Business

A Proven Method for Financial Success in the Hotel Industry

Managers and business owners frequently ask me for help with hotel budgeting as part of my consulting work. As we near the end of August, many of you have likely already started the process.

However, it worries me when people start casting doubt on budgets’ relevance or competence in creating them. Questions like “Do we need a budget?” or “How can I look into the next twelve months and put a number to it?” are common when discussing budgeting. So, whenever somebody asks me this kind of thing, I always reply with the same simple. Yes, we do, and Yes, you can; let’s work on it together.

The budgeting procedure for any given period always begins at least six months before the beginning of that term. If your planning period runs from January 1st to December 31st, for instance, you will start making budget assumptions in roughly the month of July prior. From that vantage point, I have a lot of compassion for those who haven’t honed their predictive abilities yet. This must be done, though. They need to make an effort to learn it. After being involved in the budget or business planning process for several well-known and successful international companies over four decades, I have settled on a method that uses rolling budgeting for each of the plan’s twelve sub-periods.

The procedure is straightforward, and once the team gets involved, its outlook on its requirements shifts. Since they’re crunching the figures, they feel a sense of ownership over them and begin to view the plan as a valuable resource. This is where the system’s magic happens.

The procedure begins with a straightforward task for all functional heads of revenue-generating departments to complete. They estimate future income from their particular divisions. Departments of Accommodations, Restaurants, Bars, and Leisure Activities. Forecasting is done in depth to evaluate and rationalize their assumptions about the data. The marketing function head offers commentary on the current state of the market and projections for the upcoming year of the plan. When finished, this document will show the total revenue the hotel anticipates making during the planning period.

The hotel’s chief financial officer is the next test subject. He calculates whether or not the income and profits generated by the business will be sufficient to satisfy the owners’ financial goals. The general manager makes sure the figures are realistic enough to be attained while still being difficult enough to get the most out of the squad. If the statistics don’t add up or look too simple, the team digs deeper into the sources of revenue and expenses to find ways to cut costs and increase productivity.

Once these figures are finalized, plan consolidation can officially begin. The data is broken down by month and then added up at the end of the year. First Year of the Plan. The numbers are extrapolated for plan years II and III based on an agreed growth rate that is established after considering market, competitive, economic, and other factors that were anticipated to impact the business.

This method has many benefits over a traditional budgeting procedure. The targets for the next plan period and the intermediate and long-term business objectives for the next two years are provided. This becomes the single most essential factor in deciding the hotel’s long-term marketing strategy and aids the staff in operational planning as well.

As such, a budget is a tool that specifies the financial goals in terms of accommodation revenues, food and beverage revenues, recreation and service revenues, and service volumes. All of the recurring and one-time costs, as well as the total contributions and net profit, are broken down. It is a statement of intent for the company’s development over the next three years. The fun part of this process is finally here. Now that you know where you want to go, you need to figure out how you’ll get there, or “how” in budgetary parlance. The marketing plan is an intriguing exercise, my buddy. It will be hard to hit the targets set out in the marketing budget without a well-developed, researched, and action-oriented marketing plan. The business plan for your hotel consists of your rolling three-year plan and your marketing strategy. A detailed guidebook with directions and points of interest. That’s all there is to it.

Here, I’d want to remind you that document preparation and storage, like museum artifacts, is not enough to achieve your goals. The plan’s execution is what will turn the figures into reality. As we move forward with the plan’s execution, we’ll need to establish a rigorous system of monthly operating reviews, variance analysis, corrective actions, and quarterly business forecasting to ensure that no unpleasant surprises arise at the end of any review period. Do you believe in magic now? If you keep doing your forecasts on an annual basis, it’s a breeze to prepare a budget for the next plan period.

I couldn’t have thought of a better method to make friends with numbers, which works! They are more than just a companion; we engage in constant two-way communication and mutually depend on one another for guidance. The numbers are always correct and might become your best friend. Make friends with them and dive into the number tunes.

Ram Gupta is a hospitality consultant who has worked worldwide for the past four decades, including in Asia, Europe, the Middle East, and the Far East. Visit his website at.

linda