What is a Budget?
A budget is a financial plan that estimates future revenue and expenses for a set period of time. For a small hotel, budgeting is essential for guiding financial decisions, controlling costs, and ensuring profitability. It allows you to set financial targets, monitor progress, and adjust as necessary to keep your hotel running efficiently.
Why Is Budgeting Important to Run Your Small Hotel?
Budgeting helps small hotels stay on track financially, avoid overspending, and prepare for fluctuations in revenue. It sets clear goals and provides a roadmap for the year, helping managers make informed decisions on staffing, pricing, and investments.
Forecasting: Start with the Future
Forecasting is predicting your hotel’s future revenue based on past performance and market trends.
Analyze Past Data: Look at occupancy rates, revenue, and costs over the past 1-2 years. Identify patterns like peak times or quieter weeks.
Watch Market Trends: Keep an eye on the local and global economy. For example, during a financial crisis, travelers might favor budget-friendly hotels like yours.
Study Competitors: Look at how similar hotels set their prices. Use this to fine-tune your own pricing strategy.
Set Realistic Goals: If your occupancy rate was 60% last year, aim for 65-70% this year. Be ambitious, but also grounded in reality.
Example: If your room rate is $100 per night and you expect 70% occupancy:
Projected Revenue = 30 rooms x $100 per night x 70% occupancy x 365 days = $500,000 per year
Build a Simple Cost Structure
Once you’ve forecasted your revenue, it’s time to set up your cost structure—what percentage of revenue will go toward key expenses.
Key Costs to Include
- Rooms Revenue: Costs related to rooms (cleaning supplies, housekeeping).
- Staffing: Salaries, benefits, and training. This may take up 30-40% of revenue.
- Utilities: Electricity, water, and internet. Keep these around 10% of your revenue.
- Food & Beverage: If you serve food, aim to keep food costs around 25-30% of food revenue.
- Maintenance: Routine repairs and upkeep (5-7% of revenue).
- Marketing: Set aside funds to promote your hotel.
Example: If your projected revenue is $500,000:
- Staff Costs: 35% of revenue = $175,000
- Utilities: 10% of revenue = $50,000
- Maintenance: 5% of revenue = $25,000
Set Your Profit Goals
Your profit margin is the percentage of revenue left after covering costs. Use your forecasted revenue and cost structure to calculate this.
Example: If your total costs are $400,000 and projected revenue is $500,000:
– Profit = $500,000 – $400,000 = $100,000
– Profit Margin = ($100,000 / $500,000) x 100 = 20%
Prepare a Budget for the Future of Your Small Hotel
Plan for CAPEX (Capital Expenditures)
CAPEX refers to long-term investments, such as room renovations or equipment upgrades. Unlike routine maintenance, CAPEX covers major improvements that boost your hotel’s value over time.
Example: Renovating 10 rooms at $5,000 per room gives you a CAPEX budget of:
– $50,000 for renovations.
Prepare a 12-Month Budget
Create a budget that breaks down revenue and costs for each month. This allows you to account for seasonal trends and better control your spending.
Example: Summer months: Higher occupancy, so budget for extra staffing. Winter months: Lower occupancy, so reduce certain variable costs.
Use the Budget as Your Roadmap
Once the budget is set, it’s your guide for the year. Regularly compare your actual results to the budget and make adjustments where necessary. A good budget helps you stay on course, both in growing your revenue and controlling costs.
