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Kata Bolla

Written Assignment of Strategy Management

STRATEGIC MANAGEMENT
APPROACH IN SUPPORT OF
ACCOUNTING
MANAGEMENT WITHIN THE
HOSPITALITY INDUSTRY

Number of characters: 18 777


Number of pages: 16

SRH DRESDEN
23.06.2017
Table of Content

Overview .................................................................................................................................... 2
Problem Proposal ..................................................................................................................... 2
Strategic Management within the Hospitality ................................................................. 3
Strategic Accounting Management within the Hospitality ......................................... 5
Role of Accounting in organizatinal decision-making .............................................. 6
Branches of Accounting within the hospitality ................................................................ 7
o Financial Accounting.................................................................................................. 7
CASE EXAMPLE I. ............................................................................................................... 9
o Cost Accounting ........................................................................................................ 10
CASE EXAMPLE II. ............................................................................................................ 10
o Tax Accounting .......................................................................................................... 11
CASE EXAMPLE III. ........................................................................................................... 11
o Auditing......................................................................................................................... 11
o Managerial Accounting .......................................................................................... 12
Differences between a strategic and traditional approach to accounting ....... 13
Conclusion ............................................................................................................................... 14
Bibliography ............................................................................................................................. 15
Overview

The topic of this seminari work is to find strategic support of the accounting
management branches within the hospitality, and which tasks should be
done by the hotel management accounting, from strategical point of
view. The paper was written with the purpose of understanding Strategic
and Accounting Management, and how strategic steps support decision
making processes in practice.

Nowadays, business operations should work in an environment, where


economical, technological and environmental changes are rapid. To
create and coordinate a successful business through these influencing
factors, managers should have the skills and competences of making
effective and deliberate business decisions.

Managing funds, managing the cash flow and financial processes


requires a strategy. Years ago, the accounting management segment did
not play big role, because it was made by the central accounting and by
the owners, but recently each hotel needs to have such a segment, in
order to keep up with the changes, the growing market share, growing
opportunities, yet staying efficient from financial point of view as well.

Problem Proposal

Which factors have a role in the Accounting Management


within the Hospitality? How to use strategic approach in order
to develop and make transparent the Accounting.
Strategic Management within the Hospitality

The most comprehensive definition of Strategy Management is, that the


systematic analysis of the factors, associated with the customers (guest)
and competitors, which creates the external environment and the
organization itself (internel environment) to provide the basis for the
maintaining optimum management practices. The goal of using strategic
approaches to achieve a better alignment of corporate policies and
strategic priorities.1
The Strategic Management is often considered as an approach of
planning, implementing and evaluating processes, furthermore seeing
through the abilities of the organization and how to take advantage of
them.
The first step is always to define clearly the long and short term plans, which
is in the most cases the profitability and sustainability.
Years ago, Strategic Management was regarded as a step-by-step
approach, but the rapidly changing world required more an ongoing
strategy method.

1
http://www.businessdictionary.com/definition/strategic-management.html
Asset Management
equipment replenishment
plan
investment property
management
inventory
capital management
investment/purchasing
security
Result
Financial maintenance
Management
Management
profitability plan
financial plan capacity - colume
controlling cost management
accounting income statement
management
STRATEGY profitability

Human Resource
Management
Revenue
Management resource plan

revenue planes workforce


management (staff,
pricing expenses)
labor management

1. figure

As the added figure shows, there is no place, where strategic planning


would not be required, in order to create effective value and
development.
Thinking more, there is no place where the financial strategic
development would not be needed, because financial efectiveness will
define the whole profitability of the organisation.
There are several fields within the Hospitality, where the strategic
management and strategic planning can support the organization. When
an organization has strategic plan, where short and long-term planning is
also needed, they can have a holistic, more transparent view for the entire
association. With strategic planning a sharper focus on goals is provided
and it gives a clear sense of strategic vision and direction.
The Strategic Management can provide also a connection between the
extrernal and internal environment and factors and helps to understand
the complexity of the changing external environment.
With strategic planning the uncertainty is easier to avoid, because the
vision and goals are clear for everyone based on the strategy.

