Preparation of Budget
Q – Why annual Budget is required?
A detailed budget is one of the most imperative tools for guiding your business. It provides crucial information for operating within your means and turning a profit. An appropriate budget will identify available capital, estimate expenditures, and anticipated revenues. It is a financial plan that a business makes for a month, quarter, and year – it depends upon the business history as well. It should remain dynamic & flexible so it can be adjusted in accordance with business plans as well as the market environment change.
Q – Things to keep in mind while preparing an annual budget
Goal driving strategy may turn out to be a common term but achieving it does ask for good planning. You require to set your business objectives first, then plan your Budget to get them. Your goals should be organized into two parts:
Ø Numeric goals: Quantitative objectives such as total revenue, ADR, profit, RevPAR, and the guests’ number.
Ø Strategic goals: Entering a new market, targeting an all-new segment (e.g., leisure, conferences), or reflecting changes in your corporation.
Q – Elaborate on Numeric Goals and Strategic Goals:
Numeric Goals: – If you have a benchmarking system, be sure to do the proper analysis. Check the revenue opportunities. Is it in the ADR or the Occupancy? Try to do this activity: if you know your competitive set occupancy as well as how many rooms they’ve, then you’ll get the number of rooms sold. As you attain their average rate, multiply the ADR by the number of rooms to get their room revenue. This way, you can identify their growth percentage vs yours.
Strategic goals: – Keep track of your competitors along with benchmarking reports. Do check their digital strategy and online performance. If you witness that they’re making online campaigns or other activities, it may be the time for you to assign some resources to this. If you don’t attain the knowledge, find some organization to help you out and build a roadmap with detailed targets. Now that you’ve continuous data to do something different, let your sales department give you proper estimates. Ask them about the ADR, the total number of room nights sold, and room revenue for each entity per month that they do feel comfortable with. This will make people from sales happy as you already met their expectations. Even if you get to increase their goals, they’ll feel like they have been part of the decision-making. It is also apt for you to know if they’re aligned with your strategy.
Q – What all the things change in the current scenario (After Covid):
Over the past 02 years, tremendous technological improvements have been made to enhance revenue budgeting tools. (Even in daily operations) There exist a number of revenue yield management systems to enhance ADR, RevPar, and market penetration. It helped several hospitality companies to improve penetration, hotel positioning, and market share in each market. Database budgets facilitate the preparation of budgets and forecasts and assist operators with sufficient information for the hotel owners & asset managers while reviewing the annual budgets.
Execution of Budget
Q – Now, it’s a significant part. How tough is the execution of the Budget?
The budget and execution team (professionals) are being pressured to improve accuracy, efficiency, better controls, and audit-ability and to provide greater visibility into costs, resources, and performance. And it has some common issues while planning as:
Inaccuracies in the data: A corporation can consist of many departments, including resource management, recruiting, product development, and marketing, having their own dedicated expenses. Collating the expenses list for all the departments correctly can turn out to be a monumental task. Primarily, there’re inaccuracies in the data collected, which can have a significant impact on the allocation of resources in the Budget.
Over Expectations: If you ignore historical data and market research, it will be a big setback to achieve imaginary figures full of expectations only.
Focus on financial outcomes: As earning revenue & profits is a prominent component of how businesses do measure their growth. Mostly all budgets concentrate on achieving the financial goals and overlook the requirement for improving the qualitative aspects like workplace satisfaction or employee engagement. Though these factors might not directly respond to the business’s growth, including them in the Budget can enhance your company’s work performance.
Q– How we can resolve these issues and achieve the desired goals:
While going with tech tools, please rely on manual processes in order to perform budget creation as well as cost control. Several effective budgeting tools can synchronize financial aspects like payrolls and invoices to create accurate financial reports. These reports are crucial for company budgets, and opting for the proper budgeting tool can even assist in maintaining your Budget for the rest of the time/year.
Going with an effective system of routine checks and audits will ensure budget modifications and compliance with the organizational requirements. Indulging all your employees in the budget creation procedure can even motivate them to stick to the Budget throughout the year.
Q– What all factors to keep in mind while chasing down the desired budgetary goal:-
As soon as a budget gets approved, it is time to implement it. Mostly, money flows in and goes out as per the Budget. A decent budget is never a limitation on what your company can get to spend. It turns out to be a financial embodiment of your organizational strategies for the year.
To demonstrate the budgeting implementation, planning, and control practices. For this purpose, specific goals were set in order to operationalize the research:
- Identify which budgetary practices are used by hotels.
- Confront the budgeting practices.
- Identify and assess factors that influence the use of budgeting in hotels.
In order to execution of planned Budget need to develop below:
§ Consider developing new compensation strategies or implementing staff training
§ Audit how you manage existing guests
§ Look at new distribution channels and increase revenue through existing channels
§ Consider the CPA (Cost per Acquisition) model. This will clearly demonstrate the percentage of revenue generated in each area of the business
§ Scope out areas where revenue opportunities remain.