Whether you have been making budgets for years or just starting out in a new role that needs you to make a budget, this article can help you.
As this is an annual process, not many people get an opportunity to practice this skill enough. However follow this guide and you will end up with a working budget made the right way.
Zero Based Budget
If this is your first time making the budget for your department or hotel, you must start with a Zero based budget.
What is a zero based budget? A budget made without the help of the previous year numbers.
A budget made on the strength of your assumptions and market strength.
So it is important that you understand the market and what the future is before the budget exercise.
Start with Room Revenue
Since most hotels have more of room revenue and less of Food and beverage, it is easier to start from the room revenue.
If you have your segmentation made properly, and your knowledge of the market ready, you will be able to decide how much occupancy you can do every day.
This file will be able to guide you on the steps of finalising the room revenue.
Once you have made the room room revenue, then focus on banquet revenue before working on restaurant and bars.
This is so that you can see if there are any opportunities for residential events that can improve the room revenue further.
Similar to the room revenue, if you have managed to do a swot and analysis of your competing restaurant you will be able to budget the covers and APC for your restaurant.
Work on your expenses
Expenses are divided into main buckets
- Cost of Goods sold ( Food cost/ Beverage cost etc)
- Payroll and benefits cost
- Utilities or HLP cost
- Repairs and Maintenance
- Variable expense of various department
- Fixed expenses of department.
Once you subtract expenses from revenue you get your operating profit.
Remove, other fees that you need to remove like management fees or royalty, reserve for doubtful debts and reserve for capital, and you have a net operating profit.
It is important that once you conclude the budget excercise, you have a roadmap for the year ahead, not only the financial numbers but also the strategy on how to achieve it.