Strategic Accounting Management within the Hospitality

The aim of Accounting Management within the Hospitality is recording


the financial transactions, summarizing them and then accurately
reporting them.
There is no question, how important essence is the Accounting in decision
making processes. The subject of accounting is a way to provide detailed
financial internal information for the given organisation to the managers,
who have the responsibility for directing and controlling the operation
within the hospitality industry.
This specialized information is required for planning the short and long term
plannin, which is also a part of strategic approach and decision making
,implementing the internal control such as costs control, manpower
resources or daily operating cycle.
The tool of Accounting is always used for the cost reporting, central
profitability, service profitability and if the targeted customer segment is
profitable.
It helps to analyze the organizations resources, identify the key resources
and investigate the most important financial incomes and expenses,
which leads to make the further decisions and make the right actions
happen.
With Accounting, we can get a transparent and clear picture of control
of costs, monitoring, planning.
When it comes to the Hospitality industry, as part of the decision making
processes, expecially in case of Food and Beverage, administration and
booking.
Accounting happens already before the guest wants to by food,
beverages or hotel room. It happens already when the given hospitality
service opens its door. When the owner or the businessperson estimate the
costs, when they decide to build their service, they often start with
searching for loans from banks. These banks probably want to know every
details behind the plan, where the strategy is the tool again, to provide
the picture of the plan, which shows the potential profitability in it, so they
let get the loan.
To monitor, if their investments was effective or not, it is necessary to
monitor and report the financial steps of the operation. Owners,
shareholders, investors want to give their money in business only if they can
see that it will create money and increase ther profit.
When the accounting is properly done, it will provide that information.
Strategic management accounting should be a decision-support system,
which provides the relevant information to the decision makers. These
decision makers are located not only on the top of the organization. The
organizations business strategy should be implemented all the way down
through the organization and may result several substrategies.

Role of Accounting in organizatinal decision-making

Gathering and Organizing and Statutory reporting


preparing raw analyzing of business
data infrmation performance

Provision of Monitoring the


information for outcomes of
planning and management
control decisions
Branches of Accounting within the hospitality

/In order to see through the importance of Accounting and how strategic
approach helps to make the most effective decision, case examples will be
used./

If Accounting is done well, it includes the recorded financial information


and report it as well. However, it consists of more processes within itself.
The accounting processes are the followings:

o Financial Accounting

Businesses essentially are about buying and selling products or services.


Within the hospitality industry these products and services are the food
and beverages, the hotel rooms and the additional services, such as
entertaining activities coperating with the hotels.
The accountants who are specialized for financial processes are the ones,
who record, summarize and report the financial transactions, including
revenue, expenses, costs of the items, which are required to keep the
business in motion and the profit.
The formula for the profit oriented development is:

Financial accounting is built up from more influencing parts.


At the bottom, assets are the first, and this is the amount of money, what
the hotel itself has. The assests can be split for current and non-current/
fixed assets. The current assets are the funds which can be convert to
cash, for example the inventory, investments, receivables or prepaid
expenses.
Fixes Assets are mostly objects which are not in form of cash and they can
be hard to convert them int it. They can be lands, cars, building,
equipments, furnitures,
The second part is the liabilities. These are the amounts the business owes
to other businesses. It can be also divided by two, current and long-term
liabilities. Currents are the obligations owed by the business, such us taxes,
interest, salaries and long term liabialities are not due within the next one
year.
The final part of the financial accounting is the owners equity, which
represents the owner's investment in the business minus the owner's
draws or withdrawals from the business plus the net income (or minus the
net loss) since the business began.2

The balance sheet is built up on these components. This documentation


shows the financial status of the organization at the end of the specific
term. It helps to see through instantly, what the organization has, owns and
owes. It gives essential and important information fr example to the banks,
when they decide if the company qualifies and meet the requirements of
loaning money. The Balance Sheet can be useful for the potential
investors, current investors, competitors, suppliers or for the government.

