Prepare a Hotel Budget in 7 Steps: Guide for Beginners

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Budget planning is one of the core processes in any business establishment, including hotels. The global hospitality industry market size reached $4.5 trillion in 2022. So what must you do to remain competitive in this lucrative niche? 

For your hotel to stay above the fold, you must have a strategic financial plan. And you can’t devise such a strategy without proper preparation.

Below you can find out what a hotel budget is, why it’s essential to have it, and how to prepare a budget for a hotel in 7 easy steps. 

What is the meaning of hotel budget?

A hotel budget is a straightforward concept. It refers to an estimate of total revenue and operational cost over a specific period. The most important thing to understand is that it includes revenue from all sources and all operating costs such as maintenance, payroll, marketing, etc.

Don’t forget that a hotel budget can be specific for a set period. You can plan one specific hotel budget for a season and have another one for the off-season. 

Why is a budget important in a hotel?

Budget is vital in a hotel because it enables you to make informed decisions. Two most important things that it does for your include:

• How much money you can afford to spend on a specific activity/process;
• Where you should spend your money.

Once you have a hotel budget, you can gather more data about your expenditures and become better at making strategic decisions. You can discover areas where you can reduce costs and identify where to invest more money.

How do hotels manage budgets?

There is no other way for a hotel to manage a budget but to track key performance indicators and compare their historical values. The KPIs in question are RevPAR, ADR, ARPA, and many others. You can do yourself a favor and brush up on all KPIs important for your hotel so you can truly understand them.

The KPIs will help you understand your hotel’s financial performance, see whether you’ve planned your budget well, and what you need to change to achieve the goals outlined in your business plan. Here are a couple of real-world examples so you can see how some hotels stay on top of their budgets.

Novotel inclusive budgeting efforts

Novotel is a hotel that takes budgeting very seriously. Having a well-prepared budget enables the hotel to gain the trust of all of its employees and steer the hotel in the right direction. The case study discovers that budgeting at Novotel is a comprehensive process. 

At the center of its efforts is the inclusive approach. In fact, the case study discovers that all heads of the departments are involved in preparing the budget, which enables the hotel to collect more actionable data and key insights and make the budget bulletproof.

A.S.  Hotel data-based investment decisions

The owners of the A.S. Hotel decided to renovate the rooms during the COVID-19 pandemic. But to secure the necessary funds, they needed to prepare the budget for the hotel, the budget for renovation, and the budget for the hotel after renovation. 

The case study indicates that it’s imperative to track KPIs such as occupancy rates per room and room type to get the most accurate figures. This approach and detailed financial plan enabled hotel owners to secure a bank loan at a 9% annual percentage rate (APR).

Tahir Guest House’s overhaul of budgeting practices

Tahir Guest House decided to work with experts to help the hotel analyze its budget preparation and budgeting processes. The goal was to find outdated methods and discover room for improvement.

After thorough analysis, the case study of Tahir Guest House hotel indicates that the hotel needs to standardize the budget preparation and budgeting processes. The hotel should also include staff of various cadres to participate in these processes. The expected results include improved organizational performance and increased staff efficiency and productivity.

How to prepare a budget for a hotel step by step

Here is what you need to do, step by step, to prepare a budget for your hotel.

Step 1: Pull together your hotel data

Pulling together your hotel data is the most important step in your budget preparation efforts. Thousands of hotels use data analytics to improve various business aspects, including revenue management and guest experience. Your hotel production data can help you find details about its financial performance. That applies to current and historical performance as well.

With enough data, you can segment it by different criteria such as guest profile, source, room type, and rate plan and use it to inform your budgeting decisions. For instance, you can identify patterns in occupancy fluctuations, guest profiles dominating particular months or primary source that generates bookings.

Step 2: Bring your sales team on onboard

To nail down your budgeting, you must bring more departments such as sales, front office, marketing, and housekeeping. It will help you gather more insights, pull more data, and potentially discover valuable inputs. If you can’t have many people on board, you should at least include your sales team in budget preparation for your hotel. Why?

Well, your sales team generates the most valuable data for your budget preparation. It includes data from room night production, data about guests and group stays, booking windows, and the efficiency of every sales channel, with a special focus on offline vs. online distribution channels. 

