In my consulting experience, I often come across managers and entrepreneurs who seek advice on hotel budgeting process. Now that we are towards the end of August, the process for many of you must have already begun.

Sometimes however, I get alarmed when I hear someone raise a question mark on the very need for a budget or their ability to cast one. Typical doubts that you hear are, “do we really need a budget?”, or “how can I look into the next twelve months and put a number to it? Well my answer to these questions is always very simple “Yes we do” and “Yes you can, we will work on it together”

It is a fact that the budget process for any period commences at least six months prior to the start of the period. As an example if your plan period is January 1st to December 31st, you would start the preparation of budget assumptions around the month of July of the previous year. From that point of view, I really sympathize with those who are yet to sharpen their forecasting skills. But the job has to be done. They better start learning it. From my experience of being involved with the budget or business plan process of some of the most reputed and efficient international brands during the past over four decades, I have finally settled on a process with rolling budgeting for the twelve plan sub-periods, month after month.

The process is quite simple and once the team gets involved with it, their perception on entire the process, needs changes. They start appreciating the plan as their tool, as a guide to help them show the path and above all, since the numbers are churned by them, they start owning the numbers. This is the magic of the system.

The process starts with a very simple exercise completed by all functional heads of revenue producing departments. They do a forecast of anticipated revenue from their respective departments. Rooms, Food, Beverage and Recreation and services departments. The forecasting is done in some details so that their assumptions for the numbers could be interpreted and rationalized. The marketing functional head gives his or her inputs in explaining the existing and anticipated market scenario for the plan period. This document, once completed will just give the total revenue that the hotel expects to generate in the period being planned.

The next exercise is now with the hotel’s financial functional head. He evaluates the numbers to see if these would be enough to meet the expenses and generate enough surpluses to meet the ownership’s financial objectives. The general manager evaluates the numbers to ensure that they are real enough to be achieved and yet challenging enough for the team to give their optimum inputs. However if the numbers do not look good, or look too easy, the team goes deeper into their respective revenue and cost areas to optimize their operating efficiencies.

Once these numbers are agreed and signed off the actual process of plan consolidation starts. The numbers are put in month by month format and summed up for the year. This is called as Plan Year I. For the subsequent two years or plan year II and III, the numbers are simply extended on the basis of an agreed growth rate which is determined after taking into considerations factors like the market, the competition the economic environment and so on, that were likely to impact the business.

The advantage of this process over a simple budget process is many-folds. While on the one hand it gives you the targets for the next plan period, it also gives you the mid and long term business objectives in the form of targets for the following two years. This not only helps the team to plan their operating strategies but it becomes the most important tool to determine hotel’s long term marketing strategy.

So a budget is a tool that defines the financial targets in terms of revenues, rates and volume utilization for all areas, be it rooms, food & beverages or recreation and services. It spells out the variable and fixed costs, the contributions and the bottom line. It basically defines where one would like to see the business in each of the next three years. Now comes the most interesting aspect of the exercise. Having decided where to go, it is now the turn to define the path to take, or in simple terms, “how” to achieve the budget. That interesting exercise my friend is called the “marketing plan”. Without a well thought out, researched and action oriented detailed marketing plan, it will be impossible to achieve the budgeted targets. Your three years rolling plan and the marketing plan, together is what we call as the hotel’s business plan. A comprehensive document that tells you where to go and how to go. It is as simple as that.

Here let me remind you that simply preparing documents and keeping them as show pieces will not do wonders. It is the action taken in implementing the plan that will convert the numbers into reality. As we go along implementing the plan we have to put into place a strong system of operating reviews, variance analysis and action steps to deal with them, month on month, re forecasting the business for the following three months on an ongoing basis so that we could simply avoid any surprises, whatsoever, at the end of each review period, be it month, quarter or the year. You can see the magic? How easy it would be to budget the next plan period, the process will simply roll into the period as you keep forecasting on a rolling basis, year on year.

I had never imagined a better way to befriend numbers, and you know what? They are not only my friend, they talk to me, they speak to me, we follow each other and they tell me what to do next. Numbers speak only the truth; they could be your best friend too. Befriend them… start listening to the number music.

A business plan does so much more than layout the internal structure of an organization. It provides some key insight to the money-men, the venture capitalists, the angel investors, the private investment bankers or even the traditional bankers. Remember that these people see hundreds, thousands of business proposals a month. And they’re all looking for certain things that either make them love your proposal — or send it immediately to the shredder. We’ve worked with nearly 50 investment firms at one point or another for clients for whom we have written business plans, and based on our experiences and the people involved, there are some important factors investors look for the most from the business plan.

1.) How much money is already invested? Do the client or other individuals/companies have a stake in the business?

Sometimes the difference between getting a loan and getting rejected is as simple as that. Imagine you’re coming to an investor with a fabulous business plan and you need, say, $500 million for a resort and real estate project. In your proposal you clearly state that you do not have one single dime invested yourself (yes, we had a business proposal like this once!). Do you honestly believe an investor is going to give you the time of day? Of course not. You haven’t taken any sort of risk — why should the investor?

In your business plan, it is key to explain fully, in the executive summary and then later on in the financials, just what monies are involved. Okay, so maybe you don’t have any money involved in that resort project, but you DO own the roughly 50 acres of land it will sit upon which is worth maybe $75 million. Good! Mention that in the proposal clearly and accurately, including what kind of land it is, along with a map, some distinguishing features (is it ready for construction, water, pathways, roads, accessibility, etc.) If you have other sorts of assets, something, ANYTHING that can be used as collateral against your loan, make sure it is explained and described.

