Advice for Budget Season This Year - David Lund, The Hotel Financial Coach

Josiah: 0:00

How are you feeling heading into budget season? Could you use a few pointers on how to improve the process this year? If so, we have just the person to learn from today. David Lund is the Hotel Financial Coach, and in this episode, you'll hear his advice for doing this well.

Josiah: We're heading into a new budget cycle. What advice would you have for our listeners in terms of how to navigate that and do it well, well?

David: 0:45

Really, when we're talking about doing the budget, we're talking about doing three things in the hotel. One is figuring out what the revenue is, and usually that's our sales department or our revenue manager who's going to take a look at the rooms in the books and lay it out for next year, 2024, all 12 months, buy, market, segment, number of rooms, the rate, the ultimate room revenue. That's really the foundation for everybody else to do their budget for the housekeeping department, for the front office, for maintenance, for all the different departments. Then, once we have the revenue done in the rooms, we want to do the revenue in the food and beverage areas, and it really flows off of how busy the hotel is going to be. What are we doing for groups? What are we doing for individuals? What are the capture ratios? Once all that's figured out, then we've got to figure out our minor operating department revenues, our other revenues. All of those again really flow off of history, but also off of how busy the hotel is going to be. Again, not again, but the one thing we know for sure about the budget and the only thing we know for sure about the budget is that it's wrong and people need to remember that. Don't fuss too much over whether or not you think it's right or you think it makes sense. Just put it together for the first time and then it's going to get played out, it's going to get looked at, it's going to get massaged. Once we have the revenues done, we've got to do our payroll. The payroll, again, is really a building block of our hotel, it's okay. Well, what do I need in each department? What's my staffing guide? What's my staffing formula for each area? And if we're looking at the front desk or we're looking at housekeeping, it's all about arrivals and departures and stayovers. How many staff do I need when the house is at a certain point and I've got so many people coming in and so many people coming out? It's not rocket science. What's the rate of pay? Okay, well, here's how many hours I need to service this many rooms. Figure out what my productivity is. There's a great section in the book on calculating productivity. It's the key. And then, once we have that piece done, then I need to do my expenses. Oh, my god, what are my expenses? Well, again, walk down the hallway, go see your folks in the accounting department and say, hey, can you print me a copy of the general ledger listing for all of the accounts in my department. Grab that list, go to accounts payable, start pulling invoices, start pulling vendor files, looking at the things you've been buying, looking at the things that your predecessor bought, figure out what your expenses are. And another great way to do that is keep a checkbook, because once you keep the checkbook you'll be recording all of your invoices that you've initiated, all the purchase orders. Hopefully you use purchase orders and you'll know right away. You know the kinds of things you buy, how many. And then you need to figure out, based on that occupancy again, how many will I need next year? What am I going to need for shampoo, for shoe mitts, what about new linen, what about replacements? All the things that we need in the hotel. And the great thing about the hotel is that from one day to the next, and one week to the next and one month to the next, it's the same thing. There might be more of it or there might be less of it, but we're doing the same thing. So once we figure out one cycle, we can figure out the other cycle. If it's plus 10% or minus 10%, what should it look like? And then, once I've got all that assembled, somebody's going to probably give you a model to populate. Put that information in there and then you'll have your first draft of a budget and someone will review it with you. They'll critique it. They'll probably ask you to reduce this, reduce this, reduce this. They'll never ask you to increase anything other than the payroll or other than the revenue. They'll never ask you to increase the payroll or the expenses. And another tip for people is you know, don't have rose-colored glasses. And what I mean by that is, I know, the first time I did a budget, people expected the world. Oh, we get to do budget. I get to put in all the stuff that I need. All the rights or all the wrongs of the world are going to get corrected with this budget. It doesn't work that way. You know budgets are incremental things. So you know, since COVID, things have settled down. Now we've got 2022 behind us. It was a pretty solid year. 23 is fairly solid. We've got good data to go on. So if you're doing the budget for 2024, it's probably going to be plus 5, 6, 7% in revenue on top of 2023's latest forecast, and we expect half of that at least half of that additional revenue to flow in the way of profit. In other words, you know why are we doing all this work. We want to make more money for the owner. That's what it's all about.

Josiah: 5:08

Can I ask a quick follow-up question that, david, in terms of like, how do you balance the, I guess, like the predictable nature of hospitality, where you have like some seasonality and kind of think about kind of incremental year-over-year costs, versus a more kind of like zero-based budget approach where you're questioning every expense, which, imagine, takes a lot more time?

