It is my task to act as financial advisor to the Broadway Theatre.
Report 1- Introduction to Unit 2 and The Broadway Theatre
Nature of the task
It is my task to act as financial advisor to the Broadway Theatre. As financial advisor to the Broadway Theatre it is my role to propose ways for the theatre to:
* Raise additional finance; bring more capital into the business.
* Increase the business's profit margins so more profit is made.
* Reduce the business's costs; lowering the amount of money that goes out of the business.
For Report 2 it is my task to review the present situation at the Broadway Theatre and based on my findings to produce a report identifying what appear to the key problems. My report should include details on the staffing structure of the theatre; details of costs, revenues, profits, losses, cash flow, pricing and break-even analysis. My report should also include information on the theatre's layout and grounds as well as information on services and performances the theatre has on offer.
For Report 3 it is my task to follow on from Report 2 and outline some possible solutions to the problems previously highlighted. I will then go on to say which of the possible solutions I am going to investigate further and state how I will go about my investigation.
This report must include a summary of the problems identified in Report 2, and a summary of the possible solutions to these problems and what it would involve to put the possible solutions into place. I must also identify the ideas that I plan to investigate and I must state how I will conduct my investigation.
To complete Report 4 I must conduct an investigation into the ideas I have proposed in Report 3. The research that I do in this report will allow me to conclude whether or not my proposed development is feasible. In this report I must show evidence of my research and finally draw conclusions as to whether or not the development I have proposed is feasible.
For Report 5 it is my task to complete a business plan for the Broadway Theatre. This is assuming that the development I proposed proved to be feasible. When producing this business plan I am aiming to attract investors or obtain finance from particular source such as a bank. Based on this business plan possible investors will hopefully provide the Broadway Theatre with the required capital to undertake the proposed development. Therefore the business plan must include a vast range of information on the Broadway Theatre.
I intend to make my proposals for the Broadway Theatre based on the following business theory.
Aims and Objectives
An aim is often a vague and general statement of intent. For example an aim of the theatre would be to make a greater profit or to expand. An other aim would be to improve the company's image.
Whereas an objective is clear statement of intent. An objective will help a business to achieve its aims. An example of an objective is to increase ticket prices in the stalls by x% or to reduce costs by x%. Other objectives would be to create a new program schedule or to refurbish the foyer.
Effects of refurbishing the foyer would be that it would increase revenue expenditure however it would improve the image of the theatre and hopefully in the long term increase revenue.
Sources of finance
Finance is needed for four main reasons:
. To start up a business and purchase premises, stock, equipment and raw materials.
2. For renewal of machinery and other assets as they were out.
3. For cash flow which is required to cover running costs and the costs of production.
4. For the expansion of a business if the owners ...
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Effects of refurbishing the foyer would be that it would increase revenue expenditure however it would improve the image of the theatre and hopefully in the long term increase revenue.
Sources of finance
Finance is needed for four main reasons:
. To start up a business and purchase premises, stock, equipment and raw materials.
2. For renewal of machinery and other assets as they were out.
3. For cash flow which is required to cover running costs and the costs of production.
4. For the expansion of a business if the owners wish to grow the firm.
Their are two different sources of finance for business's; their are internal sources and external sources.
The main internal source of finance is the money which is saved each year by the business out of its net profit, this is known as retained profit. Retained profit is an extremely useful internal source of finance because it can be accessed immediately without incurring interest charges.
A business can also sell any investments it has made. This is where a business has invested money on the grounds that it will make a profit, this money may have come from a number of sources such as retained profit. When the business requires capital it can sell its investments.
A business can also sell any assets it has such as a building, machine or car. This will provide the business with a one-off source of cash. However, before selling an asset you should considered carefully because the asset may be making a contribution towards the firm's profits.
The alternative to selling an asset is to sell it and lease it back. This involves selling the asset to a new owner and then paying for the use of the asset. This is known as sale and lease-back. This means that business will have the cash required from the sale and still have the use of the asset.
External sources of finance are available from many financial institutions these sources include:
Loans. Which are available from highstreet banks, finance houses and merchant banks. These will offer loans for short, medium or long periods of time. The firm will make repayments at regular intervals with a fixed rate of interest.
The Government also offer financial aid to business's in the form of Government loans e.g. soft loans which are loans at lower rate of interest.
The most common method of obtaining money for a short period of time is to use an overdraft facility with a highstreet bank. This is were a firm can withdraw money from its account which is does not have. Money can be withdrawn up to an agreed limit and interest is paid on the amount owed. This is known as going overdrawn.
Discounting bills is another way of obtaining short-term finance. This is where bills of exchange which are similar to bank cheques are cashed by a merchant bank before a given date. This is useful as the merchant bank will give the business the cash before the actual date of settlement. However the merchant bank will charge a fee.
A firm can also approach a venture capital company, this is an organisation who will provide a business with a cash injection in return for a share holding in the business. This is a form of risk lending as it can not be known if the business will do well or not.
A method of long-term borrowing is to issue debentures to the public. This is were the debenture holder lends money to a firm for a fixed period of time at a fixed rate of interest. At the end of the fixed period of time the lump some is paid back to the debenture holder plus the interest. The conditions of the loan are set out in a legal document called a debenture.
