How to keep your spending in check

In order to successfully manage your business, you need to keep your spending in check.

However with the current pandemic crisis, it becomes more than important to follow this process. One typical way is called the passbook accounting.

What is a passbook? A statement of account you get from the bank showing your account balance.

So how can you use that method to successfully keep your spending in check.

Make a budget

The first and foremost process in the cycle is to make a budget. A budget is a direction and a strategy. It will give you a general idea of where things can go during the year.

You will make certain assumptions and plans. Based on that, you will estimate revenue and expenses

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However if you have a year like 2020, the budget will fly out of the window. That does not mean you will not make a budget or a plan.

Like any other document, treat the budget like a map. A way to get from point A to point B.

A way to profit for your business

Set Expenses

Once your revenues are set, you can review your hotel expenses.

Expenses are based on 2 factors.

Actuals of last year or some thumb rule like cost per occupied room/cost per cover etc.

Some people also work backwards and determine what percentage of profit they need to meet various liabilities and then make a calculation to say how much they can spend.

What ever the plan, keep your expenses in check to generate profit.

Forecast for the quarter

Forecasting is a way of saying, this is what will happen with the changes in the market.

During forecasting, you will consider if the market is changing , if there is any new business coming in your location or you have lost some business.

Once your budget is sealed, this is when you actually start forecasting your revenue. If the conditions have changed, you need to forecast your revenue appropriately.

Forecasting helps you will a few things:

  • Manage revenue expectation
  • Manage operational workflow
  • Manage payroll cost
  • Manage expense.

Manage expense with the passbook method

Once your revenue is known, then use the statistics like occupancy, covers and revenue to adjust your expenses.

For example:

Your budget for room revenue for July was 20 CR. Now the forecast is 19 CR.

This is because you lost a wedding block that would have given you a large amount of revenue.

When you make your expense forecast for the month, you should make the expenses based on 19 cr to protect the profit %.

To do that you can reduce the fixed expenses if possible and eliminate the variable expense.

That way you can maintain the profit % you desire.

In a nutshell, if your revenue reduces, reduce your expense.

In Conclusion

Managing your expenses will help you manage the profitability. However sticking to budget numbers is not going to help you.

Reduce your expense if your revenue are going down with a passbook method.

Spend only what you have and maintain your profit percentage.

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