Budgeting is like training for an Olympic marathon. Days are spent creating a plan to address weaknesses, build on strength and endurance, and hedge against unfortunate events. Money is earmarked for activities that hopefully will generate income or sponsorships to procure better equipment. A significant amount of time is spent too in scoping out conditions in the field and closest competitors. The goal, after all, is to be in business for the long haul while staying lean and nimble in the short term.
Like all athletic training, there are no easy ways to go about budgeting. “There’s a lot going around in my head,” says Neetu Mistry, Chief Commercial Officer of Cycas Hospitality, as she shares the many things she has to juggle during the annual budgeting process.
HotStats sat down with Mistry, RBH Hospitality Management CEO David Hart, Brookfield Asset Management Vice President Elena Ladisova, Starwood Hotel Asset Management Chief Commercial Officer Joe Pettigrew, Davidson Chief Operating Officer Pete Sams, and other hospitality industry luminaries to hear about some aspects of their approach to the necessary-but-painful phase of budgeting.
When does the budgeting process start and end?
According to Mistry, for Cycas, budget planning starts around May or June. “Starting early is definitely something to think about,” she adds. “We start early in terms of preparing and managing the timeline, working back from the delivery date to owners all the way to conceptualizing what we’re going to do.”
For RBH, CEO David Hart says budgeting and forecasting is a monthly process. “We already run a rolling 12-month forecasting process. So, we’re always forecasting. From our point of view, it’s maybe not the one-off effort that it used to be back in the day.”
For Joe Pettigrew and Starwood, they try to wait and finalize their budget as late as possible. “A lot of management companies try to start doing their budget process from August and there’s already a great margin of error when you’re trying to forecast the next three months. I mean by the time January rolls around, the margin of error has only gotten greater because you are already working towards a number that probably may or may not be applicable by then, depending on what happened in your market, macro-environment factors, and so on.”
Amy Stevens, Group Director – Revenue and Distribution of Rocco Forte Hotels, says they also prefer the late-as-you-can approach. “Start the process and compress it into a very intense six- to eight-week period as close to the deadline as possible so you have the most up-to-date data. What we have found is that that kind of compressed timeframe is more efficient than having seventeen versions of the budget over a six-month period.”
Can budgeting ever become painless?
The short, direct answer from all of our interviewees is no. Deciding which part of the business gets funded, forecasting customer behaviours and industry trends, scenario planning, and fulfilling financial dues are just a few parts of the madness.
Mistry says she has to balance stakeholder aspirations and expectations, rent commitments, lifecycles of properties, and even taxation responsibilities in the various countries Cycas is engaged in.
For Paul Nisbett, Chief Financial Officer, EMEA of Valor Hospitality Partners, the various legal requirements and compliance problems add another dimension to the budgeting conundrum.
Hart says the biggest difficult thing for RBH is working with thirty different hotel owners who each have their own preferences. “Some will be really focused on what the marketing spend is going to be; some will be focused on F&B,” he shares.
However, most of our panel members agree forecasting and budgeting have become easier now compared to 15, 20 years ago thanks to readily available data and tools.
“It’s less onerous for us than it used to be because of how we forecast now,” Hart says, underscoring the flexibility they must have to adjust their rolling 12-month budget.
Elena Ladisova, Vice President at Brookfield Asset Management, says utilizing technology and data helps them minimize the inefficiencies of the budgeting process. “It’s a great benefit to have this increasing amount of industry data, tools, and resources that help us monitor performance.”
Be prepared to adjust and adapt
For those who are struggling with their budget process, Davidson COO Pete Sams advises to step back and create your plan.
“A strategic plan is really more critical to me than the budget. The strategic plan speaks to where we’re going, to how we’re going to, to where do we belong in the marketplace. What’s our rightful position? How are we going to improve our standing? How are we going to generate the results that we aspire to? And then the budget is the financial support behind that plan, and then you articulate that message when you sit down with your respective ownership groups. Some aspects of that plan might be inaccurate but you’re going to constantly re-evaluate that every month. Just be prepared to adjust and adapt.”
For more insights and practical tips, be sure to check out the video series available on our previous budget page. These videos go beyond the blog, offering in-depth looks at the strategies discussed here, straight from the experts themselves.
As John Maynard Keynes once remarked, “The difficulty lies not so much in developing new ideas as in escaping from old ones.” Let this serve as a reminder to keep evolving your budgeting process and embrace new perspectives.
