Tips for successfully navigating budget season
 
Tips for successfully navigating budget season
14 DECEMBER 2016 8:20 AM

For hotel owners, budget season is one of the busiest and most important times of the year. Here are some tips for maximizing productivity and getting budgets approved more efficiently.

Across the industry, the arrival of October typically means one thing for hotel asset managers: budget season. This annual celebration brings owners and operators together to align on the goals and expectations for the year to come.

The process of reviewing, revising and ultimately approving budgets is very time-consuming, which can add to an already stressful holiday season. Here are some tips for getting the most out of the process and achieving timely approval of your hotels’ budgets.

Prepare

Time is your most precious resource—use it wisely. Whether you manage five assets or 50, proactively allocating your time is important to making sure you get through budget season unscathed. Consider creating a Gantt chart or calendar to visually map out budget season and ensure you allocate enough time to each asset you’re responsible for. Beware of other time commitments that can unexpectedly take time away from your budget reviews.

Know your management agreements and outline expectations. Review your management agreements well in advance so that you know when you can expect deliverables and when you are required to respond. Communicate with your team about your expectations on deliverables.

Get a head start. National prognostications, market supply studies, citywide calendars and other valuable resources become available months prior to budget submission deadlines.

Take a top-down approach to establish revenue-per-available-room expectations. Utilizing a top-down approach (Industry to Market to Comp Set to Subject Property) produces supportable RevPAR guidance that considers the big picture as well as the microeconomic factors that affect your hotel’s performance. Utilize the resources mentioned above as well as networking channels (HAMA, for example) to navigate every step of this approach.

Agree on RevPAR first. The revenue budget will drive the rest of the profit-and-loss statement, so it’s beneficial to reach general agreement with your operator on top-line guidance before they budget the middle of the P&L.

Familiarize yourself with budget format ahead of time. Utilize last year’s budget or request a preliminary copy from the operator to familiarize yourself with the format that you will receive.

Agree on a current-year comparison. Identify and agree on the current year actual/forecast that will be used as a comparison for year-over-year budget variances.

Review
Use a theoretical flow model to gut-check expenses. A theoretical flow model will help to identify if expenses are budgeted to flex or flow appropriately based on the budgeted occupancy and average-daily-rate growth. This serves as a useful first blush of the expenses in the budget and can be used to set expense reduction targets in a revised budget.

Prepare a thoughtful anomaly bridge to remove the noise. Every hotel experiences unique anomalies that muddy the water when trying to perform budget comparisons. Examples include renovation displacement, manager vacancies, accounting changes and one-time occurrences that can significantly affect your budgeted revenue/expense comparisons.

Proactively request everything in Excel. Many operators send deliverables in a noneditable format that can make supplemental analysis difficult. Having Excel copies of your budget will allow you to slice and dice things many different ways and evaluate key performance indicators more efficiently.

Question drivers and expense methodology. Many expenses are budgeted based on standard drivers (percentage of revenue, per occupied room, etc.). Sometimes a simple high-level driver is appropriate, but in many cases, a more-thoughtful approach should be undertaken.

Proactively identify contingency savings. If there is one thing that is certain about every budget, it’s that it’s ultimately going to be wrong. Use the budget review process as an opportunity to establish an expense-saving contingency plan that can be implemented if the budgeted top-line performance is not achieved.

Don’t forget your managers have day jobs. If you’re doing your budget reviews correctly, you’re going to have a lot of questions for management. Remember that they don’t stop operating the hotel during budget season.

Keep a log of changes. As you identify budgeted revenues and/or expenses that should be revised, keep a log of them so it is easier to communicate with management and reconcile their final budget revision.

Finalize and approve
Aim for one budget revision, if possible. You will likely identify myriad changes that need to be made before approving a budget. The most efficient method for approving a budget is to make all the changes at once.

True-up your budget and current year comparison, if necessary. Budget preparations often begin as early as August and may require adjustments in light of actualized results and updated data as you move deeper into your budget season. After your final review, it may be necessary to address these changes in the budget and current year comparison. Pay particular attention to Q1 and Q4, which are likely to see the biggest changes as you approach the New Year.

Remember the holidays. It becomes increasingly more difficult to finalize budgets as we approach year-end holidays. Everyone would like an approved budget before the New Year begins, so it’s important to manage expectations and identify agreeable deadlines for revised submissions and approvals, which are particularly difficult to get done between Christmas and the New Year.

Chris Hague is a Vice President of Asset Management with LaSalle Hotel Properties based in Bethesda, MD. Prior to joining LaSalle, Chris worked as an asset manager with Capital Hotel Management, LLC (now CHMWarnick). He holds a BS in Business Administration from the University of New Hampshire.

Austin Segal is a Financial Analyst at LaSalle Hotel Properties based in Bethesda, MD. For the past 2 years, Austin has worked in asset management and business intelligence at LaSalle. He previously attended the Cornell School of Hotel Administration.

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