Lesson: Prepare, Develop and Manage -these changes must be coordinated with the capital

Operational Budget for Hotel, Resort and budget and reflected on the operations budget
Restaurant Enterprises
- budgets are essential management tools for all
small business owners. Operational and capital
budgets are related hence, business owner must
- it is essential to acquire the skills and knowledge
balance the effects they have on each other.
in preparing budget
- it is important to understand why businesses must
budget and identify the types of budgets The Budget Planning Process
- the goal of a business is to manage its activities of - is prepared using spreadsheet software
buying, selling and expenses to make a profit
- budgeting is part of the overall planning process
the hotel undertakes, which includes strategic
marketing planning and planning for capital
The Operational Budget
expenditures.
- is a detailed projection of the company’s revenues
and expenses for the upcoming fiscal year
Who Should be Involved in the Budget
- it generally covers one fiscal year
Preparation?
*Fiscal year – organizations prepare their income
• The head of the housekeeping department
statements and balance sheet for a 12-month period.
has different expenses to manage than the
The overall performance of the organization is
bar manager in his area
reported for that period.
• The hotel’s financial staffs are responsible
for consolidating the department budgets
into an overall hotel budget
The Capital Budget
• The general managers review the
- these budgets identify the assets needed, the consolidated budget with the other managers
sources of funding and the expected returns and makes adjustment based on these
discussions
- it affects changes on the long-term assets portion
of the balance sheet
Key Variables in Forecasting Room Revenue
Differences between Operational and Capital - the revenues forecast for a hotel is driven by two
key variables; occupancy rate and/or average daily
*Capital budgets are paid out of future cash flows
rate (ADR) which means the average cost of
from the projects and they represent the sources of
staying in a hotel room for one night
funding and the purchases of the fixed assets
- occupancy rate varies by day of the week, by
*Operation budget projects the activities of the
month and by season
firm in buying, selling and paying bills and usually
done on an annual basis. - increasing the occupancy assumption in the budget
daily rate similarly varies
- hotels offer discounted room rates during off-peak
-the purchases of fixed assets as projected by the
times requires increasing expenses, because the
capital budget will have an impact on the
additional occupied rooms have to be cleaned.
operational budget
Increasing ADR does not increase expenses
 Estimating Ancillary Revenue for a Hotel
Research Required in the Preparation of - hotels, resorts and especially airlines rely on
Operational Budget revenue generated by sales of secondary products
and services to customers who already utilize their
- A hotel budget’s accuracy is affected by the effort
primary services.
made to gather market data
- Estimating the ancillary revenue for a hotel is no
- budgeting requires predicting how the core
simple task but it can be done if you have good
markets the hotel serves will change over the
financial records
upcoming year and the direction of the overall
economy
- this gives managers a clear idea of what the future Revenue Generating Philosophies for Lodging
may look like when they make assumptions for the Enterprise
key variables in the budget
- the lodging enterprises have perishable inventory
- the revenue in lodging properties more particularly
Common Mistakes in Budget Planning Process in hotels is generated form room rentals, food and
beverage sales and meeting room rentals
- rushing the planning process can result in a budget
that is a less useful management tool than it should
be
Occupancy and Room Rate
- a better approach is to build a completely new
- two features that determine how much revenue a
budget each year, with justification for each
hotel earns from its rooms are occupancy and
spending
average daily rate
- marketing expenditures from the prior year should
- occupancy is the percentage of rooms sold each
be scrutinized to make sure they contributed to
night
generating revenues before they are included in this
year’s budget

