Financial management in managing a destination Pertemuan Matakuliah: G1174/Tourism Management and Planning Tahun: 2007

Bina Nusantara Topics Main issues relating to financial management Technical aspect of financial management

Bina Nusantara Objectives 1. To recognize the need of financial aspect in managing a destination 2. To identify the issues on financial management especially investment concern

Bina Nusantara 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

Bina Nusantara 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

Bina Nusantara Financial management objectives PrivatePublic 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 targetsLiving within the budget

Bina Nusantara The need of financial in a destination management

Bina Nusantara 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 investment 2. Revenue budget – cover expenditure and income

Bina Nusantara 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

Bina Nusantara 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.

Bina Nusantara 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

Bina Nusantara Profit maximisation Revenue generation + Cost control and reduction

Bina Nusantara Revenue generation Attracting more visitors Pricing Increasing visitor expenditure The use of destination and attraction by corporate user Obtaining revenue from other sources

Bina Nusantara Attracting more visitor Increase promotional activities Using sales promotion Arranging special events

Bina Nusantara 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

Bina Nusantara Increase visitor expenditure Selection of shops Variety of F&B outlets Range of accommodation Various tour package and tour gadgets

Bina Nusantara Obtaining revenue from other source Rents and tenancies Franchises and licenses Consultancy services Grant Sponsorship

Bina Nusantara 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

Bina Nusantara 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.