David: 5:27

Well, you definitely want to know what the details are, and a lot of people will approach budgeting and go. You know, I spent $40,000 last year and guess supplies. I want $43,000 next year. If somebody presented me with that as a budget, I would say I'm sorry, that's not anywhere near good enough. What's in your $43,000? Break it down for me, Tell me. Tell me what it is. You're buying the big ticket items. I mean, I'm not going to grind you into the ground and ask you how many cocktail napkins you're buying and all these things. But so much for this, so much for shampoo, so much for toiletries, whatever, whatever. You should know that. And the thing about it is, if you're already running the department, you're ordering that stuff every week anyway, or twice a month. You're already ordering it. So you just need to kind of look in the reverse mirror and go OK, well, I know the things that I need to. You know, run my department. What am I going to need next year, based on this new volume of business, which is probably not going to be that much different than the volume of business we're doing this year? You know? So it's all very incremental, but it's really about understanding the details. And what people miss is that they don't stop long enough to uncover the details. They're always in such a hurry, they're always in such a rush, They've always got 10,000 things to do and that'll get you nowhere fast. So stop, take the time, Come in on a Sunday when nobody else is there and get the stuff going and figure it all out. You'll feel so much better. You'll learn so much about your department, about your business. I know the first year I did a budget and the GMI was working with insisted on zero-based budgets, which is basically just telling me what's in each account, you know. Again, I'm not going to grind you into the ground, but I want you to know. You're not just going to present numbers to me. I want a shopping list what's in each account? The same with the payroll. What's your staffing guide when it comes to variable? What's your formula when it comes to variable payroll? What's your list of proposed fixed positions in your department? I'll look at both of those things and either say that makes sense or it doesn't. You need to reduce it, remove some people, Don't ignore it. Get in there and dig at it and there's a couple of great chapters in the book on the budget, but also people can go to my website and there's a search function under the blog tab and just put in the word budget. I've got probably a dozen different blogs that I've written about budgeting and I look at it from every different angle. It's not difficult, you just need to do it and you need to realize that, no matter what you do, the budget's wrong. We get over it. It's a good. We get over it.

Josiah: 8:03

Yeah, but I imagine you know kind of going back to that notion of how far do you push into the details. I imagine that's something where mentorship becomes important, but also it's sort of a skill you develop over time of how much do I kind of feel like micromanaging or grinding someone down too far versus pushing the appropriate amount. And I also imagine, as a leader, there's a certain amount of information sharing, making sure you mentioned kind of making sure there's enough time as a key piece, but also getting people to talk to one another, because if you're taking, with your hospitality business, a new strategic direction or you want to sell more group business or something like this, each of the departments need to understand that and so they understand the implications on their budget, right? So I guess, is that fair? Is there any other kind of advice you'd have for leaders, I guess, from a people management perspective, on navigating this, that you would have?

David: 8:57

I think one really useful thing that needs to happen is there needs to be communication from the top. So typically, if you're a branded managed hotel, your corporate office will send out a budget program, probably in June or July. You'll have all the things that the brand's going to charge your hotel all the mandatory programs, all the suggested programs, all the recommended programs. You need to have communication around that. So sit down with your managers and have an extra long department head meeting one day and go through the guide and go okay, here's all the stuff, all the programs that the corporate office is sending our way next year. Which ones are we going to be doing? How are they going to work? What are we getting? What are we paying for? So that we have a view from the top. Same with their revenue. Once the revenue manager has prepared the initial budget and the GM's reviewed it the Dr Sales has reviewed it have a meeting and discuss it and say, okay, here's what things look like for next year. Same with the food and beverage budget. That's like getting the evening news and getting the first 10 minutes and getting the highlights what's going on, what's the direction. And that's so useful for people. I talk about the information disconnection in the hotel, and it exists. There are people living on islands that have no idea what's going on on the next island, and that's not cool. We need everybody to have an idea of what's going on, and so things like department head meetings, morning meetings we always want to be talking about the numbers and there's new news on the numbers, we want to be blasting it out into the hotel, and it isn't always about whining about the numbers. That's not the right way to go. The numbers are positive. The numbers are just the way we communicate what's going on. Economically. It might be bad news. Well, okay, we have to deal with it. But don't make the numbers bad. Don't make the numbers the victim. They're just the communication piece. So the more communication we can have around the numbers on a regular basis, that's proactive, in our hotel, the better, because then our managers and leaders will start to realize that this currency is something that's not going to blow up in their face and that it's good and it's interesting. Everybody wants to know. I tell you, everybody wants to know about the numbers, because once you see what's going on and you have a vision for what's going on in your business, man, your career is just going to soar.

Josiah: 11:19

Yeah, that's a great message, David, and I think, as we head into budget season, that notion of leading in that manner, information sharing in that way, empowering people this way, becomes critical, but it's true year-round as well, so it's just something that is just evergreen, constantly important, so I appreciate you taking time to share this with us.