By Josiah Mackenzie With David Lund
I used to think of the budgeting process as a necessary evil, but speaking with David Lund, who has 30+ years of operational and financial leadership experience working with companies such as Hilton, Best Western, and Fairmont Hotels and Resorts, changed my view on this.
In his view, hotel budgeting is a way to engage your teams, align on goals, and deliver financial results.
The hospitality industry has experienced unprecedented volatility over the past few years, which may make creating a budget for 2023 seem intimidating. But as Lund advises, “the only thing we know about a budget is that it’s wrong” – and that can help us avoid obsessing over perfection and instead view the budget as a plan.
Here are Lund’s four recommendations to keep in mind when budgeting for 2023:
#1 – Start with the end in mind
Lund suggests beginning by thinking about what a good year could look like.
“What would a great 2023 look like? Over the past few years, most hotels have experienced a lot but also learned new things to help them control costs. So it’s good to start with a vision that typically comes from the general manager or someone with a view from the top. Someone who can see the entire operation and also the competitive market and other macro factors.”
As an example, you might tell your teams that you expect to increase room revenue by at least 7% based on what you heard from your revenue manager.
#2 – Get into the details with zero-based budgeting
From there, Lund recommends getting into the details with zero-based budgeting, which starts from scratch and goes category by category to figure out which expenses are essential. Nothing is assumed. By going through this exercise, everyone involved has more visibility into how much each thing costs, which is valuable in case costs need to be cut at some point.
“If you’ve never done zero-based expenses before, you should start. If you haven’t created or used a staffing guide before, you should. These things will give you more detail on what’s going on in your business. They will help you operate much more effectively than if you just take expenses from last year and add a 5% cost increase to create your budget.”
This is especially important in a world that’s been highly volatile over the past few years with dramatic cuts and now high demand at many hotels.
“Because I’ve done these hundreds of times, I can guarantee you if you don’t create a zero-based budget, you’re paying for things you don’t even use because people just keep sending you invoices. I found things like hotels paying for beepers that hadn’t been used in years. This is why it’s so important to get into the details.”
#3 – Create a day-by-day revenue budget
After getting into the details of expenses, Lund recommends hotels create a day-by-day revenue budget.
“If you don’t create a day-by-day budget, you’re missing out. A lot of people will just create revenue forecasts by the month and say things like July is their busiest month. But doing this day-by-day for at least your major market segments will help you understand rates and revenue potential in more detail.”
#4 – Create a marketing plan that generates demand
Finally, Lund encourages hotels to ensure they’re investing in marketing to create demand that will be captured by smart revenue strategy.
“Where will you be investing to generate the revenues that will pay for everything? It’s important to revisit this because markets are always changing – especially now. If you’ve been in a group hotel in the past, you can’t rely on that anymore because travel is changing quickly. Many hotels are seeing business travel at lower levels than they’ve been historically. But every market is different and you need to understand where the opportunity lies and how you create more demand for your property.”