Financial Management And Funding Strategies For Hosting Corporate Parties In London: A Case Study Of Wonderland Agency

Primary Purposes of Financial Management within Event Management Industry

Question:

Discuss about the Event Management and Planning Services.

In this report, a profit-making event management firm has appointed an assistant financial manager that organises events for various occasions in London. Hence, Wonderland Agency has been selected as the event management firm, which is a creative-led experiential event production agency that helps the brands to engage, collect and evolve in UK. The organisation is adjudged as the specialist in corporate event planning and event production in London (Wonderland Agency 2017). The firm has several clients, out of which BBC has been chosen for this report, since Wonderland Agency is planning to conduct an annual corporate party for the same. This party would host some popular sports and movie personalities, in which the common individuals of London could attend the same by paying an entry fee. 

The first segment of this report aims to deal with assessing the primary purposes of financial management within the event management industry of UK and its significance to Wonderland Agency. The second segment concentrates on evaluating and suggesting the relevant sources of finance in funding this specific event. The third section lays stress on dissecting and recommending the pertinent pricing strategies inherent for pricing the products or services of the event. Finally, the report sheds light on critical assessment of the cost-volume-profit (CVP) analysis through computation of number of customers to attain break-even and break-even chart.

As the Assistant Financial Manager of Wonderland Agency, it is necessary to carry out the primary purposes of financial management within the organisation. These purposes are represented briefly as follows:

It is necessary for the assistant financial manager of Wonderland Agency to make anticipations in relation to capital needs of the organisation. This would rely on estimated profits and costs along with the future programs and policies of the organisation (Bekaert and Hodrick 2017). Thus, the manager of Wonderland Agency needs to make anticipations in an effective manner that enhances the earning ability of the organisation.

After the completion of estimations, the assistant financial manager of Wonderland Agency needs to decide the capital structure. In this regard, Brigham and Ehrhardt (2013) cited that it includes short-term as well as long-term debt-equity evaluation. This would rely on the part of equity capital an organisation is possessing and extra funds, which need to be accumulated from the external parties.

For procurement of additional funds, an organisation has many alternatives like crowd funding, angel investors and loans to be obtained from the financial institutions and banks along with the public deposits to be obtained like in the form of bonds (Crowther, Bostock and Perry 2015). The selection of each factor would rely on relative benefits and drawbacks of each source and period of funding.

Relevant Sources of Finance for Funding Annual Corporate Party for BBC

It is the responsibility of the assistant financial manager of Wonderland Agency, it to assist the financial manager of the organisation in deciding to distribute funds into profitable events. This would help in ensuring safety on investment and timely returns, if possible (Getz and Page 2016).

The assistant financial manager of Wonderland Agency could extend support to the finance manager for making the net profit decision. This could be carried out in two ways:

• The first method is to declare dividends, which takes into account the dividend rate and other benefits such as bonus.
• The second method is retained incomes, in which the volume needs to be determined based on innovation and expansion plans of the organisation (Getz 2017).

The assistant financial manager of Wonderland Agency is required to make decisions in relation to cash management. There is requirement of cash for various purposes such as payment of salaries and wages, payment of electricity and water bills, settling current liabilities, payments to the creditors, purchase of event-related stuffs and maintenance of adequate stock (Vogel 2014).

The assistant financial manager of Wonderland Agency needs to plan, utilise and procure the funds. In addition, the personnel would need to exercise control over funds. This could be accomplished through numerous techniques, which take into account financial forecasting, ratio analysis, profit and cost control (Zhou, Qiao and Ryan 2017).

The following are the major sources of finance that Wonderland could seek to fund the annual party event for BBC:

The invention of crowd funding platforms like Kickstarter has made testing the appetite for new events much easier, which would help Wonderland Agency to develop ideas before risking cash. The organisation could give information regarding the great upcoming event, setting a fundraising target and requesting the potential candidates to pledge in purchasing a ticket. In case, there is absence of adequate interest and it is not possible to accomplish the target, the pledged money would be released. Hence, this would minimise risk of investment for both Wonderland Agency and attendees, as they need not have to stake their own funds (Getz et al. 2015). Despite the fact that the process is easy, it would be difficult for the organisation to attract ticket purchasers. In order to make this funding source a success, Wonderland Agency needs to launch social media campaign while devoting adequate time and resources to marketing.

