Each season brings with it change and, depending on the time of year, the chance for renewal and growth.
NB: This is an article from Global Asset Solutions
This is no less true for budget season, although for many in the hotel sector, it can also come with a sense of foreboding. Budgeting is never easy, but the pandemic upended hotels’ balance sheets and the return of trading brought with it jagged costs and rates, only serving to increase the challenges faced in those critical three months of the year.
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The normal process sees the budget for the following year prepared by the hotel team during the summer, and the corporate operation team then reviews it in September. If not outlined otherwise in the HMA, it should be submitted to the Owners and Asset Managers by October or early November at the latest. It is not an obligation, but we recommend that the Asset Managers verbally indicate their G.O.P. expectations for next year around July. It will allow the Executive Team to build a budget with the ownership’s goal in mind.
The hotel team then sends the proposed budget to the Owners and Asset Managers, and a meeting is organised with the Executive Team to present the budget, usually one to two weeks after it is received. The operator must allow enough time for the Asset Managers and Owners to review the budget in detail, as the Asset Manager will need to ask pertinent questions during the presentation.
The goal? To have the budget approved by the ownership group straight away.
This is all the more likely if the plan has been prepared thoroughly in advance so it can stand up to the rigour which the Owner is correct to demand. Once the Asset Manager receives the first draft of the budget, they will review and analyse it immediately, using their detailed knowledge of the property as well as the market.
It is certainly not always the case, but collaborative and professional hotel teams should provide information such as:
- Detailed P&L Variance Report – Budget, current year, and previous year (the current year will have the actual and the most accurate forecast)
- A waterfall report (we’ll analyse it more in the second part of this budget series)
- Sales & Marketing Plan
- An RGI budget (many Operators avoid this report, although it is important as it is one of the 2-3 performance test conditions)
- Labour, full-time equivalent (FTE) & headcount report (for each position, by month, with variance from previous years)
- Management and incentive fee forecast (detailed calculation)
- Detailed energy consumptions
- Cash flow statements and detailed forecast of owner expenses (e.g., 12-month interests’ details)
- And a list of proposed CapEx projects for the upcoming year.
When necessary, the Asset Manager can ask in advance to include separate marketing strategic plans specific for each F&B outlet, sale of Suite products, and/or the spa. Each plan should include S&M actions, deadline, cost and the ROI of each action and who is responsible for completing each action. In hotels with high turnover or low guest satisfaction, we also recommend that the HR department prepare an action plan to improve the situation with a productivity plan. Each of these plans should be discussed separately and followed up quarterly with the respective teams. These extras can also include other areas, e.g., ESG plan, guest satisfaction, health & safety plan… Such reports are necessary so that potential improvements to the hotel’s performance can be identified, but the additional work does not always go down well with the Executive Team; therefore, the Asset Managers should evaluate when to ask for these plans, i.e., during budget seasons or later during the year.