Social Media, Discounting and Packages

Forecasting Budget - the management is spreading the word by offering
tips about the restaurant scene, local events, travel
- managers need to spend time thinking about these
tips and special discounts and offers
seasonal fluctuations as well as considering what it
is that the business is expected to achieve in the
budgeted period
Generating Further Food and Beverage Revenue
- budgets take time and not all small business
owners have the time - consider offering guests a happy hour where the
drinks are slightly discounted and the appetizers are
- getting good quality information is costly and complimentary
takes time
- if your hotel is upscale then consider a wine
- budgets are your best forecasts with information tasting or cheese tasting at a reasonable fee
you have at the time
Ways to Increase Revenue in Hotel Enterprises Food and Beverage Costs
- make your hotel their preferred option by offering - depending on the restaurant concept so your food
the right balance of customer service and price and beverage costs should be running no more than
25% to 40% of revenues for casual restaurants at
- offer a unique environment or specialty services to
the lower end category of the business scale
differentiate yourself rom the competition and limit
the number of rooms you offer at discounted rates - the payroll will take an additional 20 to 25% of
revenue
- managers must study the competition in the local
area and familiarize himself with the level of - you may also want to budget for promotions and
service they offer and their price structure special events such as free meals on your first day
in business
- the manager must train the front office staffs in
upselling
The Variables and Fixed Costs in a Restaurant
Operation
The Cost of Starting a Restaurant Business
- the fixed expenses in restaurant business are those
- the restaurant start-up costs can vary tremendously
that do not fluctuate with changes in production
from business
level or sales volume
- when determining start-up costs for your
- while variable costs are those that respond directly
restaurant then it is essential to have a good
and proportionately to changes in business activity
business plan in place
level or volume of production or sales
- should build your sales forecast based on expected
unit sales such as food and beverage
Food and Beverages as Variable Outlays
- also need to estimate when you expect to turn a
profit and make sure you can meet the running costs - these costs fall under the category “Cost of Goods
until then Sold”, commonly referred to as usage cost

The Cost of Restaurant Facilities The Cost of Restaurant Laborers as Fixed and
Variable Outlays
- the facilities costs vary widely and depending on
whether you are buying or leasing - the labor and personnel expenses are variable costs
although restaurant managers can control the overall
personnel costs by managing the number of shifts
The Cost of Restaurant Extras assigned and how much overtime is approved

- many restaurant owners do not plan adequately for

all the extra expenses that can occur
Budgeting System
- you also need to budget for credit card processing
- budgets are short-term plans of up to one year
fees
- the plan or budget should help managers monitor
- you must also budget for permits, signage and
the performance of the business
marketing costs
- plans for the longer term are not usually made into
budgets because there are so many unknown factors
as the term grows longer
- revenue is defined as money flowing into a Communication and Cooperation
business such as sales
- it is very important that department and activity
- when money flows out of a business hence this is center managers gain the cooperation of colleagues
called an expense affected by the budget
- one type is called a profit center. It is a part of a - cooperation is always best when stakeholders are
business that sells goods to make it earn a profit consulted and included in the budget process
- the other type of segment is called a cost center.
These are parts of a business that do not sell
Providing Relevant Colleagues to Collaborate
anything but incur expenses
Budget Planning Process
- relevant colleagues have the opportunity to
Budgeting Process contribute to the budget planning process with
adequate notice
- the budgeting process usually starts with the sales
budget as everything else that happens in a business - the strategies used by owners and managers can be
depends on how much is sold summarize into two different styles:

Sources of Data Top-Down Approach

- internal sources of data are information that - this approach to the budget process features
originates from inside the organization and are owners, managers or even the budget committee
always used as part of the regular budget process creating the budget and informing all stakeholders
of the business objectives and the budget that is
- external sources originate from outside the
going to meet those objectives
organization
- the main advantage of this approach is the timely
manner in which the budget can be produced
Reviewing and Analyzing Data
- once manager collected internal and external
Bottom-Up Approach
sources of ate then the task begins where all sources
of data must be reviewed and analyzed for -this approach is much more favored strategy for
applicability managing the budget process
- the quality of the final budget is only as good as - this translate into work plans about upselling or
the quality of the information that is used to how many customers they should serve per shift or
compile the budget sales per staff members to be made or bonuses
available for meeting targets