Wonderland Agency could use websites like Angelsden for connecting with the relevant investors through personal introduction or pitching events in return of a fee. This website has 13,000 angel investors and it claims 90% rate of success following coaching on the part of a lead investor (Gration et al. 2016). However, it is necessary for Wonderland Agency to have trading history and the minimum fund amount would be £50,000. The other paths in finding an investors would be to approach the current contacts knowing and trusting the organisation or highly targeted individual investors or specialist investment groups. For instance, since Wonderland is planning to conduct an annual party for BBC, it could approach the sports organisations for placing advertisements on the selected event venue.

Pricing Strategies for the Annual Corporate Party for BBC

The banks often do not provide loans easily like in the past and they are not probable i lending against an event. However, since Wonderland Agency has a proven record of accomplishment, it could avail the alternative of business loan. Alternatively, it could borrow by mortgaging one of its existing assets. However, the organisation needs to be fully ensured about the success of the event before considering the bank loan as an alternative (Holm and Breiter 2017).

Wonderland Agency could use an event-ticketing platform like Eventbrite before it starts to sell tickets in advance of the planned event date. This would help in contributing to test the water as to the desirability of the event idea, since it provides access to working capital (Hoye et al. 2015). Thus, using the payment processing of Eventbrite, Wonderland Agency would be qualified to apply for advance payment in receiving payment before the event date. With the help of such processing, the organisation could obtain a proportion of advance ticket sales, since it would supply the same with crucial cash flows to have the project off the ground.

The sponsors generally come on board after the event is off the drawing board. They would like to seek information about the number of attendees, the time and venue of the event, the event agenda and the marketing plan of Wonderland Agency. Hence, it would be necessary for the organisation to obtain some core funding in place or individuals signed up for the event before it approaches the sponsors. In addition, it needs to finalise the sponsorship packages along with providing a clear depiction regarding the benefits to be offered to the sponsors.

Wonderland Agency could pre-sell exhibition stands along with obtaining deposits from exhibitors like selling advanced event tickets. The organisation could sell space for hundreds of pounds per square metre for raising a considerable amount of capital by having exhibitors on board early. Thus, it requires working with the existing contacts for gaining new exhibitors along with offering them tempting early bird discounts. After that, it could use their commitment to enable convince others of the credibility of the event (Jiang and Schmader 2014).

Thus, by using a mix of the above-stated funding strategies, Wonderland Agency could test interest in the event firstly enabling it in booking venue or sign contracts in confidence, before it moves out to wooing bigger fish.

This could be anywhere from £15 on up. Most of the attendees paying an hourly rate would like to seek information about the number of hours the planning is expected to take. With an hourly rate, the organisation would be paid for the hours at the event; however, the hours of coordination ahead of time.

Critical Assessment of Cost-Volume-Profit Analysis

Wonderland Agency could review the requirements with the client and then it could present the price. As commented by Jones (2014), most of the clients like this approach, as they know rightly about their payments. However, the event organisation needs to be effective at anticipating the time spent on the job or it would have adverse impact in this kind of payment.

This type of pricing strategy is based on a proportion of the amount raised on the part of the client BBC. Thus, it is crucial for Wonderland Agency to assure that the seats could be filled or it might earn pennies on a single pound. In this context, Liu, Sparks and Coghlan (2017) cited that some event organisations work for a percent, which usually varies between 15% and 20% of the overall event cost they know irrespective of the number of individuals they bring in.

Some event professionals base their fees to receive commissions from travel agents, hotels and/or venues. This pricing strategy might be lucrative; however, it would not be the sole pay (Masterman 2014). In addition, some clients are aware of such perks and they might look down on double dipping, getting paid on their part and a venue for the identical services. Commission is highly effective in case of Wonderland Agency, since it is working with BBC that could afford its rates due to its financial stability in the market.

The final strategy of pricing the event is to charge hourly having add-ons in covering expenditures (Peachey et al. 2014). Along with this, there are numerous project managers in Wonderland Agency and they would subcontract out portions they do not directly manage themselves like flowers. In such scenario, they would bill the client 15% – 20% over their cost of such services. It could include stuffs like printing and mailing as well.

After critical evaluation of the above-depicted strategies, it is recommended to Wonderland Agency to adopt the flat fee pricing strategy, since BBC would be able to obtain right knowledge of the payments. In addition, Wonderland Agency has experienced professionals working in the organisation, which would help in effective estimation of the amount of time spent on the job.