An other main financial statement of is the income statement. It is also


knows as Profit and Loss statement, and reports the status of the business
over the specific period. While the Balance Sheet can cover only one
moment, the statement shows the performance for the period.
The income statement can be divided to the operating and the non-
operating part. The operating part consists of information about revenues
and expenses that are a direct result of regular business operations.

2
https://www.accountingcoach.com/blog/what-is-owners-equity
The third major financial statement is the Cash Flow Statement. It captures
the cash income and outcome during the given business cycle. It can be
divided into operating activities, investing activities and financing
activities.

The formula of Cash Flow is:

Ending cash balance = Beginning cash balance +


Cash Inflow - Cash outflow

These documentations help to record and report the financial status and
statement of the business for a certain period, which is the ground of
thinking about development and implementation, where the strategy
comes. Financial reporting is a hint for strategy setup, as it was learned
during the lessons.

CASE EXAMPLE I.
There is Lucy, who wants to open her own bistro. The bistro would be
located ont he main street of Hamburg, selling breakfasts, hot drinks.
Lucy first wants to make sure that the idea would be profitable, thus her
main financial considerations and questions would be:
o How much revenue can a bistro generate on an average day?
o How much should i spend to have a properly staff?
o How much should i spend on the equipments, what I would need in
order to be able selling the products?
o Considering the size and location of the bistro, how much should i pay
for insurances?
o How much profit is expected in the first year?
These questions can be answered by setting up financial plan and budget.
o Cost Accounting

In this branch, expenses classification, recording and reporting happen.


All the business operations are trying to control their expenses and not
waste money, they really want to see where their money go.
For cost accountants, a cost, or expense, is most often defined as time
or resources expended by the business.3
Cost Accounting describes the expenses by departments. They often
generate a system to classify costs and report them appropriately.

CASE EXAMPLE II.


There is George, the owner of a VIP golf club. Not only the golf area is
offered, but all the additional services, such as swimming area, or the
food and beverage department. All the departments within the golf
club wants to achieve their individual goal, which is the highest
profitability. However, since the whole club is complex, separated to
more service, George wants to see all the money spent, that is why he
wants to have a reliable system, that is clear for everyone.
Cost accounting managers in the business will define the costs and
expenses by the departmens and create the system to categorize the
expenses and report them.
Why is it needed for George business?
Because he wants to know
how much does it cost for him to serve one guest in the club?
what are the utility costs (electricity, water etc.)?
Did they spend more money than last year?
From external point of view: does it cost more or less money to
operate his business than other golf clubs located and sized as his
club.

3
http://catalogimages.wiley.com/images/db/pdf/9780471723370.excerpt.pdf
o Tax Accounting
Tax is regarded as the charge by governments on the businesses' income
and consumption. It can be varified by countries, strates.
Tax Accounting is the branch, which includes the required documents
and reports, properly on the requirements of the government.
The expert tax accounts and their techniques grand that the businesses
and organizations meet the legitimate tax obligations during the
operation.
Managers should build not only strategies of implementations, but be
aware of that the provisions still compliance the obligations.

CASE EXAMPLE III.


There is a 150 rooms hotel in Copenhagen, Denmark, close to the
airport, owned by Jensen.
He wants to make sure that the hotel meets all the tax obligations, that
is why he wants to have everything recorded, such us:
o Occupancy tax, what his hotel must pax to the local
government, based on the hotel's revenue, when selling the
rooms (payed per month)
o He wants to answer questions like: should we pay tax also over
guests, who had a confirmed reservation, but did not show up on
the arrival date?
Recording and monitoring tax payables ensures the transparency of
changing laws and tax.