The Budget Committee

- at least made up of the owners, chief executive,
department managers, and the accountant
- the budget committee is required to follow
approved guidelines set out in the budget manual
Lesson: Monitor and Review Operational
Budget for Hotel, Resort and Restaurant
Two Main Types of Variance Analysis
Enterprise
1. Horizontal Analysis
- is where actual and budgeted numbers for each
Regular Reviewing Budget
line item in financial report compared
- manager review budget against actual intervals of
2. Vertical Analysis
about 30 days
- the sale budget is the first budget to be prepared in
- this is usually seen as a way of keeping in close
the budget process. Owners and manager often
touch with what is happening in the business and
budget expense as a percentage of sales. Therefore,
fixing anything that is going wrong before it
these percentage can also be used to compare
becomes a really big problem
budget and actual result.
Note: Vertical Analysis calculates each line in the
Variance Analysis budget as a percentage of budget sales and in
separate calculation. Actual performance reports are
- for the enterprise the success of the business the
used to be compute the percentage of each line to
managers need to measure the budget outcomes
actual sale for the period.
against actual at regular intervals
- the determination of variance between actual and
budget can be expressed into different ways:
• Monetary units Lesson: Prepare Operational Budget for Hotel
• Percentage units Resort and Restaurant Enterprises

- the items to which the variation applies will

indicate whether it is positive result
- the budgeting process begins with clarifying
(favorable/beneficial) or negative result
business objectives and collecting data from various
(unfavorable/needs investigation)
sources
- the budget manual outlines timelines, templates,
In general terms: and methodologies. It addresses weaknesses in
budgeting approaches
- an increase in actual cost so to be more than
budgeted cost is unfavorable
- a decrease in actual cost so to be less than Budgeting Approach in an Enterprise
budgeted cost is favorable
• Incremental Budgeting – gathers initial
- an increase in actual revenue so to be more than information but may not thoroughly review
budgeted revenue is favorable actual income potentially leading to
weaknesses in the approach
- a decrease in actual revenue so to be less than
• Zero Based Budgeting – requires managers
budgeted revenue is unfavorable
to justify all revenues and expenses,
focusing on current and future information
• Rolling Budgets – updates the budget
monthly, useful for handling unexpected
events, common in the hospitality and
tourism industry
• Flexible Budgeting – designed for the same activity centers. Once agreed, the budget
level of business activity, facilitating better committee declares the budgets as final,
comparison of actual and budgeted results ensuring templates, forms, and timelines are
• Forecasting Sales and Budget – managers addressed.
estimate income and expenditure, supporting • Masters Budget - Summarizing a business
it with valid information. Senior managers plan, master budgets include sales, labor,
articulate objectives before activity center purchasing, cash, selling and administrative
managers start drafting budgets. expenses, and budgeted profit and loss or
• Drafting the Budget – managers use income statement. It provides an overview
templates and forms to draft budgets based of how different parts of the organization
on objectives set by the budget committee. work together
• Completing the Budget – for cost centers, Dissemination of Final Budget
the focus is on relevant expenses, changes,
and new items. Managers use their business - Managers inform colleagues of final budget
knowledge to address complexities in the decisions and ramifications in a timely manner,
process. ensuring stakeholders are aware of changes and
• Budget Presentation and can align daily activities with budgeted
Recommendations – recommendations outcomes.
follow a standard report format, addressing - Communicate changes, such as hiring or
the defined problem, gathering information, altering staff hours.
exploring alternatives, and presenting
preferred outcomes. - Distribute master budgets to activity center
• Discussion of Budget with Committee - managers.
the budget committee agrees on final draft
budgets, and activity center managers
communicate them to their teams.
• Circulation of the Draft Budget - Draft
budgets are circulated for comments and
adjustments. The bottom-up approach
encourages staff involvement in the budget
process, fostering commitment to achieving
budget goals.
• Consultation and Communication -
Budget committee members act as
information broadcasters to their activity
centers. Various communication methods are
used to inform staff, promoting discussion
and agreement over simply distributing the
draft budget.
• Completion of the Final Budget - Activity
center managers finalize draft budgets
according to timelines outlined in the budget
manual. Senior management consolidates
these into master budgets, summarizing the
overall planned activity for the business.
• The Final Budget - Issues are brought to
the budget committee if not resolved within