Hospitality Financial Leadership – How To Prepare The Annual Budget In 1 Hour
By David Lund, The Hotel Financial Coach
Over the many years I have worked in hotels, I have had the pleasure of working with some exceptionally fine and talented individuals. This story is about one GM and his penchant for simplicity.
What I learned was the power of removing the seemingly complex and replacing it with a clear vision.
It was late in the day and we had just finished our weekly executive committee meeting which was always an opportunity for some calamity and drama. But alas today it was quiet. We wrapped up the meeting with a brief discussion on the upcoming budget season and the schedule. This was not my first budget rodeo, but it was the first one for me in this hotel and I was dreading the upcoming proceedings.
He was getting under my skin a bit and it was because he was very nonchalant in the meeting about what we were tasked with. The package had arrived from corporate a few days earlier and as usual, the enormity and detail of the contents of what they wanted distilled into our version of next year’s budget were quite honestly terrifying.
He did his best to calm everyone including me but I was not convinced that this process with the other department heads would be anything other than a $#!^ show.
He wrapped up the meeting and I asked if he had a couple of moments to talk. He said he did and gestured me into his office which was adjacent to our meeting room. I sat down and he did as well. I uncharacteristically asked him for some advice. I’m not sure at all where this idea to ask for help came from other than perhaps desperation.
I said that my number one concern with the budget was getting the others to step up and do their part of the budget and what I really meant by that was, will they produce something that I can actually use? My experience to date taught me that they would ask for the moon and it would be up to me to right-size their expectations.
“No, you can’t have four new managers and an increase of 15 percent on your expenses even if it is what you think you need to run your department, it will never fly.”
This had been my experience at the previous budget rodeos.
He said not to worry, “I have a plan that we can use that will inoculate each one of them to only produce what we tell them they can have.”
This, without a doubt, caught my attention.
“How?” I asked.
“By telling them what they can have before we start.” The following was his version of a chapter from a famous book that I didn’t read until several years later.
“Tell each manager what they can have before they start,” he repeated.
“How do I do that?” I asked.
He swung around from his deck chair to the printer that occupied his credenza, he opened the printer paper door and grabbed a plain piece of paper. This man was a bit of a freak when it came to his office appointments. You would never find reports or paper or any clutter on his office working surfaces.
He took his pen scribbling wildly on the paper and said the following. “On one-page, Mr. Lund, do the following: Use 5 columns and design something like this, start with actual results two years ago and create a top-level P&L, then add two years ago. Next it is last year, then this year’s budget and actual/forecast this year. In the fifth column, I want to see next year’s budget.
“For next year’s budget give me the average of the last three years’ revenue growth year-over-year and add 1 percent on top of that, split it 75 percent room revenue, 24 percent F&B, and 1 percent whatever you want. I think that 80 percent of the room revenue should come from rate, the rest from occupancy. F&B growth – I don’t care, you figure it out. Give me 50 percent flow at GOP, and make the departmental results make sense. That’s all you need to do – can you do that?” he asked,. Loudly.
I was stunned. I looked at him and said what I always say when my boss asks me for something new and out of the box, “Let me take a look at it.”
With that our little meeting was over and I was back at my desk moments later. I sat there with his piece of paper and then I said to myself, what the heck.
I opened my computer and quickly found a similar Excel format. We used what was called “retrieve micro-control” which is/was a powerful tool that allowed us to pull any numbers that existed in our financial statement database. All I needed to do was adjust the headers for the flow that he suggested until I came to the next year’s budget column.
This is where I had to use my imagination but not too much of it as he had given me the parameters I needed and with a little tinkering, I had the job done.
What I came up with in just under an hour looked something like this:
I went home feeling quite at peace with myself knowing I had a tool that was going to really help me better manage the budget process.
The following day we had another budget-focused planning meeting, and everyone got a copy of the budget proforma. Now I must say, there were several eyes and eyebrows doing a double-take, but by in large it made sense to everyone. Why stick handle your way through the budget maze with unrealistic wants and desires when at the end of the day you know it won’t fly?
Take the time and model out a top-level result that you feel comfortable presenting before you start the budget process and then give your team their targets and have them detail out the revenues, payroll and expenses.
It saved time and emotional energy and from that point forward every year I would do the same exercise. Remember, begin with the end in mind.
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