By David Lund
The budget is a BIG deal. Heck, it consumes so much time and energy in the hotel. Getting it right is a critical element to any branded, managed hotel. If you are reading this and you do not prepare an annual budget, you are probably scratching your head and wondering what I am talking about.
Read all about how to prepare a budget right here.
In your average hotel, the budget process is a two- to three-month deal. It means, or it should mean, each key manager is implicated in doing their part by preparing and negotiating the payroll and expenses for the department they manage.
The annual gut-wrenching process we call a budget is to put it politely a “Caca Show.” But it need not be. That is the scoop with this post. Because the only thing we know for sure about the budget is… wait for it: It is wrong. That’s right – it is wrong every time. It will never be the correct answer.
So why do we put so much time and effort into preparing it?
Hotel budgeting and forecasting is not like grade 10 algebra. There is no correct answer for our problem. Either the budget is too big or too small. We will either beat it or it will have us for lunch. No one ever just makes their budget. The budget properly viewed is a set of guidelines to follow, the base case for our operation given different levels of busyness.
So, with this revelation clearly called out then why do we put so much effort and angst into the annual preparation of this beast? Most managers spend an inordinate amount of time and sweat preparing their piece. They typically shoot for the stars with the items they include all the while knowing in the back of their minds that their wish list of additional staff and expenses is going to be shot down at first light. They want to right all the wrongs and finally get what they need to properly run their department, or so they think. A typical rookie move. A valiant thought and a noble quest but it always ends the same, that is, you are getting less to do more next year.
A much more practical and realistic approach is much needed here. What if the budget was a one-day affair? Check out the 24-hour budget story here.
What if we took what we did and let’s say we are looking at 2019. What were the parameters then – revenues, rate, occupancy, REVPAR, payroll and expenses? – and we planned our budget for next year to reflect the results of that banner year, plus or minus 5 percent. Having a look at that “benchmark” year could help us to plan a “top level” report that gives each key manager a target to plan their budget around. Why try and reinvent the wheel?
A budget is simply a business plan with numbers. As the old saying goes, “Any road will take you where you want to go when you are traveling without a map.” What you need from the budget are the parameters you can operate within, how much payroll and expense given different levels of REVPAR. You will notice I did not say occupancy, I said REVPAR. How much revenue coming in equals the amount of resources needed to deliver a great guest experience. In the end that is all we are trying to achieve. Simply put a plan in place that tells us where we are going and what we will need to get to our destination.
All the while we need to remember the only thing we know for sure about the budget is, it is wrong! It is a great document but it is only a planning exercise and if properly designed it creates a roadmap to follow. Once we get the budget done and approved and we move into the year it is written for then we do our monthly forecasts. This is where the planning gets real.
With the monthly forecast process, we take the latest intel on occupancy, rate and REVPAR and we add our “relative” budgeted payroll and expenses allowing us to do the all important pivot and do our part to manage the flow thru. Matching the level of business and revenues with the appropriate costs.
The budget serves as a guiding light but we live in the reality that we know it is not going to be the answer.
