Dear WuBookers, hotel budgeting is crucial for any property aiming to manage resources efficiently and grow sustainably. Just like any business, accommodations need solid financial planning. Knowing your income and expenses for the coming year helps you allocate resources wisely and achieve your goals. Let’s explore how to create a reliable and strategic hotel budget.

Hotel budgeting: what exactly is it?

A hotel budget is a document that keeps track of all the property’s expected expenses and revenues for a specific period of time, typically a fiscal year. In other words, it is a useful guide for outlining cash flows and, consequently, ensuring effective organization of activities and realistic planning of possible investments. The budget is usually prepared a few months in advance of the reference period (for example, between October and December for the following fiscal year) and takes into account all of the property’s sources of expenditure and income: from rooms to ancillary services, food and beverages, spa, and so on.

But why is it so important?

What is the purpose of a hotel budget?

The hotel budget is essential for several reasons. The first is that it allows you to allocate the hotel’s resources in an appropriate and sustainable way for the property: by forecasting total expenses and revenues in advance, you will also know how much to expect in terms of costs from each department. This allows you to allocate the necessary funds for each department to operate.

Another objective of the budget is to help you keep track of trends and performance: forecasts are the result of in-depth analysis and help you deal with unexpected events, such as sudden drops in demand or major technical failures. With a prudent budget, the hotel can meet its normal routine and extraordinary expenses while pursuing its strategic objectives. This tool is essential for making informed decisions about where to invest the following year: in staff, in certain departments, in improving the property, etc.

How to create and use a hotel budget in 5 steps

There are 5 main steps to follow in order to draw up a comprehensive and reliable document.

You can follow them to create a departmental budget (i.e., for each individual department of the hotel), an overall budget (for the entire property), or even budgets for individual subcategories such as operating, cash, or structural investment budgets.

1. Collect and analyze data

As we have already mentioned, the budget is a forecast model that takes into account all fixed (salaries, utilities, rent, etc.) and variable (marketing expenses, extra maintenance, seasonal staff, etc.) costs for each department. So, this is the first data you need to collect from the previous year.

Then add the data relating to income, including room occupancy rates (OCC), Average Daily Rate (ADR), RevPAR (Revenue Per Available Room) and revenue from food and beverages.

These metrics can be easily obtained from a PMS such as Zak, the management software for hotels by WuBook. The Statistics area is dedicated to recording and analyzing performance information and can be queried for customized time periods. It is an essential tool for developing a comprehensive and sensible budget. In addition, other data can also be derived from the data provided. For example, the Customer Acquisition Cost (CAC), which expresses the percentage ratio between the costs incurred to obtain guests and the room revenue.

2. Set achievable goals

The second step is to set specific, concrete, and measurable goals. An important parameter to establish at this stage is also the time frame in which they must be met: this can be a quarter, a semester, or the entire fiscal year.

Examples of objectives are a 5% reduction in fixed costs or a 10% increase in RevPAR, and similar, in proportion to the property’s actual potential. Establishing them precisely in advance facilitates all subsequent verification and control operations and allows you to organize activities in order to achieve them.

3. Make a revenue forecast

Starting from the property’s KPIs (Key Performance Indicators) also helps to make objective growth projections, which constitute the third step. At this stage, it is necessary to consider various aspects such as the hotel’s historical data to understand any seasonal patterns and/or reservation trends. But also expected market trends, linked, for example, to climate changes or events such as trade fairs, concerts, and more. This information can be obtained using dedicated software such as the Revenue Management System (RMS).

Well-made revenue forecasts allow you to better plan resource management and actions to achieve your goals.

4. Distribute resources

The next step is precisely this: allocating resources. Now that you have analyzed trends, established where you want to go, and estimated how much you can invest, it is time to distribute resources among the various departments. The budget can be used in various ways depending on the period and needs: in high season, it may be necessary to increase staff to ensure impeccable service even at full capacity. In low season, on the other hand, it may be more strategic to focus on investments related to promotion and marketing to increase reservations, or on technological tools such as software and other tools to improve internal operations in preparation for the peak period.

5. Check and modify regularly

The hotel budget is a plan and, like all plans, it must be tested, i.e., checked periodically to ensure that what is planned corresponds to reality. If this is not the case, you can take corrective action. Some strategies may prove unsatisfactory, or there may be changes in demand that create instability: these are all situations that you can deal with promptly if you keep a close eye on performance and budget. A regular review (monthly or quarterly) allows you to deal with any unexpected events with peace of mind and awareness.

To summarize: what to include in the budget

One of the biggest difficulties in creating a budget, especially for beginners, lies in the first step: gathering all the data to be considered. Some items may be overlooked and then unexpectedly weigh on the hotel’s finances.

Here are the items that should never be missing:

• profits related to reservations: OCC, ADR, RevPAR, including any changes due to promotions or special offers already planned;
• income from the supply of food and beverages based on average occupancy and any special packages;
• property management costs: utilities, cleaning, maintenance, security, rental of facilities, miscellaneous supplies;
• capital expenses, i.e., investments necessary to improve the condition of the property: renovations, purchase of new furniture, etc.;
• technology costs: subscriptions and software for hotel operations such as PMS and RMS;
• extra services for guests: entertainment, mini club, but also additional services such as breakfast in the room, express laundry, and the like;
• loans and leases, including interest;
• updating and training of staff, including external consultants or related tools;
• contingency fund: a reserve to be used for emergencies.

Careful planning, supported by the right technology and experience (either your own or that of expert consultants) greatly facilitates hotel management, with economic and other benefits.