Whether you're launching a new hotel venture, taking over a hotel business, or re-vamping your own, developing its financial forecast is a fundamental step.
If you feel overwhelmed at the thought of putting together a hotel financial forecast then don’t worry, as, within the guide below, you'll find everything you need to know about creating a financial forecast with ease.
From the main objectives of a financial forecast and the data that's required to make it work, to the tables that compose it and the tools that will help you create your own, join us as we dissect the financial forecast to drastically increase your hotel's chances of success.
Why make a financial forecast for a hotel?
Creating a financial forecast is the best way to steer the development of your hotel and ensure that it can be financially viable in the years to come.
A financial forecast for a hotel makes you look at your business in detail - from income, to operating costs and investments, to evaluate its expected profitability and identify any gaps where you'll need funding.
It also allows you to plan potential investments, such as an expansion further on down the line.
It’s important to remember that your hotel's financial forecast will be essential when you’re looking for financing. You can be 100% certain that a banker or investor will ask you for these numbers when presenting your project, so make sure they’re set out accurately and attractively.
What information is needed to draw up a hotel financial forecast?
You'll need a significant amount of data to set out a realistic financial forecast for your hotel.
First of all, you will have to carry out market research for a hotel to estimate:
- The average budget of the hotel's customers per night and type of room
- The frequency of visits and the average length of stay
- The number of potential customers in the local market
- The market positioning of competing hotels
Your market analysis will also consider the marketing strategy you need to put in place to get your hotel's name out there. Whether you set up your own website or pay people to hand out flyers on the street, these promotional costs will need to be included in your budget.Finally, you will also need to draw up a precise list of the resources needed to keep the hotel running on a day-to-day basis. Between staff, insurance and licenses, it’s important to ensure these are all accounted for if you want to create a budget that’s as close to reality as possible
Let's now take a closer look at the elements that make up a hotel's financial forecast.
The sales forecast for a hotel
When creating your hotel financial forecast, the first thing you should do is set out a sales forecast. To do so accurately, you'll have to rely on the data collected in your market research, or if you're taking over an existing hotel, the historical data of the business.
Your turnover will essentially depend on three variables:
- The number of beds available (usually more rooms and beds in comparison to a bed and breakfast
- The average price per room
- The average occupancy rate
You will also need to estimate the revenues generated from the bar, restaurant and spa if you have one.
The overhead costs required to operate a hotel
The next step is to estimate the expenses needed to run your hotel on a day-to-day basis.
For a hotel, operation costs include the following items:
- Water and electricity
- Laundry costs
- Care and maintenance
- Security system
- Company registration fees
This list is, of course, not exhaustive, and you'll have to adapt it according to the type of hotel. A 5 star resort won't have the same level of expenditure as a small boutique hotel, for example.
What investments are needed for a hotel?
You'll also need to include the investments required for its creation or development within your hotel financial forecast.
For a hotel, these will generally include:
- Purchase of furniture, kitchen equipment (if you have a restaurant), and bar equipment
- Purchase of the premises and security deposit
- Arranging the layout of the common areas and bedrooms
Again, this list must be adjusted according to the capacity of the hotel and the services available to guests. A spa hotel with a swimming pool or sauna will require more investment than a budget airport hotel.
Sourcing funding for your hotel
One of the main objectives of setting up a financial forecast is of course to get an idea of how much funding is required to lift your hotel business off the ground.
If you would like to find out more about the different ways to finance your hotel venture, check out our practical guide on how to secure funding for a hotel.
Tables that define the financial forecast for a hotel
The profit & loss statement
The profit & loss statement gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
The projected balance sheet
Thanks to the projected balance sheet, you're able to observe the value of your business's assets at the end of each year. It details what the company owns (referred to as its assets), its equity, and its debts (otherwise known as liabilities).
The projected cash flow statement
The projected cash flow statement gives you a detailed breakdown of the cash generated and spent by your hotel and will help ensure that you have sufficient cash flow to repay any loans, keep your equipment in good condition, and deal with any unforeseen events.
Which tool should you use to create your hotel's financial forecast?
If you've never created a financial forecast before, it may sound fairly daunting, but the good news is that there are several ways to set up your hotel's financial forecast.
Use a spreadsheet program such as Excel or Google Sheets
If you have a solid background in accounting or advanced knowledge of financial modeling, using spreadsheet software like Excel or Google Sheets is a cheap solution for creating a financial forecast.
However, using a spreadsheet can become a pretty time-consuming task, and, if you aren't used to using Excel for financial modeling, can't protect you from possible (and quite frankly, inevitable) calculation errors.
Calling in a consultant or chartered accountant
Enlisting the help of a consultant or accountant will let you obtain accurate figures from a professional point of view for your hotel financial forecast.
The downside of this solution is its cost, however, as obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to set you back around £700 or $1,000.
If you opt for this solution, make sure the accountant has prior knowledge of the hotel industry, so that they can challenge your figures and offer insights.
Using online forecasting software
The final option available to you is to use online forecasting software.
This offers you the following advantages:
- You can easily make your financial projections, letting the software take care of the calculations
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Be inspired by our financial forecast template
Whether you are just starting out or already have your own business, we have created a business plan template for a hotel to help you identify the main costs and understand the approach to take to estimate its turnover.
The business plan for a hotel is the essential document for seeing your business idea through to the end. It contains both the financial forecast and a written part that presents, in detail, your project, the team, your business strategy, and your medium-term objectives. You'll show this document to potential investors in the hopes they'll financially support your venture - so needs to be impeccable and convincing.
If you're not sure where to start, our business plan template for a hotel will help you along the way. You can download it in Word or PDF format, or by loading it directly into our software to adapt it to your project.
We hope that this article helped you to see more clearly what needs to be done to create the financial forecast for a hotel. Don't hesitate to contact us if you have any questions!
Also on The Business Plan Shop
- 7 tips on how to take over a hotel
- How to open a hotel
- How to take over a hotel with no money
- How to open a bed and breakfast?
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