Organisational and Financial Characteristics
Word Count: 3341 Author: Kimi Ural Created: 2015
Business structure and control
Running a business requires a structure which depends on the liability for debt. This also includes money leaving and coming in to the business. The simplest structure would be the sole traders’ with their main aim being to raise capital and maximise profits. Although, the sole trader is in control of everything and receives all profits after tax as well as all loss. This could be a disadvantage in case of any made mistakes or unexpected scenarios.
Many travel and tourism businesses buy out other companies. They do this to reduce competition as well as maximising their profit and growing their business. Some businesses take over companies within the same category such as Lufthansa took over Australian Airlines, these are both airlines which is why this would be called horizontal integration. It can also happen that a company buys out a company from a different sector such as Thomason (part of the TUI group) which has its own airline which would be called vertical integration because both companies are from different sectors. Business take overs can be friendly or hostile, with friendly being a wanted collaboration from both sides and hostile where a company manager does not want the company to be taken over. This will result in a final decision of the company’s shareholders such as the example of Lufthansa taking over Australian Airlines which mentioned above.
Documentation for business set up incorporation, memorandum of association and articles of association
If someone decides to set up a limited company, they will have to fill out many documents and send them to the Companies House and wait for the result before they can get started with their business. After the business is registered as a company with the Companies House, they need to fill out another document which is the Certificate of Incorporation. The name and location of the business can be gained by filling out the Memorandum of Association.
Distribution of profits
When a company makes profit, the people in charge such as the directors need to make a decision on what to do with the profit. Often profits will be shared between the shareholders which is called dividends. Also it would need to be determined how much they would get paid. This usually happens on a yearly or half yearly base however, if the company is doing badly the shareholders will not get paid. Sometimes companies give their shareholders only half over even less of the total profit because they are investing it into the company for future plans or other changes to improve the company which requires money. The company can also decide not to pay the shareholders and invest the full amount in to the company for improvements.
Sources of finance
When starting a business, the business starters need to have enough money to set up the business and keep the company running until it starts receiving profit. There are several ways for the company to earn money before the first set up as well as during the profit earning time to keep the company growing. Some of these could be:
- Banks – loans from banks is a way to borrow a larger amount of money, although a lot of security needs to provide for the bank such as using a house as security or a family member as guarantor because banks only give out loans if the repayment is guaranteed. The repayment amount depends on the borrowed amount as well as the interest rate. Another way to get money of banks would be by using the overdraft facility which is a much quicker and easier way of borrowing money because it needs less security. However, there is a set amount where the individual can borrow money up to and if gone over this limit, penalties would need to be paid which can be extremely expensive.
- Friends and family – Small businesses are often financially supported by family members or close friends. Friends and family members may want to profit from the earnings of the company without having to be responsible for any depth the company could fall in to.
- Shareholders – Many companies have shareholders which invest in to the company to own a part of it including having the right to vote for the company. Employees are also often shareholders for the company they work for which gives them an incentive to help the company. This means that they are more likely to invest their own money in to the company or simply give up a certain percentage of their income to go towards the raised funds.
- Grants and public funding – These are usually just a part of the full money needed for the company’s planned project and can be donated from the government or the European Union (EU). Grants do not need to be repaid, nor will interest be charged which makes it an appealing way to receive money, although only some businesses under special circumstances will qualify for these types of grants.
Supplying products and services
Products as well as services in a travel and tourism company are mainly supplied in exchange of profit towards the business. These services and products are usually given because of public demand but sometimes also for individuals, other businesses or even the government. An example could be TUI fly which is a public limited company (PLC). This airline provides services and products to airports, travel agents and catering companies.
Every organisation, from the largest company to sole traders, everyone needs to produce financial records. Sole traders need to record their income as well as outgoings and produce a tax return. These results do not need to be made public although they may keep them for personal uses. All UK companies need to have their final accounts by a professional accountant from outside the company.
Sole traders must complete a self-assessment tax return which has to be paid based on profits from the business. Expense can be removed from the income to calculate how much profit is left if there is any. Companies need to pay corporation tax based on their profit. Tax return from the company needs to be done with the Inland Revenue.
The value added tax (VAT) on sales goods and services is collected by the HM revenue customs which is a government department. The current VAT rate in the UK is 20% which is the increased rate of the past percentage which was 17.5% before January the 4th 2011. Once a company reaches £68.000, it must register for VAT which includes getting charged for it as well as keeping record of the numbers.
Contribution to global and UK economy
Successful businesses positively contribute to the national economy well-being which increases the Gross Domestic Product (GDP). This results in higher taxes, increased unemployment and spending cuts.
Providing added value
Providing added value is an excellent method of gaining competitive advantages through offering the customers a better value and outstanding services and products specified to their needs including excellent customer service. This will attract more potential customers as well as keep the existing once. An example could be airline companies such as Lufthansa which offers a free gift bag for children under the age of 12. This includes a mini board game, a colouring book including 4 coloured pencils and a teddy bear. This keeps children entertained and busy so that the parents as well as other customers and members of the crew do not need to worry about a crying, screaming or annoying child which is beneficial to everyone on the airplane.
Providing new and innovative products and services
This is essential to keep up with the competition and keep customers interested. For example stagecoach, a transport company in the north-west, frequently brings out new bus tickets to suit everyone’s needs such as the new ‘Under 25 Day-rider’. This gives young customers the chance to travel for only £2 a day which is extremely appealing, especially to university students at UCLAN and the University of Lancaster.
