The 2024 hotel budget period is around the corner
The hospitality industry has seen unprecedented volatility over the past few years, which may make creating a budget for 2024 intimidating. However one has to get ready to plan the hotel budget for 2024 pretty soon.
Before getting started, let’s remind ourselves with what a hotel budget aims to do.
Simply stated a hotel budget lays out how money (revenue) will be generated and how it will be spent (expenditure) to achieve goals (profits, return on investments, etc).
David Lund, the world renowned hotel financial coach and author of the book “The Prosperous Hotelier”, describes a budget as “A budget is a business plan focused on numbers”, and goes on to liken it to a map. “Before you go on a trip, you hopefully have a map of where you’re going so that you can figure out your journey and changes you need to make to get to that final destination.”
David Santos, Chief Financial Officer at Savoy Hotels & Beach Club explains that “A budget is nothing other than a plan to achieve a goal. It shows your team where they need to go, and what they can accomplish, if they achieve that goal”, going on to add that the budget process is essentially a goal-setting process.
In my 35+ years in the hotel industry, I have worked under several GMs who brought different management styles to the table. All of them barring one from the Sales world came from a Food & Beverages operations background and when something was amiss - be it in F & B or in human Resources or in the Accommodations department, they would jump in to either momentarily take control or give direction to the concerned department head.
However, when it involved financial issues of the hotel they were reluctant to get involved - because they were unsure of what they did not know. Instead, they relied on the Director of Finance. Sure these GM’s could read the P & L or figure out the end results…but they hesitated to challenge the financial guy or the processes - because they lacked in-depth training with the numbers game. Hence, it was the financial guy or team that called the shots and these GM’s were happy to go along with it. Their only interest was to present a budget that resonated well with the owner / stakeholders – never mind what the other department heads had to say.
A budget always has to be challenging, but still realistic. Realistic means that one does not promise a RevPar increase of 40%, just because you think somebody may want to hear that. The budget must represent the hotel’s business strategy – not one that is prepared to impress the owners. Professional owners and reputed operators know, what is doable and what is not. In fact, I recall one owner tossing the budget back to the GM saying it was unrealistically high given the negative ground situation and future geo-political trends.
Usually, the budget process begins with the revenue manager’s input as to what the coming year’s room revenue will be –generated predicatively in terms of occupancy including room types sold and at what rate/s. Using the rooms configuration, the others including the F & B team, will base their assumptions considering fluctuations and seasonality, non-resident footfall, events, and so on, plus the resources needed. At about the same time the other divisional heads get working on their departmental budgets.
A good GM is someone who can see the view from above, one who understands the competitive and ever-unfolding environment, whilst having a clear grasp of his / her entire operation. Combined with knowing how the hotel is been managed, the GM should provide leadership by sharing his or her vision as to what the new budget year would look like. When that doesn’t occur, the budget process can be a long and stressful affair for everyone involved.
Wishing you well when preparing your 2024 budget!
Shafeek Wahab – Editor, Hospitality Sri Lanka, Consultant, Trainer, Ex-Hotelier
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