Even though budget season is the most important part of the year, the budget is only good the day that it is approved. Despite the months of work, the gathering of data and the analysis of the surrounding market, a budget is the dream we are all working towards, not an accurate prediction of what the day-to-day activity of the business will be.
A budget outlines goals, but a forecast uses current data to make predictions regarding the future state of the hotel over a specific period and assess the viability of meeting the budget target.
The budgeting process can be challenging as Owners and operators have different objectives and methodologies. This is where the Asset Manager comes in. He can help the two parties align their strategies to achieve the hotel’s target positioning and maximise value, while managing each of their perspectives.
This is also true for the forecast, which represents the short-term situation, at around one to three months out. While Owners and operators have plans and goals in the long term, they also have ideas and aims in the short term which will need to be aligned, which made relate to particular seasons, trading mixes and where they are in their own budgeting cycles, which may differ to the hotels.
The forecast gives all parties an idea of whether they are going to achieve their budgeting targets and, as a result, may change the operations of the hotel in an attempt to bring it back on track, or even give all parties guidance on when the property might outperform the budget. In some cases, hotels have considered implementing a rolling budget, but we have found that, while they may sound appealing, the reality is more confusing than practical, given the number of moving parts and stakeholders in the hotel stack.
The forecast is by its nature more flexible than the budget. It will dictate whether new strategies will need to be applied to the operations in terms of selling rooms and the other revenue centres in the hotel. It will tell you, for example, whether you should be applying changes to your F&B. This could be changing the menu, changing the concept or even considering a full overhaul of the restaurant or the addition of another space, such as a temporary pop-up outlet in the high season.
The potential for investments during the year, outside the sanctity of the budget, is one area where the role of the Asset Manager is key. The investor will need to be sold on the idea of the return in the long term, on why that opportunity is worth moving away from the plans for the year. Any disruption must also be accounted for.
If possible, it is, of course, preferable to keep any significant investments within the budget, rather than allowing the forecast to have an undue influence. Investing, as we have mentioned in the first part of this series, is not as simple as ‘build it and they will come’.
The Asset Manager must focus on the investment aspirations of the investor. If they are coming to the end of the seven-year hold, they are not going to embrace the chance to renovate the bedrooms and install a new spa where previously there was none, no matter what the demand profile looks like. An investor who has taken on a tired property which is in need of investment to bring it up to a level where it can compete with its competitor set, or even climb a segment or two, will greet suggestions for CapEx with a different mindset.
Aligning the operator and the investor is at its most critical when the property is coming up for sale. This is not the debate in which to discuss the value of selling a property unencumbered by the brand, although buyers do, as a general rule, prefer not to have one.
However, the run-up to a sale is a time when the budget and the forecast need to be aligned and need to tell that story of growth which you have been trying to make true all year. It is also the time when the operator and investor need to be singing from the same sheet. The time you need your Asset Manager the most.
