Summary:

This learning unit aims to equip individuals with the skills

and knowledge to prepare budget information for hospitality
businesses. Budgets are essential management tools for small and
medium-sized businesses, serving different purposes and
connecting with each other. Operational and capital budgets are
two types of budgets that are created for different purposes.
Operational budgets are detailed projections of a company's
revenues and expenses for the upcoming fiscal year, recording
expected cash flows from buying and selling activities and their
effects on the income statement. They generally cover one fiscal
year. Capital budgets, on the other hand, are paid out of future
cash flows from projects and represent the sources of funding and
the purchases of fixed assets. Planning for capital acquisitions
is generally done for one to three years, while an operational
budget projects the activities of the firm in buying, selling,
and paying bills on an annual basis.
Interactions between operational and capital budgets are
crucial, as changes in one budget can lead to modifications in
the other. For example, the purchases of fixed assets projected
by the capital budget will have an impact on the operational
budget, as new equipment may reduce costs and increase revenues
due to more efficient production processes. These changes must be
coordinated with the capital budget and reflected on the
operations budget. If the company wants to purchase fixed assets,
some of the cash needed may have to come from the firm's normal
operations and cash flow, so an operational budget has to
incorporate this requirement for cash in addition to paying
normal expenses.
Budgets are essential management tools for all small
business owners, especially in the hospitality industry, where
careful management of expenses is essential. Hotels and resorts
have large staffing requirements, and it is important to have
sufficient human resources on the property to deliver excellent
customer service without being overstaffed, which can reduce the
hotel's profitability.
The budget planning process in businesses involves using
spreadsheet software to forecast revenues and expenses, as well
as strategic marketing planning and planning for capital
expenditures. The general manager reviews the consolidated budget
with other managers and makes adjustments based on discussions.

Relevant colleagues can contribute to the budget planning

process with adequate notice, and two different styles of budget
planning are used: the Top Down Approach and the Bottom Down
Approach. The Top Down Approach involves owners, managers, or the
budget committee creating the budget and informing all
stakeholders about the business objectives and the budget that
will meet those objectives. This approach has the advantage of
timely production and efficiency, but lack of communication and
input from relevant colleagues can compromise their cooperation.

The bottom-up approach is a popular strategy for managing

budgets. It involves owners seeking input from the budget
committee, who then make changes based on the committee's
objectives. This approach encourages staff to take ownership of
the budgets, even in cases of disagreements over scarce
resources. The budget committee forum allows for conflicting
demands to be discussed and resolved, ensuring accurate outcomes.
It also allows activity centre managers to coordinate and
circulate information for more accurate outcomes. The committee
relies on budget manual notices and other stakeholders to ensure
a smooth budget process. Some staff may be involved in budget
preparation but not in budget preparation.