Total quality management
TQM is a philosophy which states that every member of the organisation constantly tries to improve the company’s overall quality. This includes services, products, the working environment and more in order to approach long-term success and customer satisfaction. To follow this philosophy and fulfill the goal, the company needs to set quality targets to ensure high quality customer service; assure quality to meet the high standards and develop quality to continuously improve the already existing high standards. These are the three strategy points used by the TQM philosophy.
Providing excellent customer service
Excellent customer service is the most important aim for a company because only happy customers will return to using the company’s services and products. The railway company Grand Central always ensures excellent customer service which is why this is a good example. They offer board games for families and children to borrow and use during the journey because it will keep them entertained to ensure customer satisfaction. They also have regular checks on their members of staff to ensure friendliness and helpfulness is up to their high standards.
Training and development of staff
Every member of staff needs to be an expert in their field in order to handle complaints successfully. The members of staff represent the company and therefore need to act professionally and behave with good manners. This also requires staff training to ensure they meet the standards. Members of staff should be trained in their specific field in order to do their work correctly as well as in any field related to interacting with customers to ensure excellent customer satisfaction. The company also needs to motivate their members of staff to keep developing and improving.
Targeted advertising and promotion
Correct advertisement is extremely important to make customers aware of their services and products as well as new promotions and special offers so that customers choose this company over others. It is also extremely important to make sure their advertisement reaches the right target. For example a tour operator such as Thomas Cook would not put their romantic holiday advertisements for elderly couples on a channel for little children because it would be aimed at the wrong target and therefore no one would book with them. In order to maximise their outcome from their advertisement they would need to include competitive prices and advertise it on normal TV channels for adults or elderly people. If they wanted to advertise a holiday for teenagers to New York City for example, then they could advertise it online because most young adults spend more time surfing the internet more than watching TV.
Innovative pricing policies
Competitive pricing is really important because a lot of customers look for the cheapest possible holiday they can get to make it more affordable for themselves. Especially low-cost airlines are really popular although airlines such as EasyJet and TUI Fly have a lot of competition and therefore always try to lower their prices to be the cheapest airline which can result in an unrealistic price and would result in loss for the company. Big airlines can offer cheap prices because of their mass production which makes it overall cheaper for them so that they can charge their customers less. Smaller airlines are often not able to compete with the mass productions because they cannot fall under their margins otherwise they would lose money from each sale instead of gaining profit.
When setting up a company it is extremely important to select the right location for the business. For example tour operators such as Thomas Cook need to be located in a busy place with a lot of people to higher the chances of someone turning up to book a holiday. These should ideally places with wealthy people and less competition so that their company stands out or may even be the customer’s only choice if there are no other businesses of this kind nearby.
It is important that companies train their members of staff properly so that they know how to sell the company’s services and products successfully. Employees need to be convincing without sounding too aggressive or intrusive because this could result in the opposite reaction so that the customer gets offended and maybe even feels harassed. To avoid this, employees need to remain friendly and be able to put themselves in to other people’s position to empathise with the customers and find the right way to talk to them. Members of staff need to be outgoing and an expert in their field so that they can answer any potential questions the customers may have. Also a good posture, overall appearance and a friendly smile is essential. Even in a travel agents call centre such as Thomas Cook, the employees need to smile and make sure they have a clear wand professional way of talking because the customers will only be able to hear their voice which means that they judge the employees’ mood based on their tone of voice.
Integration and consortia
Independent companies such as the Freedom Travel Group and the Hays Travel Independence Group can join a consortium which is a group that protects members through collective security. This offers benefits such as access to reservation technology and centralised payments including access to ABTA which helps the company being more competitive. Horizontal and vertical integration helps the company’s growth and eliminates competition. For example Thomson Fly merged with First Choice Airways to become Thomson Airways, the currently third largest British carrier.
Comparing two travel and tourism organisations
Virgin trains is a national rail service company which is in charge of domestic tourism within the UK. Virgin Trains is owed by Virgin Group (51%) and Stagecoach (49%) and is in the Private Sector.
Euro Star is an international ferry transportation service which transports passengers and cars from England, across the water, to France. Euro star operates between England and France; therefore it is an inbound as well as outbound service which is in the public sector.
|Virgin Trains||Euro Star|
|Structure and Control||
|Contribution to UK Economy||
|New and Innovative Products||
|Advertising and Promotion||
Virgin Trains was the first company to offer drinks and food for first class customers which is only a small gesture but shows the customers that Virgin Trains cares about their customers and that they are more advanced than other companies. Even though other companies offer drinks and food now, Virgin trains will stay in the customers head as being the first to offer these kinds of features which make customers choose them over other companies. They do not just only profit from gaining more and consistent customers but also from the extra earnings they make from the sold food and drinks. This is one of the reasons why virgin trains’ image is extremely good.
One of Virgin Trains aims is to divert 100% of their waste from their train stations; they are working on this through recycling and separating different types of rubbish from the collected trash in the station. The business is successful with their aim because they are currently diverting 94% of the total waste, which is extremely good for our environment. This improves Virgin Trains image to customers who care about the environment and want to travel without feeling guilty. Another positive aim is that Virgin Trains tries not to have a negative impact on the future, which means that they reduce their CO2 emissions by at least 4%. This again appeals to customers who are eco-friendly and results in gaining more customers and their customers trust including a higher income.
Virgin Trains also introduces new products such as weekly, monthly or other seasonal tickets for an affordable price. This gives them a competitive advantage over other companies because many customers do not just travel once in a while but use the train as a daily transport method to for example get to school, college or work. The seasonal tickets appeal especially to these types of customers but also for people who want to go bag packing or go on an adventure because it makes it easier for them and more affordable. The businesses aim is to always try to maximize their range of customers which their services appeal to through adding new products, improving existing once and general kindness.