How does one budget for next year in a pandemic situation?
Normally around this time of the year most hotels would start the process of preparing the budget for the next fiscal period. For many that would be from April until March of the following year. The process usually begins by establishing assumptions for the upcoming budget period. These assumptions can include predictions on sales trends, cost trends, the overall outlook of the market (Tourism industry – both local and global), economic and political indicators and specific factors that can affect the bottom line.
After having done all of the above and perhaps more, one would then look back at the past years data, (E.g. last 5 years maybe), before casting an eye at what potentially lies ahead, such as predicting the new budget’s year-on-year (YoY), the growth rate, new hotel rooms that add ‘supply’ into the market, definitive and new MICE events and group traffic demand.
Let’s now pause for a moment and consider why we need to do a budget. A simple answer would be that a budget is a yearly plan that speaks of what the hotel manager and his team will need to do, to not only sustain the business but also deliver prosperity to the owner/s by way of profits. Not just profits but profits that are an acceptable return on investment. The budget provides some direction, more in numbers than in words leaving the manager and team to draw up strategies that would accomplish the outlined financial goals. Another explanation would be that the budget is the narrative described in black and white by the hotel manager, outlining plans to operate the owner’s property; it is the document that translates operating standards into action and how the owner can profit from the manager’s efforts in managing the assets of the property.
Generally, one would think that the property-level asset management team is the team best suited to guide the budget process because of their hands-on knowledge. Doesn’t happen that way though – particularly where owners work with large independent management companies that present a budget with little opportunity for dialog. Usually what occurs is that the corporate budgeting team and financial nerds sitting several thousand miles away, make key budget decisions for properties that they have not seen or on markets they are clueless of. In a few instances, some of them may make a ‘fly-by-night’ lightning visit to keep the momentum going.
Come the coronavirus and we are far far away from ‘business as usual’. No previous event has had such a deep and long-lasting negative impact on hotels and others, and, there is no quick fix. But all that our finance gurus and corporate ‘numbers crunchers’ can tell us is that ‘getting back to normal’ will not happen soon’. Duh!
So what do you do when historical data – in fact all data is skewed and it is hard to determine what is valid and what is not. We cannot use 2020 as a benchmark to help predict what lies ahead in 2021. With competition tough, prices dropping and having to battle for each and every room, do we swing into full guerilla-type warfare mode? Right now, the only indicators available for rate sets are those flaunted by our competitors. Do we then follow what our competitors are doing instead of demand?
One approach is to keep your finger on the pulse like never before. Forget about setting a 12 month budget and having egg-on-your-face. Be prepared to do several short –term budgets and take it step-by-step. Don’t bother looking at YoY figures, instead look at last month and how you can build on it for next month.
Put out your lowest rates first. Bundle them with ‘value additions’. If you can add value rather than simply sell at a nakedly lower price. Do that. Everyone loves a deal. Let’s say you normally sell a room for two, with breakfast at Rs. 10,000 and a 3-course dinner adds up to another Rs. 3,000. Throw in a bottle of wine at Rs 4500. (Particularly, when badly needed money is tied up and idling in the cellar). Together that makes Rs.17,500. What if you sell it for Rs.12,500? That’s a near 30% off the ‘packaged’ offer, with a hidden room rate of 5,000/-.
To keep things interesting, why not allow those who make use of your first-time offer to buy a ‘voucher’ for Rs,12,500 that when purchased in advance, entitles them to use it within six months from the date of purchase. It’s a unique phenomenon we are experiencing, so it requires unique actions.
Shafeek Wahab – Editor, Hospitality Sri Lanka, Consultant, Trainer, Ex-Hotelier
|
|
|
|