Another method of long-term finance is for a business to mortgage land or property, this can last many years and can be done with a highstreet bank. When undertaking a mortgage you are borrowing money on the value of an asset.
Government grants are a source of finance available to some firms depending on the type of goods or services the business offers. An example of a grant is the Enterprise Allowance Scheme for new business's in selected areas of high unemployment.
Another possible way of raising capital is for a business to change its structure. This may involve a large firm becoming a Public Limited Company and selling shares to the public on the stock market. Investors will invest on the basis that they will receive a return on their investment known as dividends which will be deducted from the firm's net profit.
Alternatively a sole trader may wish to take on partner who will invest capital into the business. However changing the structure of a business is a major decision and should be considered carefully.
Profit and loss
A profit and loss account is a record of past costs and revenues over a given time such as a year. It shows the money that has come into the business and left the business over the past year to give the total net profit the business has made. Once the net profit is calculated you can compare your business to other similar ones. It is used as a summary of recent business events for possible investors and the owners, it can be used when making important decisions within the business.
The profit and loss account consists of credits and debits. Credits include things such as commissions and interest received. Debits include all expenses losses and costs of the business.
The profit and loss account can be split into 3 parts: the trading account, the profit and loss account and the appropriation account.
The trading account
The trading account shows the gross profit of the business. Gross profit is the profit the business has made before all the business's overheads have been deducted e.g. wages, operating expenses and depreciation, which is when an asset reduces in value over a period of time.
Gross profit =
Sales turnover - cost of sales
The profit and loss account
The profit and loss account involves calculating the net profit. Net profit is the profit a business has made after all costs have been taken into account.
Net profit =
Gross profit + non-sales revenue
- operating costs
Non-sales revenue is revenue which is received on the sale of assets and on interest received from money deposited in banks elsewhere.
The appropriation account
The appropriation account shows how the net profit is distributed. Net profit is usually distributed in three ways:
Tax must be paid to the government, the business's will pay corporation tax, a tax on the company profits.
Part of the company profits will also go to shareholders in dividends.
Lastly the company can retain what is left known as retained profit most of this is commonly used for new investments.
Revenues and costs
For a business to maximise it's profits it must have the highest revenues possible and minimise it's costs.
Costs include:
Fixed costs which will remain the same whatever the level of output the business produces. Fixed costs must be paid even if nothing is produced, an example of a fixed cost is rent.
Variable costs are costs which vary directly with output of the business, an example of a variable cost is the price of stock.
The total cost is the sum the fixed costs and the variable costs.
Total costs = fixed costs + variable costs
Capital expenditure which relates to when a business spends on items which may be used over and over again such as a company vehicle.
Revenue expenditure which refers to payments for goods and services which have either already been used or will be very soon e.g. wages, raw materials and fuel.
Depreciation is also a cost to business and is therefore included in the profit and loss account. It relates to when an asset decreases in value over a period of time and it can therefore be calculated:
Depreciation = Cost of asset - Final value
Lifespan of asset
Sales revenue or sales turnover is the value of the sales of the business. This is the money coming into the business in return for goods or services provided by the business.
The concept of break-even
Break-even is the relation of revenue and costs to the output produced. It is when a business moves out of loss and into profit; when the revenues out way the costs.
This can be shown graphically by a break-even chart.
The break-even chart identifies the break-even point where the costs and revenues are exactly equal. The main limitation of a break-even chart is that it is difficult to know exactly what the revenues will be.
If sales go beyond the break-even point the business will move into profit, however if the sales do not reach the break-even point losses will be incurred.
Background information on the theatre
The Broadway Theatre is owned by Hon Brian King who is retired and plays no part in the running of the theatre. Unless the theatre makes more profit he is prepared to sell it to a housing contractor and this would result in the town of Greenfield having no theatre to go to. The theatre is aware that the costs of certain overheads will rise in the next year and this to is a growing concern
The Broadway Theatre is relatively small and is situated on the outskirts of small town called Greenfield. Although Greenfield is fairly small it is expanding rapidly. Over the next two years three housing estates are due to be built and this will attract many more people to the town who are possible customers for the theatre.
The theatre it self is located in open grounds that are owned by the local authority. Also located within the grounds is a disused bandstand.
However, most importantly there is no public transport available from the town after 8.00 p.m.
How will this background information help me with my task?
The background information will aid me in my task as it will help me to identify the key problems with the theatre. It also gives an overall picture of the Broadway Theatre which will help me when proposing developments for the theatre.
Investigation
I will need to gather as much information from relevant sources as is possible.
The information I will need to gather will include information from other theatres on their staffing structure, and how they promote their theatre and draw custom.
This information will help me as it will give me ideas for my proposed development and may also indicate where the Broadway Theatre is going wrong.
When collecting my information I will use the following methods to contact theatres:
Writing letters, sending questionnaires,
sending emails, telephone conversations,
and direct interviews.
Listed below are some of the theatres I plan to contact:
Everyman Theatre
Hope Street, L1
0151-709-4776
Empire Theatre
Lime Street, L1
0151-709-1555
Neptune Theatre
Hanover Street, L1
0151-709-7844
Southport Arts Centre
Lord Street, Southport
01704-540011
I have also included a possible letter that I could send to a theatre.
