Expenses of a hotel: how to budget?

Due to its belonging to the tourism sector, the hotel industry is among the most profitable businesses in which you can invest; however, to yield truly fruitful profits, it is necessary a good management that assumes specific responsibilities such as planning, evaluation, control and optimal accounting of resources. In view of this, it is imperative to evaluate the expenses of a hotel.

How to budget the expenses of a hotel?

The realization of a hotel budget is not a simple task, although it will be necessary to evaluate different issues, they are none other than the costs, the most important of all. The specialists, invite in the first instance to attend to the Semi-variable Costs, separating its fixed part from the variable one.

Although at first may be overwhelming at first, it will become less and less complex, as you become aware that these are only estimates, so you will have to work as you go along and will have to be worked out as you go along.

Determine the costs of a hotel? not without the necessary information

Before starting to make a hotel expense budget plan, it will be necessary to have at hand the data of the previous year– or in its absence, of the one that is about to conclude – having at hand the closing, Forecast, closing estimate or Forecast, you will be paid part of the way.

Suppose a 100-room hotel whose available Room Nights total 36,500 and has an occupancy rate of 82.2%; assuming the exercise is based only on lodging revenues – although the same criteria apply to the other revenues – it will have a production, room turnover or turnover of 1,800,000 euros for every 30,000 Room Nights sold if the stipulated average price (ADR) is set at 60 euros.

The organization of costs:

The costs included in a hotel’s revenues and expenses can be variable, semi-variable or fixed; the first category includes those that can be assigned to a room sold – for example, linen cleaning services – while the second group includes energy payments and floor cleaning, leaving insurance, management payroll and rent, part of the third group.

To simplify the organization of the costs, it is convenient to break down the Semi-variables, or fixed, depending on how they best fit; the idea is to achieve a list of the 9 most the 9 most important ones in each category, leaving the tenth place vacant to group the vacant position to group the remaining ones. It is essential that they do not exceed 5% to 10% of the total amount.

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The next step is to make an estimate of costs for the following year, how? through the growth or savings, using figures in absolute and in percentages; the result will be the calculation of the Dead Point of the business, or what is the same, the amount of Room Nights necessary to cover the expenses of a hotel that are fixed.

The revenue calculation:

The ADR and the number of overnight stays sold is what determines a hotel’s revenue hotel. Assume the following scenario, a number of Room Nights billed per year totaling 30,000 per year at an average price of 60 euros 60 euros. By taking into account this pair of variables, it is easier to clarify and execute a good business strategy 5% growth, the possible measures to take would be:

  • Increase ADR to €63
  • Working on the basis of overnight stays bringing them above 31,500 RNs
  • A joint option in which increase the ADR by a couple of euros and Room Nights increase by 1.3 points, reaching 81.3% occupancy 81.3% occupancy.

Regardless of the alternative chosen, the result must be an increase in turnover, which translates into 1,890,000 euros.

Considerations elementary considerations to make this work:

It is important that these estimates are made for each customer segment of the hotel, what does this mean? to execute the monthly estimation based on the Demand Calendar monthly estimate based on the Demand Calendar, in this way, the growth – or decrease – considering ARD, price and occupancy can be estimated growth – or decrease – considering ARD, price and occupancy.

Although it can be be done in the Costs section, the Distribution Costs and commissions taken by the OTAs should also be deducted and commissions taken by the OTAs should also be deducted; however, it is advisable to include these included in the revenues so that they appear as Net Revenues.

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It is in this way that the estimation of the Average Cost of Distribution in % becomes a functional tool to measure within the strategy, the possible growth either in direct or distributed sales.

Having costs and revenues, it is time to time to set up the annual budget and accrual

The estimation of a hotel’s the estimation of a hotel’s expenses based on revenues and expenses, provides the opportunity to calculate the Margin margin calculation; with the information gathered, the next step is to assemble the Revenue and Cost-Expense revenue and Cost-Expense table.

The importance of the importance of this lies in the possibility of making adjustments by month, since the estimates of monthly variations the estimates of monthly variations calculated in the Revenues from the ADR and the number of Room aDR and the number of Room Nights, which in turn will be used to determine determine:

  • Monthly contribution margin by removing variable expenses.
  • Net Revenue, if Distribution Costs are deducted distribution Costs.
  • Net Margin, when Fixed Expenses are subtracted subtracting Fixed Expenses.

What about the Forecast?

During the execution of the fiscal year, the Forecast can also be done on a monthly or quarterly basis; in fact, large hotel chains or multinationals usually do them on a weekly basis, but for those who want to measure the expenses of a small hotel, this loses meaning.

The final step, understanding the business:

Getting trained in the hotel expense management can be overwhelming, however, a good way to understand the business may be to a good way to understand the business may be to connect to the Budget in the form of the annual in the form of the annual Income Statement.

In order to do this in the form of Profit and Loss Accounts – all the data obtained in the income and expenditure or Cost in the budget of income and expenses or Costs, taking care that the information is well structured to be information is well structured so that it is easy to understand.

The Workbook is a must:

Although the digital era has caught up with everything, traditional methods still work, so if you want to follow the process easily, it is a good idea to have a Workbook available that contains the tables and diagrams that will serve as a guide.

From Monouso we hope that all the information has been useful for you and we wish you good luck in your future project. Do not hesitate to contact us so that we can be your future supplier.

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