How to create a financial forecast for an apartment hotel?
Developing and maintaining an up-to-date financial forecast for your apartment hotel is key in order to maintain visibility on your business’s future cash flows.
If you feel overwhelmed at the thought of putting together an apartment hotel financial forecast then don’t worry as this guide is here to help you.
We'll cover everything from: the main objectives of a financial forecast, the data you need to gather before starting, to the tables that compose it, and the tools that will help you create and maintain your forecast efficiently.
Let's get started!
Why create and maintain a financial forecast for an apartment hotel?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your apartment hotel becomes handy.
Creating an apartment hotel financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your apartment hotel.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for an apartment hotel is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your apartment hotel's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is needed to build an apartment hotel financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start an apartment hotel, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the apartment hotel on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing apartment hotel, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your apartment hotel's financial forecast.
The sales forecast for an apartment hotel
The sales forecast, also called topline projection, is normally where you will start when building your apartment hotel financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing apartment hotels), and consider the elements below:
- Seasonal demand: As an apartment hotel owner, you are aware that the number of transactions and average price of your property may be affected by seasonal demand. For example, you may experience higher occupancy rates and prices during peak tourist seasons, such as summer or holiday periods.
- Economic conditions: The economy can greatly impact the average price and number of transactions for your apartment hotel. In times of economic downturn, people may be more price-sensitive and opt for more affordable accommodation options. On the other hand, during periods of economic growth, people may be more willing to spend on luxury accommodation, leading to an increase in average price.
- Competition: Your apartment hotel's performance can also be affected by the competition in the market. If there are many other similar accommodation options in your area, it may be more challenging to maintain a high average price. On the other hand, if you are the only apartment hotel in the area, you may have more control over pricing and see an increase in transactions.
- Events and attractions: The presence of major events or attractions near your apartment hotel can also drive the average price and number of transactions. For example, if your property is located near a popular concert venue or tourist attraction, you may see an increase in demand and be able to charge higher prices during those periods.
- Customer preferences: Understanding and catering to your target market's preferences can also affect your apartment hotel's sales forecast. For instance, if your target market is families, you may see a surge in transactions during school holiday periods. On the other hand, if your target market is business travelers, you may experience lower demand during weekends and peak holiday seasons.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The operating expenses for an apartment hotel
The next step is to estimate the expenses needed to run your apartment hotel on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your apartment hotel's operating expenses should include the following items at a minimum:
- Staff Costs: This includes salaries, wages, benefits, and training costs for all employees working at the apartment hotel, including front desk staff, housekeeping, maintenance, and management.
- Accountancy Fees: To ensure accurate financial records and compliance with tax laws, you will need to hire an accountant or use accounting software to manage your finances. This will incur fees for their services.
- Insurance Costs: As with any business, it is important to have insurance to protect your apartment hotel from unforeseen events such as property damage, liability claims, and loss of income.
- Utilities: This includes electricity, water, gas, and other utilities used to operate the apartment hotel. These costs may vary depending on the size and occupancy of your property.
- Maintenance and Repairs: Regular maintenance and repairs are necessary to keep the apartment hotel in good condition and ensure a comfortable stay for your guests. This includes costs for cleaning supplies, minor repairs, and ongoing maintenance contracts.
- Marketing and Advertising: To attract guests to your apartment hotel, you will need to invest in marketing and advertising efforts. This can include online marketing, print materials, and partnerships with travel agencies.
- Property Management Software: To manage reservations, bookings, and other aspects of your business, you may need to invest in property management software. This can include monthly or annual licensing fees.
- Cleaning and Laundry Services: As an apartment hotel, you will need to maintain a clean and comfortable environment for your guests. This may include hiring a cleaning and laundry service to handle the daily tasks.
- Taxes and Licenses: Depending on the location of your apartment hotel, you may be required to pay various taxes and obtain necessary licenses to legally operate your business.
- Security: To ensure the safety and security of your guests, you may need to invest in security measures such as cameras, alarms, and security personnel.
