5 Simple Steps to Better Hotel Budgeting and Forecasting
While annual budgeting is a process typically relegated to the back half of the year, the smartest hoteliers know budgeting is a year-round process and there are steps you can take in any month to ensure a smooth and accurate financial budget.
Recently, Otelier’s Jason Freed and Russell Meek presented a webinar outlining solutions to today’s key budgeting and forecasting challenges. The two walked through laying the groundwork for an efficient budgeting process, including how to standardize budget templates across all your properties and portfolios, and how to automate the data integration from all the necessary systems.
Watch the full webinar recording or read a summary below, including five ways to simplify your budgeting process and free your team to get back to providing exceptional hospitality.
1) Differentiate Between Your Budget and Your Forecast
Consider your budget an annual plan approved by ownership, guiding year-round discussions and performance evaluations. Your forecast should be more dynamic, considering the most updated data to focus on a 30-, 60-, or 90-day outlook, allowing for real-time adjustments and increased responsiveness to emerging data. In Otelier TruePlan, a third planning type is available – called “what-if” plans – that enable hoteliers to explore different scenarios and make informed decisions, ultimately influencing future budgets or forecasts.
2) Start with the Right Data
Unless you’re running a brand-new hotel, historical data will likely hold the most significance when building your annual budget. Ensure your budgeting software can access historical actuals by General Ledger (GL) code, enabling a comprehensive view spanning several years. Accounting system integration is crucial as these systems most often serve as the ultimate repository for comprehensive expense data, influencing decisions on staffing and labor costs. Integration with other data sources, such as PMS and revenue management system data, allows for informed decision-making at the line-item level.
3) Budget with Hospitality Specific Drivers
Because the hospitality industry is so unique – based on nightly sales of perishable inventory – traditional budgeting processes don’t often produce accurate results. Instead, use a tool built with hospitality-specific drivers, which are formulas designed for the unique needs of hotels, F&B outlets, and spa operations. These tools allow you to segment your business at a deeper level and experiment with new strategies, such as tying expenses to available rooms rather than rooms sold, for example. When using hospitality-specific drivers, hoteliers can update one number centrally and ensure automatic updates throughout various budget versions, streamlining the process and maintaining budget fidelity.
4) Collaboration is Key to the Process
One key to an efficient budgeting process is ensuring collaboration among all the stakeholders involved, meaning each department head at the property level, as well as corporate, ownership and asset management. Most successful budgets are built from the bottom-up, meaning property-level leaders have the first input before the data is rolled up to produce a companywide forecast. “Hotels that budget tend to do about 20% better in topline revenue than hotels that don't budget because they've got a goal, they've laid it out, and they they're shooting toward it on every decision made throughout the year, even micro decisions,” Meek said.
5) Turn Your Budget into a Dynamic Forecast
With annual budgeting often proving to be such a headache, some hotel operators choose to forgo the forecasting process altogether. This can prove costly to the future success of the business. TruePlan facilitates more frequent forecasting, with organizations transitioning from annual to monthly to weekly updates, often achieved within minutes. The ability to compare diverse data sources, such as on-the-books data and comp set data, ensures a comprehensive and informed forecast. The most accurate forecasts today include data that analyzes changing traveler behavior, measures ancillary spend, and forecasts profitability alongside top-line revenue.
Set Your Business Up for Success
Efficient hotel budgeting and forecasting requires year-round attention and a proactive approach. Using historical data and integrating diverse sources, and enabling collaboration among key stakeholders, will result in more accurate business projections to help you build successful profitability strategies.
Book a demo of Otelier TruePlan to learn more about using modern tools for more accurate and efficient budgeting and forecasting processes across your business.
