Every organization running a business needs to have a budget which helps in planning the business operations. Hospitality Industry is no exception. In fact, well-defined Budget which takes into consideration all parameters helps in conduct of operations smoothly.
Definition of Budget –
A Budget is an approved document prepared annually to forecast the expected revenue, expenses and profits from operations. It is normally prepared before the beginning of the year and operational heads are required to follow the same as a guide in conducting the business.
Types of Budget –
Depending upon the operations and size of the business, Budgets are prepared department wise with each department treated as a Profit Centre and responsible for achieving the target. Following is an example of Budget prepared Department wise-
- Revenue Budget- Prepared by Marketing Department which forecasts expected revenue from-
- Room
- Banqueting
- Restaurant
- In-Room Dining
- Revenue from MOD including Laundry, Travel desk to name a few.
This is further broken down to revenue outlet wise, Revenue from food sales, Beverage etc.
- Expenses Budget- This is prepared by all departments like Marketing, Front Office, House Keeping, Engineering, Hr & Admin, Procurement, Finance etc.
- Capital Budget- This is prepared separately towards the proposed expenditure of Capital Nature like Kitchen Equipment, Lift, Generator, etc. detailed analysis is required to be done including calculation of ROI and justification for incurring the expenditure. Capital Budgets are approved based on the availability of surplus funds or through loans if required. Hence considerable thought needs to go in before preparing Capital Budget.
Budget Process –
Before the process of budget preparation begins, Finance Department circulates template to each and every department where plotting is one of last two years actual figures with a column for the forecast of expected figures for the current year.
Consultations are held with each department by Finance Team explaining the figures and guidance given.
The budget needs to be prepared month-wise and consolidated for the year as a whole. Adequate care needs to be exercised in projecting Revenue/ Expenses so that forecast is justifiable and is capable of being achieved. Once the rough Budget is ready, it is vetted by the Finance Department before a presentation is made to the Management. Departmental heads need to take the responsibility for their budgets and justify their forecast. Taking into consideration business trends, it is better to be factual and conservative. Based on the consultations, the Budget may be revised and finalized for approval and implementation.
Purpose of Budget is achieved only if variance analysis is done every month with actual and discussed. Reasons for deviation need to be analyzed including shortfall if any, with concrete plans for achieving the target. . Keeping this in mind, businesses prepare what is called “Rolling Forecast” which is a version of budget suited to operations and can be revised, unlike Budget which cannot be unless circumstances warrant it.
Properly prepared and implemented, Budget is a mirror to the business operations.