Step 3: Include daily estimates in your demand calendar

Now you have several valuable data sets you can base your decisions on. You are ready for the next step. You need to create a demand calendar. Your demand calendar should outline when your hotel is the busiest and least busiest throughout the year. Try to leverage your hotel’s historical data to be more specific.

For instance, instead of focusing only on entire months, you should try to forecast weekly and daily demands. Why is this important for your hotel? It all boils down to capturing new revenue, and forecasting a detailed calendar can help you do it, as you will be able to see when you’re not utilizing your resources.

Step 4: Consult Smith Travel Research (STR) reports

STR is one of the oldest research brands in the hospitality industry. This step is not mandatory as it requires you to buy an STR report or popularly known as Star Report. However, in terms of excelling at next-level budget preparation, STR hospitality analytics can really be helpful. How? Well, it’s one of the most complete reports you can get your hands on.

STR will help you dive into your competitors’ details. Reports include data on hotels in your market. The data is made up of various data points, including ADR, cash flow, RevPAR, and occupancy rates. 

Step 5: Identify valuable local demand trends

Now it’s time to extend your demand calendar. When preparing a budget for a hotel, you must consider the hotel’s geo location. Why is this important? Well, local festivities, the destination’s seasonality, trade shows and fairs, concerts, and national holidays can all cause spikes in demand for accommodation.

These so-called local demand trends can help you identify more opportunities for capturing revenue. The goal is to discover local demand drivers so you can adjust marketing and sales budgets and accommodate operating expenses accordingly.

Step 6: Assess competitors’ marketing and sale tactics

The last bit of information you need to nail your hotel budget preparation is not in industry reports and branded data sets. Each one of your competitors deploys unique marketing and sales tactics. Since each one of these tactics comes with a price tag, you need to discover precisely what they are using so that you can stay competitive.

Research their social media profiles and websites, subscribe to their email newsletters, and run SEO analysis to find out how they reach out to consumers, generate leads, and convert them to customers.

Step 7: You are ready for budgeting

With all this information at your disposal, you are ready for budgeting. Make sure to consult every data point to make an informed decision and create the most realistic budget for your hotel. Keep in mind that this is not a one-time thing. You must keep revisiting your budget and make subtle changes to accommodate subtle changes in demand and competitors’ strategies.

Template

The least time-consuming method for hotel budgeting is to use an Excel spreadsheet. Here is a great resource you can explore to find the most suitable hotel budget Excel template for your business.

The two most important spreadsheets you can create when preparing a hotel budget should include a spreadsheet that includes all your revenue-generating products and services and a spreadsheet that includes all your expenses.

Here is an example of how you can organize Hotel revenue, including room types, room days, room price per night, and average occupancy per month:

	January	February	March
Room type
Room type 1	###	###	###
Room type 2	###	###	###
Room type 3	###	###	###
Total room days	###	###	###
Room days per room type
Room type 1	###	###	###
Room type 2	###	###	###
Room type 3	###	###	###
Room price per night per room type type
Room type 1	###	###	###
Room type 2	###	###	###
Room type 3	###	###	###
Average occupancy per room type
Room type 1	%	%	%
Room type 2	%	%	%
Room type 3	%	%	%
Total revenue	###	###	###

Now you need to take into account all your monthly expenses. A template just like the one below can point you in the right direction.

	Expenses per month
	January	February	March
Selling, General & Administrative (SG&A) Expense(rent, utilities, marketing costs, selling costs, administrations costs, & other costs)	###	###	###
Direct room costs (housekeeping costs, towels, sheets, toiletries, & other costs)	###	###	###
Staff salaries (receptionists, housekeepers, reception managers, housekeeping managers, hotel maintenance staff, bellhops, waiters, bartenders, and other positions)	###	###	###
Administration salaries (general hotel managers, HR manager, head of housekeeping, procurement manager, procurement specialist, and other positions)	###	###	###
Taxes (payroll taxes, sales taxes, other payroll-related benefits, & other taxes)	###	###	###
Total expenses	###	###	###

Conclusion

A hotel budget can help you create a strategic financial approach and set your hotel for success. It can help you make informed decisions, optimize operational costs, and identify new revenue opportunities. However, before you can properly plan your hotel budget, you need to prepare.

Pulling together relevant data, including valuable teams, and assessing competition will help you better prepare a budget, capture more revenue, and futureproof your hotel.