In the words of Pedersen and Thibault (2014), cost-volume-profit (CVP) analysis is based on ascertainment of the break-even point of product volume and cost and these are highly valuable for the managers of an organisation in undertaking short-term economic decisions. CVP analysis includes various assumptions for increasing relevance by taking into consideration that the selling price, fixed costs and variable costs per unit remain identical. For carrying out this analysis, there is need for certain equations, which could be formed through price, cost and other variables. For plotting them, the economic graphs are used. Therefore, CVP analysis is the method of cost accounting associated with the effect of changing sales levels and costs pertaining to the operating profit of the organisation (Petrick, Bennett and Tsuji 2013).

Wonderland Agency could depend on CVP analysis; in case, the costs remain same within a specific production level. It is assumed that each ticket printed would be sold, while a further assumption is made that the costs could be variable or fixed in CVP analysis. Another assumption associated with this analysis is that each change in expense happens due to variation in the activity level. The semi-variable expenditures could be split between the expense classification through the high-low method, scatter plot or statistical regression (Petty et al. 2015).

Moreover, through CVP analysis, contribution margin is utilised to manage the product contribution margin, which is the result obtained after subtracting the variable costs from the total sales. For assuring the overall event success, Wonderland Agency needs to be careful that the contribution margin is more compared to the total fixed costs. In addition to this, the organisation could utilise contribution margin in order to determine the break-even point of sales. This could be derived by dividing the total fixed costs by the contribution margin ratio (Raj, Walters and Rashid 2017).

In order to compute the number of customers to break-even, the following primary assumptions have made and they are illustrated below in the form of a figure:

Table 1: Primary assumptions to attain break-even

(Source: As created by author)

Based on the above table, it could be stated that Wonderland Agency is expecting 400 customers to attend the event. The average earning per customer is assumed as £150, while the average variable cost per customer is expected as £50. However, there is absence of any cost of sales related to the overall event conduction. Thus, the operating profit or contribution cost each customer is obtained as £100 (£150 – £50). The incremental fixed cost for carrying out this corporate event of BBC is estimated at £20,000. Through these basic assumptions, the break-even in terms of sales and customers has been computed, which is represented as follows:

Table 2: Break-even point in customers and sales in the context of Wonderland Agency

(Source: As created by author)

According to the above table, there is clear depiction of the operating profit of Wonderland Agency of £40,000 after the overall event completion. A positive operating income is always desirable in order to retain the maximum amount of profit, which could help in improving the business operations of an organisation (Stadler, Fullagar and Reid 2014). After subtracting the incremental fixed cost for the event, the net profit after organising the event would be £20,000. Hence, Wonderland Agency needs at least 200 customers to be in no-profit-no-loss situation. In addition, the break-even in sales has been obtained by multiplying the fixed cost with the contribution ratio (Kumar 2016). Hence, in order to avoid loss, Wonderland Agency would have to achieve £30,000 in sales for ensuring the success of the organisation.

Different revenue scenarios have been taken into account for developing the break-even chart, which are depicted as follows:

Conclusion:

From the above discussion, it has been found that it is necessary for the assistant financial manager of Wonderland Agency to make anticipations in relation to capital needs of the organisation. This would rely on estimated profits and costs along with the future programs and policies of the organisation. After the completion of estimations, the assistant financial manager of Wonderland Agency needs to decide the capital structure. After critical evaluation of the pricing strategies, it is recommended to Wonderland Agency to adopt the flat fee pricing strategy, since BBC would be able to obtain right knowledge of the payments. In addition, Wonderland Agency has experienced professionals working in the organisation, which would help in effective estimation of the amount of time spent on the job. Hence, in order to avoid loss, Wonderland Agency would have to achieve £30,000 in sales for ensuring the success of the organisation.

References:

Bekaert, G. and Hodrick, R., 2017. International financial management. Cambridge University Press.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

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Masterman, G., 2014. Strategic sports event management. Routledge.

Peachey, J.W., Cunningham, G., Lyras, A., Cohen, A. and Bruening, J., 2014. Exploring participant motivations to take part in an elite, multinational, sport-for-development event. Event Management, 18(2), pp.153-168.

Pedersen, P.M. and Thibault, L. eds., 2014. Contemporary sport management, 5E. Human Kinetics.

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