The Misunderstood Power of Capital Budgeting
Are you leveraging the power of this revenue generation tool?
By S. Lakshmi Narasimhan Founder, Ignite Insight LLC | June 03, 2018
Sustenance of businesses hinges on the important element of maintaining a consistent top line. In the hospitality industry, the saying goes: "No Top line, no Bottom Line." Top line or revenues as they are generically called are the lifeline of businesses. Whatever products you offer to your customers and the value proposition you bring to the table will influence if not exactly guarantee your revenue performance.
When revenues start to drop, the bottom line performance suffers significantly too. Owners while always obsessing about the bottom line are keen that revenue performance is consistently strong. After all, the Top line is the foundation on which bottom line is built.
Rooms Vs Food & Beverage
In the industry, rooms and food and beverage produce close to 90% of hotel revenues. Between rooms and food and beverage themselves, room revenues are generally between 2.5 to 3 times food and beverage revenues. This is built on the foundation of an Average Daily Rate in the Rooms department which is higher many times over than its counterpart, Average Check in the Food and Beverage department. Moreover, there is another important difference between the rooms and food and beverage revenues. Rooms revenues are generated with hotel long term assets while food and beverage revenues are generated using current assets.
One of the key planning tools that a hotel business relies on is the budget. More specifically, the Operations Budgeting exercise is an annual one laying down the broad marketing and financial plan elements of the hotel. Operations Budgeting specifically forms the basis for estimation of revenues and expenses and the resultant profitability.