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Bright Network Work Sample

Sunshine Inns has experienced significant growth in its City hotels but declining profits in its Country hotels. EY can help Sunshine Inns in several ways: 1) Provide assurance services to help prepare financial statements in a timely manner and ensure compliance for an upcoming audit; 2) Use advisory services to improve performance, particularly for the Country division, through analysis and recommendations; 3) Guide Sunshine Inns through any potential M&A transactions with transaction advisory services; and 4) Provide tax and audit services to help address issues raised by HMRC and inconsistent petty cash reconciliations.

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Chirag Laxman
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100 views

Bright Network Work Sample

Sunshine Inns has experienced significant growth in its City hotels but declining profits in its Country hotels. EY can help Sunshine Inns in several ways: 1) Provide assurance services to help prepare financial statements in a timely manner and ensure compliance for an upcoming audit; 2) Use advisory services to improve performance, particularly for the Country division, through analysis and recommendations; 3) Guide Sunshine Inns through any potential M&A transactions with transaction advisory services; and 4) Provide tax and audit services to help address issues raised by HMRC and inconsistent petty cash reconciliations.

Uploaded by

Chirag Laxman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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MADHU SINGH

[email protected]
SUNSHINE INNS
PROPOSAL
08TH JULY 2020

EY AND SUNSHINE INNS

A review of services that can be utlised to support the growth of


Sunshine Inns.

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Company Overview
Sunshine Inns has been operating family hotels within the UK for more than
40 years. The company owns approximately 40 hotels located in some of
Britain’s most popular cities, near beaches and areas of natural beauty.

The hotel has two divisions: “City and Country”. City offers no frills, basic but
comfortable rooms with a focus on communal spaces with artisanal coffee
and home cooked food served at reasonable prices targeted at budget
travellers in busy urban areas. Oppositely, country hotels are typically located
in areas of natural beauty and offer mid-priced rooms aimed at families and
holidaymakers. Some of these sites also offer swimming facilities, gyms and
entertainment.

Recent Performance
Performance: Country Division (Profits)
From 2015 to now, Sunshine
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Inns has experienced significant
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growth in their City hotels,
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seeing double digit growth in
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that period. However, in the
10
same period, a drop in turnover
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and profits was identified within
0
2015 2016 2017 2018 2019 country locations. The impact of
the EU referendum and the
Profits
weakening of the pound was
expected to increase tourism and
the number of foreign travellers entering the UK. However, the impacts of
this have not been received across all areas of the business.

Nevertheless, the growth within the City division has propelled the company
forward and as a whole they have seen respectable growth year on year. The
company is still classified as ‘small’ and does not currently meet requirements
for an audit.

Core Leadership Team

Mike Sunshine Mary Sunshine


Financial Director Chief Executive Officer

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Recent Developments

A. “Based on projected occupancy levels and growth, it is anticipated that


SI’s revenue will grow 10% year on year. Therefore, by FY22, revenue
will exceed £11m and staff numbers will exceed 200. On a separate
note, SI’s have been late in filing their accounts in the last three
years”.

Implications: Anticipated revenue growth suggests that Sunshine Inn’s


would soon qualify for an Audit. Late filings would also suggest some
mismanagement of previous accounts, an issue which would need to be
rectified before a statutory audit can be completed. Consequences include
interest charges on underpaid tax as well as the possibility of Mike being
removed as Director alongside the maximum penalty of £1500 that can be
applied to SI should late filings continue to be an issue.

How can EY help?


Assurance Services: these services provide peace of mind to clients by using
skills and experience to give companies, investors and regulators confidence
in the validity of financial statements, business-critical information or
processes. Utilising this service would enable SI to better prepare financial
statements in a more timely manner. More specifically, given that the
company will soon qualify for an Audit, EY can be utilised to ensure
compliance with accounting principles therefore helping the business to
accurately reflect their financial picture as an when required.

B. “Following the EU referendum in June 2016, there has been an


increase in the number of tourists visiting the UK as well an increase in
the number of family ‘staycations’. Although the City division has
benefited from this trade, the Country divisions results have been
mixed. Some hotels are not meeting there profit targets and are close
to breaking even. SI are considering increasing their restaurant
offerings within the country division as a way to boost revenues but SI

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currently do not have much information on the different streams of
revenue and which have the highest margins. SI also do not know of
the implications of increasing restaurant offerings within the hotel. A
couple of restaurant chains have been in touch with the CEO to
enquire whether SI would be interested on a concessionary
agreement”.

Implications: City division is seen to be propping up the entire group with


the Country division heading slowly towards becoming a loss making
business. Changes are therefore required to ensure the group remains
profitable.

How can EY help?


Advisory Services (Performance Improvement): EY will help to deliver
sustainable improvement by optimizing clients performance and profitability.
Utilising this service would enable SI to improve performance, particularly
within the Country division, through analysis of current operations and the
external environment therefore highlighting how SI can enhance overall
profitability within the group.

C. “The CEO would like to expand the existing City Divisions model and
she is considering the possibility of buying a small European chain that
operates within German and French cities, or potentially buying more
hotels in the UK. The bank could provide a loan for this but would
need some assurance in relation to the financial position of the
company. Alternative funding arrangements could be considered.
Rather than an increase in investment, the underperforming Country
division could also be sold off”.

Implications: M&A’s carry significant risk and many of them fail. There are
a number of aspects that should be considered before pursuing acquisitions
i.e. culture, systems, staff, what strategy should be deployed etc.

How can EY help?


Transaction Advisory Services: EY provide M&A advice to institutions
engaging in mid-market transactions in the financial services sector. They
help clients assess the strategic fit of a business by evaluating potential
synergies, project managing the transaction steps, assisting in negotiations
and financial models, and measuring transaction implications. EY can
therefore guide SI effectively through the process should they wish to

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acquire other businesses and assist them in better managing the risks
involved.

D. As the company has continued to grow, the corporation tax bill has
continued to increase. Mike’s knowledge of taxation is limited and may
not suffice should SI choose to launch the brand abroad.

Implications:

How can EY help?

Tax: EY can provide advice surrounding both UK and international tax laws
and jurisdictions. SI would therefore be better prepared to operate both in its
home country and abroad.

E. Petty cash reconciliations have been inconsistent at a number of hotels


that one manager is responsible for.

Implications: A petty cash reconciliation is a formal review of petty cash


records. The intent of this activity is to see if there have been any
undocumented disbursements. Such disbursements are a common
problem in petty cash, where there is a high risk of fraud. Also, since
most petty cash custodians are not trained as accountants, they may
incorrectly record disbursements. For these reasons, a petty cash
reconciliation should be conducted at regular intervals.

How can EY help?


Audit: SI can request an internal audit to highlight any potential fraudulent
activity/mismanagement. The overall benefit would be the better recording of
petty cash reconciliations thus contributing to a better reflection of the
financial position of SI.

F. HMRC have written to Sunshine as they wish to review the last 3 years
of corporation tax returns. Mike is unsure as to what they would like to
review or what they should prepare for.

Implications: Late filings would suggest some mismanagement of previous


accounts. Consequences include interest charges on underpaid tax as well as
the possibility of Mike being removed as Director alongside the maximum

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penalty of £1500 that can be applied to SI should late filings continue to be
an issue.

How can EY help?


Tax: EY can provide advice surrounding both UK and international tax laws
and jurisdictions. SI would therefore be better prepared to meet the
requirements of HMRC.

Other Developments to Consider

Brexit

Covid-19

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