Far Horizon Essay
Part of the consultant’s report was to determine how Far Horizon, specifically its restaurant and bar may be able to improve sales and generate greater revenue. Several ideas were proposed for implementation in order to achieve certain goals. These were meant to increase sales, lower down labor expenses, and cut down on food and supply expenses.
A careful analysis of the cash disbursements and financial operations of Far Horizon was conducted in order to determine whether the estimated values coincided with the actual financial results of the company’s operations.
The results of such analysis will be highlighted in this discussion. This discussion will be supplemented by the charts and tables utilized in order to arrive at the said findings.
Assumptions on Budgeted Revenues
In order to understand how the budgeted revenues and expenses were arrived at, the assumptions behind these values must be explained. In the budget statements, it was stated that the estimated revenue for one-year would be $747,000 from sales. Such increase in revenue is based on several assumptions. Three key assumptions that are related to such estimate are the following:
- Ensure That All Liquor Bar Sales Are Recognized
- Aggressively Promote Sales Growth
- Redesign Restaurant Menu
One problem area identified was that bar sales were poorly monitored. This leads to lost sales which bring down the revenue of the restaurant. Basically, when bar sales are better monitored, there is less chance that theft or sloppy performance by staff members will occur. This will prevent loss of bar sales greatly. Therefore, with proper monitoring, Far Horizon can expect their revenue to increases significantly and reach the budgeted revenue.
In the case study conducted, it was pointed out that Far Horizon’s promotional strategies have concentrated on the local community. However, their efforts may be inadequate in such aspect. If Far Horizon utilizes marketing strategies targeted at increasing sales, they will be able to reach the estimated budget. Also, when more marketing strategies are utilized, Far Horizon will be able to attract a greater customer base. It will be able to expand its reach beyond the local market and tap the tourist market that frequents the area.
Lastly, redesigning the menu will make the food selection more appealing. This would mean that more customers will patronize the restaurant which will greatly improve sales.
Assumptions on Budgeted Expenses
Several significant reductions were made in the budgeted expenses. Particularly, estimated reductions in expenses were in the areas of labor, food and supply costs, as well as administrative expenses. Such reductions are the results of certain assumptions and recommendations. Three primary assumptions are the following:
- Reduce Hourly Worker Idle Time
- Decrease Food and Supply Waste
- Redesign Restaurant Menu
It was pointed out that the staff of the Wind Watcher Restaurant had too much idle time. This means that they are not maximized and a certain portion of the labor expense goes to waste. When hourly worker idle time is reduced, labor costs are bound to decrease since the restaurant will only employ the necessary number of staff at all times.
Two assumptions that go hand in hand are to decrease food supply and waste as well as to redesign the menu. Both of such recommendations will decrease the restaurant’s expenses on food and supply. When there is less food supply, there is less inventory and less chances of spoilage. Proper planning of purchasing must also be carried out in order to meet the foreseen benefit of reducing food, supplies, and utility costs to 45% of the total sales.
Difference in budgeted and actual revenues
Assuming that all recommendations are followed and implemented, certain variations may still occur between the actual and budgeted revenues.
Difference in the actual and budgeted revenues for Far Horizon may be caused by one of the following reasons:
- A slowdown of the local economy
- Emergence of other competitors
If community experiences an economic slowdown, the people will have less disposable income. This may mean that they would dine out less frequently. In turn, such occurrence may drive down the sales of the restaurants. A low customer turn out will decrease sales significantly.
With the emergence of new competitors in the market, consumers may choose to dine in other restaurants. This will lead to a lower customer turn out and consequently, lower revenues than what was budgeted.
When prices increase due to inflation, Wind Watcher would have to increase their prices as well. When this happen, customers may be discouraged from dining out and thus, may affect the revenue of the restaurant.
Difference in budgeted and actual expenses
With regards to differences in the actual and budgeted expenses, some of the reasons that may lead to such differences are the following:
- Increase in prices of supplies
- Natural disasters
- Increase in wages
The increase in the price of goods may affect the expenses of the restaurant. For instance, when the price of meat or flour increases, this means that the food expenses of the company will increase as well and may go beyond what was originally budgeted.
When natural disasters occur, it may cause damage to the restaurant facilities. The repair of such facilities is an expense not covered by what was budgeted. Thus, a variation will arise if and when natural disasters may cause damage on the restaurant.
Finally, when the price of labor increases, Wind Watcher’s expenses on labor will increase as well. Workers may demand higher wages and will mean added expense for the restaurant. The result of such will be that the actual value of expenses may be higher than what was estimated.
Relationship between 25% increase in revenues and budgeted cash flow
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The recommendations made were meant to increase revenues by 25%. Such increase in revenue has a direct effect on the firm’s cash flow. Basically, a 25% increase in revenue will increase the restaurant’s net income. In turn, such increase in net income will increase the operating cash flow of the company which will mean that the firm will have a greater net increase in cash. Based on the budgeted statements, the 25% increase in cash will increase the net cash flow of the firm for a six-month period by 64%. In the 6-month period ending on 30 June 2000, Far Horizon had a net increase in cash of $10,739. However, the 25% increase in revenue will increase such value to $29,909.