budget

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Budgeting
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Budgeting

• The process of creating a plan to spend your
  money.
• This spending plan is called a budget.
• The term budget is derived from a French word
  Bougette which means a leather pouch fund
  allocated for meeting anticipated expenses.
• A budget is a plan which projects both, the
  revenues the hotel anticipates during the period
  covered by the budget and the expenses required
  to generate the anticipated revenues.
• Budgetary control is a process for managers to
  set financial and performance goals with
  budgets, compare the actual results, and adjust
  performance, as it is needed.

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IMPORTANCE

• It helps you control your spending
• Track your expenses
• Save more money
• Budgeting can help you make better financial
  decisions
• Prepare for emergencies, get out of debt, and
  stay focused on your long- term financial goals.
• Provides a guideline How much, on what

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TYPES- type of expenditure Capital budget

• Capital budget plans for the expenditure of
  company assets for costly items.
• Typically, these items are not used up in the
  normal course of operations instead they have a
  lifespan that exceeds a single year.
• E.g., furniture, fixtures, equipment, etc.
• In addition major initial purchases of recycled
  inventoried items (linen, towels, uniforms, etc)
  may fall under capital budget as they have a
  relatively long useful life.
• Capital budgets are prepared annually.

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OPERATING BUDGET

• Operating budget forecasts revenues and expenses
  associated with the routine operations of the
  hotel during a certain period.
• Operating expenditures are those costs a hotel
  incurs in order to generate revenue in the normal
  course of doing business.
• The hotels may have separate budgets for repair
  and maintenance and payrolls or salaries and
  wages.
• Usually the chief engineer in liaison with the
  housekeeper prepares the repair and maintenance
  budget.
• Salaries and wages budget is as high as 75 - 90
  of the total operating costs. In many hotels it
  comes within operating budget.

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Pre-opening budget

• This budget is required for smooth opening of a
  new hotel.
• As a new hotel has to invest a good amount of
  money in installing the facilities and also on
  the workforce hired as the preopening team.
• The initial expenditure on equipment, cutlery,
  crockery, linen and other supplies are required
  to make the hotel ready for operation.
• It may also involve the expenses on advertisement
  etc.

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Distinction
Capital budget Operating budget
Large equipment and machines. Salaries and wages
Furniture, fixtures and fittings in rooms and public areas Contract cleaning
Linen Soft furnishings. Uniforms. Laundry and dry-cleaning
Miscellaneous( Contingency) Special project (construction of new rooms, etc.) Renovation of rooms or public areas. Linen Operating supplies Uniforms maintenance
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Type-departments

• Master budget These represent the forecasted
  target set for the whole organization and
  incorporate all incomes and expenditures
  estimated for the organization.
• Department budget Each department of the hotel
  forwards a budget for its estimated expenses and
  revenues to the financial controller.
• For instance, there would be a housekeeping
  budget , an FB budget, a maintenance budget, and
  so on.

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Types- Flexibility of Expenditure

• Fixed budget These budgets remain unchanged
  over a period of time and are not related to the
  level of revenues.
• Such budgets include budgets for advertising and
  administration.
• Flexible budgets These budgets pre-determine
  expenditure based on the revenue expected and
  differ with different volumes of sale.

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Type- TIME PERIOD OF PLANNING

• Long time budget Long time budget is a
  systematic process for directing controlling
  operations for a period extending over a year.
  Mostly this time frame ranges from 1 to 5 years.
• This type of budget tries to evaluate future
  implications linked with present decisions.
• The more is the timeframe of budget, the more
  will be difficulty in forecasting the
  expenditures and expected revenues.
• Market trends, competitors, government policies
  etc. play crucial role in preparing long term
  budget.
• This type of budget is useful in forecasting and
  evaluation of an organization over a period of
  time.

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Operating expenses

• Variable expenses
• Fluctuate with the occupancy level
• Include guest supplies, laundry, etc.
• Semi-variable expenses
• staff, cleaning supplies, flowers, linen, and
  uniforms.
• Fixed operating expenses
• Pest control on contract
• Fixed staff such as Executive Housekeeper,

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Type- TIME PERIOD OF PLANNING

• Short term budget is planned for a periods of
  three to twelve months depending upon nature of
  business.
• This type of budget is mostly planned in such a
  way that it coincide with the financial period,
  as it facilitate the evaluation of the firms
  performance.
• If planned for a shorter period, that period
  should complete all aspects of business in a
  season.

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Budget-planning process- 1.Forecasted room
sales/occupancy level

• Room sales are forecasted by -FO Manager.
• The information of forecasted room sales is given
  to the head of departments far in advance for the
  preparation of departmental budgets.

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2. Cost per occupied room

• Calculated on historical data
• Operating costs

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Calculation of operating expenses

• Salaries and wages
• Staffing guide
• Employee benefits the cost of on-duty meals,
  payroll taxes, provident funds, medical expense,
  insurance, pension, staff parties and social
  events.
• Contract services
• Operating supplies
• Guest supplies non-recycled inventory items,
  variable in cost.
• Cleaning supplies
• Linen
• Uniforms uniform material, stitching costs,
  accessories, and footwear.
• Laundry
• Flowers

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Income statement of the room division

• Profit and loss statement
• All the income and expenses of the department
• Debit and credits
• If credit is more than debit, its a profit or
  otherwise a loss.

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Controlling operating expenses

• Effective documentation to monitor their usage
  frequency and costs, variance with standards.
• Zero base scheduling Hiring employees by taking
  into account the actual occupancy for a specific
  period of time. with the help of the staffing
  guide, personnel costs stay in line with
  occupancy reports.
• Right purchasing right quality, right quantity,
  right price, right source of supply, and right
  time of purchasing.
• ensures that the hotels money is well spent and
  the maximum value is received from products.
• Efficient training and supervision
• Important for controlling the cost of inventoried
  items.
• Training in the proper use of cleaning supplies
  can improve usage rates, and lower the cost of
  cleaning supplies per occupied room.
• Efficient training ensures that
• The productivity and performance standards are
  met by the employees consistently
• Brings down the expenses on cleaning supplies
• Employees tend to be cautious of usage and
  wastage.