o Auditing

Auditing is an indepentent control of financial records. An auditor can be


individual or a group who fulfill the verificatin processes. As the importance
of recording and reporting has been proved, the Auditing has the role of
making sure, all the business processes are safe and truthful. When
financial transactions are not reported truthfully, businesses can get
trouble easily. Within the hospitality industry, in restaurants or clubs,
management has its own auditor. In larger hotels, the controller has the
responsibility for managing the hotel's accounting processes.
As a result, hospitality managers need auditors and auditing processes to
answer questions:
o All the purchases are based on the legal obligations?
o Are the wages paid to the employees, according to the written
record of working hours?
o Every process from the smallest to the greatest has been recorded?

o Managerial Accounting

Managerial accounting is the system itself of recording and analyzing


financial transactions for the purpose of making the right management
decisions.4 Its proper use requires skill, insight, experience, and intuition.
These are the same characteristics possessed by the best hospitality
managers. As a result, excellent hospitality managers most often become
excellent managerial accountants.

4
http://catalogimages.wiley.com/images/db/pdf/9780471723370.excerpt.pdf
Differences between a strategic and traditional approach to
accounting5

Activity Strategic Approach Traditional Approach


Corporate Strategy financial planning with concentrating only on
support of strategic goals the operational aspects
based on the internal and budgetary control
capabilities
Capital Structure capital structure intended structured only when it is
to reduce cost of capital needed leading to the
and minimize shareholder possible increase in cost
risk constantly of capital
Investment decisions they only invest in project reliance on profit-based
that will provide net present capital investment
value methods, where profit is
compared to
investment
Profitability management is searching short term profitability
for the long-term goals
profitability solutions
Working capital focusing on the internal focusin on profit lows
cash flows
Pricing policy pricing is based on the pricing is based on the
product and market needs cost and profit per unit
expectation
Performance continuous measurement superficial masurement
measurement in an on-going system

5 Management Accounting for the Hospitality, Tourism and Leisure Industries: Strategic Approach
(Second edition)
Conclusion

Many organizations use the traditional management accounting


approaches and procedures, which are focusing only on the internal
aspects and environment of the business and the regular process of
producing only the routine data. A strategic approach to management
accounting ensures having an external focus to monitor changes in the
external environment, which also influences the internal operation and the
profitability of the buciness.

As the cases, theories show, there is not only a link between strategic
management and accounting management, but strategic approach has
a huse impact on accounting, in order to maintain competitiveness,
efficiency and transparency.

From the study, the conclusion is, that without using of the mentioned and
analysed branches of Accounting with the support of strategic approach
and techniques, an impenetrable system can be generated, without
seeing through the steps and processes, which would be needed for the
further implementation.
Bibliography

Accounting Essentials for Hospitality Managers


https://books.google.de/books?id=WiVFAwAAQBAJ&pg=PT286&lp
g=PT286&dq=accounting+strategy+hospitality&source=bl&ots=Qd
Azexv271&sig=ZBtFbFtu4NVKoPZCAbYuZDrF9LE&hl=hu&sa=X&ved=
0ahUKEwjWh7CQy6vUAhWDWxoKHZWhAnkQ6AEIWTAG#v=onepa
ge&q&f=false
Hospitality Industry Accounting
https://books.google.de/books?id=AYw41OdQgNAC&pg=PA36&l
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http://studylib.net/doc/8661451/hospitality-hospitality-industry-
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http://www.cwhotels.com/hotel-accounting-and-finance-
services.htm
http://www.worldcat.org/wcpa/servlet/DCARead?standardNo=04
71687898&standardNoType=1&excerpt=true
https://www.researchgate.net/post/How_important_is_the_manag
ement_accounting_to_the_hotel_managers
Management Accounting for the Hospitality, Tourism and Leisure
Industries (second edition)
https://books.google.de/books?id=AYw41OdQgNAC&pg=PA37&l
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dh8XUfEe&sig=fsk3K80OHDLRdl9s1qXBxRtkG_s&hl=hu&sa=X&ved=0
ahUKEwjWh7CQy6vUAhWDWxoKHZWhAnkQ6AEIOzAC#v=onepag
e&q&f=false