“If you have not hit the revenue budget, some expenses should be put on hold, based on their urgency and the impact they have on the smooth running of the business… the spending must always be controlled by the budget, and well calculated at that.”
The ultimate key performance indicator for a hotel’s management or a hotel’s management company is the ability to maximize profitability. How do you protect what you earn, and how do you direct it to where it is needed the most? Here are sure five ways to help you get a better hold of your revenue:
- Draw a revenue and expense budget
Before the onset of your financial year, the hotel should draw a revenue budget, which is an indication of how much revenue you intend to make, outlining what you target to make from each segment, for each month of the year. Against this, the departmental heads are tasked to come up with an operating budget (expense budget) which is mapped against the revenue budgets. The Financial Controller, who heads this exercise, tasks each department to adjust their figures with the aim of optimizing profit. The GOP should be between 25% and 40% depending on the star rating of the hotel, because this has a direct impact on the revenue as well as the expense budgets. Another determinant is the various revenue generating streams of the hotel such as airport transfers, spa facilities, Laundry Services, E.T.C.
The sales and marketing and Revenue Managers, as well as the department heads of other revenue generating streams have a target based on the revenue budget. The financial Controller is mandated to control the expense budget to ensure the GOP per month is as per the budget, if not better.
- Control your spending
Once you have a budget in place, you know what to spend, and when to spend. If you have not hit the revenue budget, some expenses should be put on hold, based on their urgency and the impact they have on the smooth running of the business. If the hotel has surpassed the budget, some expenses from other months can be undertaken on the present month to create a balance. However, the spending must always be controlled by the budget, and well calculated at that.
- Accrue for large expenses
Budgeting will help you to identify high cost items, and when they need to be purchased or spent on. Instead of taking revenue from one month, the Financial Controller should accrue for high cost items through the months to ensure the expenditure on that particular month does not have a big impact on the hotel’s cash flow.
- Have a reserve account
This can also be termed as an FF&E (Furniture, Fixtures & Equipment) account. FF&E are movable furniture, fixtures, or other equipment that have no permanent connection to the structure of a building or utilities. This constitutes between 12 – 16% of the hotel’s total investment budget, and it depreciates. It is important to have a reserve for it otherwise at the point of redesigning (some people refer to it as renovating), the hotel will not be able to do so with current cash flows. It is an expensive yet very important exercise for every hotel to sustain its business.
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