Hotel Management Budget Example

[Regenia Junke]

Nowis the time to take action to build your hotel budget plan! Read through our step-by-step guide explaining how to get ready for 2024 with our hotel management companys best hotel budgeting practices.

Typically, the hotel budget season starts towards the end of August with presentations to management starting the following month. However, with trends ever evolving and Covid-19 impacting booking behaviour, it is important to take factors such as booking windows, cancellations trends, increasing room rates, and inflation into account. All of these factors can heavily influence the accuracy of your hotel budget plan. In practical terms, taking an agile approach and adjusting your budget later this budget season can be beneficial for any hotel.

The hotel industry is a highly competitive industry. To compete, hotels need to be accurate with their budgeting to ensure financial results are aligned with the business objectives, and that their teams are organised and prepared to reach those goals.

Hold on, it gets even funnier. When we were working through the budget for each month, we noticed that several months had targets at revenue levels below last year. Upon probing the reasoning behind this, we were explained that some tour operators had informed them they were expecting 10% fewer bookings from a particular country. No one ever raised the thought to initiate partnerships with other distribution channels to offset this possible decrease in demand. Capturing more market share, or penetrating new markets was just not in their mindset.

Sorry, I just had to get this rant off my chest. But unfortunately, it is very typical for our industry. Especially in resort hotel markets, tour operators have for too long influenced hoteliers on how to run their business. Hoteliers need to get more strategic insight and understanding of the financial side of the business. Moreover, they have to become more creative in methods and revenue strategies to increase the performance of their property.

An industry colleague I respect highly called me last week, asking if I knew of any online tool which helps hoteliers develop a professional plan of approach. Not just a standard one, like most hotels, punch out, listing a few trade fairs and showing a % increase per segment. No, he was looking for a system that really guides you through every detail and forces you to look at all aspects that need to be incorporated. And he is right; marketing plans in general are too superficial. It is time they are taken to a more professional level, and become complete. Hotels are multi-million dollar or euro businesses and they demand an expert strategic and structural approach.

Taking into consideration the continuing growth of online sales and the quick adoption of mobile technology by consumers, we have put together some questions that will need your attention in the upcoming year:

The basis of the target or budget lies in a detailed demand calendar. Get a clear overview of what drove revenues each day. Map the events, conferences, expositions, trade fairs, concerts, holidays, vacations, long weekends, etc to the following year. You will start seeing a clear shift already.

Perform displacement calculations on all segments, channels, and accounts to uncover hidden revenue potential. Incorporate channel distribution costs like travel agent commission, agency fees, and marketing investments, payroll for sales, marketing, and reservation, to determine the true net value of each segment.

Mainly, there are three ways to approach budgeting for hotels, and weve dived deeper into which key metrics are involved in our article about USALI (Uniform System of Accounts for the Lodging Industry), which is the standard system that any hotelier should familiarise themselves with.

Furthermore, provide your team with guidance during the budgeting season. In case deliverables are not of expected quality when deadlines are reached, our hotel consultants always recommended to set team meetings to discuss earlier drafts of the budget per department to avoid any delays or inaccuracies of data when closing in on the final deadline.

PS. Any doubts or uncertainties about running your hotel & marketing strategies? Contact us for hotel management or hotel consulting services to help build a solid plan to outperform your competition.

Zero-based budgeting starts from scratch and goes category by category to figure out which expenses are essential. Nothing is assumed. By going through this exercise, everyone involved has more visibility into how much each thing costs, which is valuable in case costs need to be cut at some point.

A good hotel budget goes beyond the high-level categories above to show details for each department. For example, the Rooms department of a hotel is often the largest expense category and includes the following sub-categories:

Tis the season and most hotels are already well underway with their annual grunt work to prepare a 2020 plan for the regional and corporate teams to review and then it is onward to ownership seeking their approval.

In most hotels, this process is a protracted drawn-out marathon of such epic duration that it leaves a streak of several weeks, if not months, for some to endure. Revision after revision is the norm and everyone along the path squeezes a little more until there is nothing left to give anymore.

I have prepared and been involved in over 20 years of budgets at my hotels and I have been immersed in reviewing hundreds of budget submissions from other hotels in my regional and corporate positions. I learned a few shortcuts, tricks and above all else a process to follow. I am going to outline a few of all three here in this piece starting with some tips on the process.

This is where inexperienced, and I will use the word cocky, managers think they can pull the wool over the eyes of their master. Do not be the one to do this. Yes, there are tempting reasons for your skepticism about the last quarter of the year. Perhaps the group pace is down, the citywide numbers are soft or even the rate gains YTD are not sustainable. So what? It is your job at the very least to keep what you have YTD in the way of profit gains and not lose it. Do not be tempted to squirrel it away and spend in the last four months of the year in preparation for next year. If you try this trick you will be found out and forevermore known as a sandbagger.

Annually we need to counsel our department heads about their budget submissions and minimize the drama of having to tell Peter and Suzie that their 20 percent increase in overall costs just will not fly. It will never get off the ground.

Set the tone from the top with a clear message that the budget needs to be realistic within the parameters that are clearly laid out. A message something like this is very helpful before you start the detailed process: Departmental payroll for the coming year will be flat with a 2.5 percent increase in average wages coupled with a 3 percent improvement in productivity. Expenses are forecast to increase 3 percent next year and each manager is tasked with finding the corresponding savings in their department through a complete review and innovation. These two headlines set the tone of conservative business practices.

Do not let another year go by where you fly by the cost per cover or room occupied. Zero-base the expenses and have each manager prepare a detailed staffing guide. It will take them some extra time but it is well worth the investment. If you skip this part, you go another year without your managers knowing what is in the middle of their statements and this is akin to flying by the seat of your pants. Do not let it happen again this year. Here is a link to my recent article on zero-based expenses for the full story. -financial-leadership-zero-based-expenses-how-to-plan-and-manage/

At Hotel Financial Coach I help hotel leaders with financial leadership coaching and workshops. Learning and applying the necessary financial leadership skills is the fast track to greater career success and increased personal prosperity. I significantly improve individual and team results with a proven return on investment.

Effective budget planning is essential for any business. A plan helps hotel managers make informed decisions, allocate resources effectively, and improve profitability. The hotel industry is highly competitive, and hotels must maximize revenue while minimizing costs to stay profitable.

A hotel budget season is a period when hotels plan and prepare for the upcoming year. During budgeting season, a manager will review past financial performance, set goals for the coming year, and create a plan for the hotel budget. The budget season typically starts a few months before the end of the current fiscal year and ends before the start of the new year.

The budget season is crucial for hotels because it helps them plan for expected expenses and revenue. A plan created during the budget season helps hotels stay on track financially, avoid overspending, and maximize revenue.

Revenue management is an essential practice for hotels to optimize income and profitability. Most hotels implement revenue management to maximize occupancy rates without sacrificing room rates and other revenue sources.

The practice of adjusting the hotel budget based on seasonality, demand, and competition is called dynamic pricing. It allows you to adjust your rates to match market conditions and optimize your hotel budget in real time. For instance, during peak season, you can increase the price of hotel rooms to reflect the high demand.

The optimization of distribution channels like travel agencies and direct bookings to maximize your hotel budget is called channel management. Managing the channels through which you are selling your hotel room inventory can help keep a balanced budget and maintain the correct price. For example, if you notice that direct bookings are making up more of your sales than expected, you could adjust prices on channels like third-party travel sites to increase demand.

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