revenue generation

• Attracting more visitors• Pricing• Increasing visitor expenditure• The use of destination and attraction by corporate

user• Obtaining revenue from other sources

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Attracting more visitor

• Increase promotional activities• Using sales promotion• Arranging special events

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Pricing

• Reduce entrance fee in low season and double up ticket in high season

• Offering concession, group rate and discount• Using family tickets• Enchancing ‘value for money’ i.e. Buy 2 Get 1

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Increase visitor expenditure

• Selection of shops• Variety of F&B outlets • Range of accommodation• Various tour package and tour gadgets

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Obtaining revenue from other source

• Rents and tenancies• Franchises and licenses• Consultancy services• Grant• Sponsorship

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Cost control and reduction

• Staffing – increase productivity, reduce number of staffs• Good purchased – bulk buying, get best possible price, bought on a

‘sale or return’ basis • Just in time delivery• Delaying the payment of suppliers• Tackle the cost of communication• Reduce cost of utility – energy conservation and zero defect• Sell off unproductive assets• Leasing • Contracting out and outsourcing• Rescheduling loan payment

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Conclusion

• Financial management is at the core of all destination strategy

• Most of all, profit is the key issues although other implication need to be obtain.