- Guest Amenities: Providing amenities such as toiletries, linens, and other items for your guests will incur costs. These may vary depending on the quality and quantity of items provided.
- Property Taxes: As a property owner, you will be responsible for paying property taxes on your apartment hotel. These may vary depending on the location and value of your property.
- Legal Fees: In case of any legal issues, you may need to hire a lawyer to represent your business. This can include fees for consultations, document review, and court appearances.
- Banking Fees: To handle transactions and manage your finances, you may be charged various banking fees such as monthly service fees, wire transfer fees, and ATM fees.
- Training and Development: In order to provide a high-quality experience for your guests, you may need to invest in training and development programs for your staff. This can include training on customer service, hospitality, and other relevant skills.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small apartment hotel might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow an apartment hotel?
Creating and expanding an apartment hotel also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for an apartment hotel could include elements such as:
- Renovations and Upgrades: This includes any major renovations or upgrades to the apartment hotel, such as replacing old furniture or appliances, installing new flooring, or updating the lobby or common areas. These expenses can be significant and should be factored into your expenditure forecast.
- Furnishings and Equipment: As an apartment hotel, you will need to provide fully furnished units for your guests. This can include items such as beds, sofas, tables, chairs, and kitchen appliances. These items may need to be replaced or upgraded periodically, so it's important to budget for these expenses in your forecast.
- Technology and IT Systems: In today's digital age, it's crucial for an apartment hotel to have up-to-date technology and IT systems in place. This can include things like high-speed internet, security systems, and reservation software. These investments can improve the guest experience and increase efficiency, but they can also be costly and should be included in your expenditure forecast.
- Maintenance and Repairs: As with any property, an apartment hotel will require ongoing maintenance and repairs to keep it in good condition. This can include things like plumbing and electrical work, painting, and general upkeep of the building and grounds. It's important to budget for these expenses to ensure the longevity of your property and the satisfaction of your guests.
- Capital Reserves: In addition to specific capital expenditures, it's important to set aside funds for future unforeseen expenses. This can include things like emergency repairs, unexpected maintenance, or market fluctuations. Having a capital reserve fund can help mitigate financial risks and ensure the long-term success of your apartment hotel.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your apartment hotel.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your apartment hotel
The next step in the creation of your financial forecast for your apartment hotel is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for an apartment hotel?
Now let's have a look at the main output tables of your apartment hotel's financial forecast.
The projected profit & loss statement
The projected profit & loss shows how profitable your apartment hotel is likely to be in the years to come.
For your apartment hotel to be financially viable, your projected P&L should ideally show:
- Sales growing above inflation (the higher the better)
- Profit margins which are stable or expanding (the higher the better)
- A net profit at the end of each financial year (the higher the better)
This is for established apartment hotels, there is some leniency for startups which will have numbers that will look a bit different than existing businesses.
The projected balance sheet
The projected balance sheet gives an overview of your apartment hotel's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your apartment hotel. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The projected cash flow statement
A projected cash flow statement for an apartment hotel is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organised by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
Cash is king and keeping an eye on future cash flows is imperative for running a successful business. Therefore, you should pay close attention to your apartment hotel's cash flow forecast.
If you are trying to secure financing, note that it is customary to provide both yearly and monthly cash flow forecasts in a financial plan - so that the reader can analyze seasonal variation and ensure the apartment hotel is appropriately capitalised.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your apartment hotel's financial projections?
Building an apartment hotel financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial forecasting software to build your apartment hotel's projections
The modern and easiest way is to use professional online financial forecasting software such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional apartment hotel financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your apartment hotel's financial forecast?
Creating an accurate and error-free apartment hotel financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own apartment hotel, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your apartment hotel
Takeaways
- A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your apartment hotel.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for an apartment hotel. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Example of financial projections
- How to create a sales forecast for a business?
- Sample financial forecast for business idea
Know someone who runs or wants to start an apartment hotel? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
