What is a hotel budget?

A hotel budget is a plan that will help determine and guide the health of your hotel’s finances for an upcoming period of time. Most of the time, hotels will put together a budget for the fiscal or financial year, outlining their expected income and expenses.

The hotel budgeting season commonly kicks off in October and runs through December. Creating a budget during this time helps hotels meet their goals and make strategic decisions.

This blog will take you through all the crucial hotel budgeting steps you need to know.

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Why is a budget in a hotel so important?

Creating your hotel budget is important because it’s a guideline on how to meet your goals for the year, or even exceed them. Throughout the year you can always refer to your budget to see if things are off track and make appropriate adjustments.

It will help you decide on decisions like:

  • Setting revenue objectives
  • Resource management
  • Staff management
  • Maintenance and repairs

It will also aid you in preparing for any unexpected events or economic downturns.

Without a budget, you’re essentially flying blind and could end up in financial trouble very quickly.

How to prepare a budget for your hotel

To prepare your hotel budget for the year ahead, you need to look at the previous year’s performance and compare it with any new plans you have this year.

This means analysing your revenue streams and expenses in detail, splitting them into categories and formatting a budget for each one.

For example, room bookings might be your main source of income. What is the expected revenue and expenses from your rooms alone? Another category you might look at would be food and beverage.

When it comes to expenses, break them down into fixed and variable costs. For example, fixed costs include things like rent and staff wages, while variable costs might include marketing or supplies.

Steps in the budgeting process for hotels

To make it simpler, try using these five steps while in the process of creating your hotel budget:

1. Reflect on previous years

Collecting data from past years will allow you to analyse metrics like your occupancy rates, revenue, expenses, customer feedback, and more. You can use this to forecast for the year ahead and also make decisions to create a more efficient and successful budget.

2. Set your objectives

You have to set goals to know if you’re being successful or not. Make sure you aim for goals that are realistic and also measurable. For instance, maybe you want to boost occupancy by 3-5% this year and make changes to reduce energy costs by 7-10%.

3. Make predictions

Forecasting your expected revenue and expenses on a monthly basis will help you stay on track throughout the year and see where you can improve to meet or better your goals.

4. Allocate resources

Decide where you need to invest to improve performance in the upcoming year. How can you best stay below budget and improve your profitability? For instance, you might decide that it’s worth the expense to put in a new amenity for the extra revenue it earns, and the rate increase you can put on your rooms.

5. Track progress and adjust

Once you set a budget, you don’t have to stick to it. Monthly reviews could cause you to update your budget or change plans in order to achieve success.

By following these steps you should be ready to finalise, implement, and use your budget plan.

Image representing hotel budget

Hotel budgets sample of best practices

To ensure your budget is comprehensive, it’s a good idea to make a checklist of all the items you want to analyse or include. This will help you maintain structure and make it easier to create a plan moving forward.

Here are the most important things to consider as you create your hotel budget:

  • Room revenue: What are your projections and what promos, packages, or programs can you create to give it a boost?
  • Admin and operational expenses: What are you spending on staff, technology, utilities, maintenance etc? How can you become more efficient?
  • Suppliers: What is your budget for replacing food, beverages, toiletries etc? Can you find suppliers that are cheaper than your current one?
  • Sales and marketing: How much will you spend on advertising your property on Google or social media? How many bookings will you take via OTAs, which charge a commission?
  • Physical expenses: Do you plan to renovate, do major repairs, or install something new?
  • Loans and taxes: Account for your regular monthly or quarterly repayments.
  • Guest services: Sometimes it costs money to enhance the guest experience, without getting anything back in the short term. For example, free breakfast, snacks, or gifts.
  • Investments: If you invest in essential technology like a property management system, channel manager, or booking engine, what will the expected return on that investment? 
  • Emergency funds: You never know when something could go wrong. It’s prudent to put some money in your budget aside for these instances.

Going through your budget step by step and category by category will make it much easier to see gaps or opportunities that you can address.

By Dean Elphick

Dean is the Senior Content Marketing Specialist of Little Hotelier, the all-in-one software solution purpose-built to make the lives of small accommodation providers easier. Dean has made writing and creating content his passion for the entirety of his professional life, which includes more than six years at Little Hotelier. Through content, Dean aims to provide education, inspiration, assistance, and, ultimately, value for small accommodation businesses looking to improve the way they run their operations (and live their life).