If you have partners who have chipped in $250,000 for a project worth at the most $2 million, you have a significant edge over other people. Most investors we have dealt with like to see at least 10% of the required funds already in place.

2.) How accurate is the research involved? Does the client know the market, the competitors, and his or her chances?

We can’t begin to tell you how many business plans we have come across that had little or no market analysis or competitive structure. The client had no idea about the target market, the competition he was facing, nor even demographics of the area. He had an exciting product, but it was difficult to ascertain just how much success he was going to have SELLING it.

In many cases, an investor isn’t as interested in the product as he or she is in the product’s success on the market, so a good business plan should have a clear, accurate description of that market. Many things should be included like:

a.) Demographics of your target market and market analysis, with factors such as age, race, income, etc. Think about your average customer walking into your store for your product or service. What are they looking for? What do they look like? How much do they want to spend?

b.) A market analysis that describes the trends and statistics of your potential market. Will your product or service be in high demand for a long time — or will it have limited ‘shelf-life’ on the market, coinciding with a new fad, for example. Will the product or service be affected by shifts in the market? Is this a stable target market with limited shifts taking place, or does the market wildly fluctuate?

c.) Do you know your competitors? What are the similarities and differences between what they sell and what you sell? How are you better than them? How are you inferior to them? (Yes, you need to include that, as much as you don’t want to.)

3.) How realistic are the financial projections?

Be extremely honest. No start-up business makes a profit in its first year, no matter what you are selling. So make sure not to show that in your business plan. Also don’t be too alarmed at the first-year loss. We had a client with a business plan that showed a $400,000 loss against a $2,000,000 loan in his first year of operations and he panicked. Then we explained that he was going to have a loss because his first year of operations would have high expenses as he organized and finished all his preparations for his new company. Investors expect you to have a lousy first year — don’t beat yourself up about it. It’s not the first year that concerns them anyway — they are thinking 3-5 years down the road. If after three years your company isn’t showing a profit, that is when the investors get nervous. After all, why should they put their money into something if your business proposal shows that you won’t be able to pay them back? Luckily for our panicked client, his second year showed a profit of about $30,000 and his Year Three profits would equal $375,000, almost erasing his first year loss. He was going to have a steady 40% increase every year after that.

In many instances, the investor thinks long-term, and so should you. Your financials should explain what is going on, and what will happen. Don’t try to sugar-coat things, per se, but put a healthy spin on a mediocre beginning. Don’t impress the investor with what IS happening — impress them with what is GOING to happen.

4.) Does your proposal look professional?

You’d be surprised how many proposals are overlooked with something as simple as a large ‘BUSINESS PROPOSAL’ on the first page. This is merely common sense. If you want people to take you seriously, show your most professional side. Your proposal should be checked for errors, misspellings, proper formatting, and headings, and have clear, easy-to-read graphics or images. A client tried to convince us to use a dazzling bold red text over a green bar-chart and we hastily explained to him why it’s not a very good idea to ruin the eyes of a potential lender. Include pictures or illustrations, maps, diagrams and other visual aids, if possible. Also, take a good look at your writing. The character Rusty, played by Brad Pitt, in ‘Ocean’s 11’ said it quite well: “Don’t use 7 words when 4 will do.” Talk about your management team, but don’t drone on about how instrumental a part they have played in your life. Talk about the great product you have, but don’t go on about testimonials from other people,(or if you must, include them in the appendix) And don’t be funny. Humor should be left at the doorstep. If you want to be funny, become a stand-up comic. Treat your document and the people reading your document with the utmost respect.

5.) Is the management team solid? Are there good people involved?

Remember that your business is not, and should never be, about you. There have to be some good people involved with you to make it run smoothly. It does not matter what service or product or project is being offered, if you think you can convince an investor you’re a veritable one-man show, you are out of your mind. A client we recently wrote a business proposal for was creating a new mobile-phone service, and amazed us with the list of engineers, technical advisors and IT professionals he had attained. When we saw how the management structure was fully laid out, and how each individual was going to fit in, we knew right away this particular proposal had a good chance to get in the front door.

Investors want to know who is on board, what their job is, their experience in the field you have chosen to represent, and a little of each person’s background and education. A solid management team, with a full layout as to positions, responsibilities and backgrounds, is a sure-fire way to get an investor looking at your proposal a lot more.

6.) Is the exit plan well defined?

Unless your lender is going to get involved with you through a joint-venture, or partner, chances are he or she does not want to stick around with you forever. Investors want to know what you’re offering them later on down the road, when it’s time to cut you loose and count the money you made for them. Some examples of exit plans include:

a. Creating an initial public offering (IPO). If your business has the possibility of going onto the stock exchange later on, and investors can share in dividends, this is very important for them to know from reading your proposal. Let them know how long it will take to get an IPO, and estimate the price per share you foresee, if you’re offering investors a first-buy once the IPO goes public, etc.

b. Buyout. Perhaps your shoes-string business is going so well, your investor is impressed enough to want to buy your company completely for several million dollars. If you want to offer this alternative to long-term investing, make sure you let the investor know the approximate value of the company after a certain number of years. A business valuation report is very helpful in this regard. Let the investor know exactly what he or she might be getting into and if it’s really worth pursuing. If you can do a valuation of the company based upon your projections, it may assist the investor in determining if you are worth the time and effort to invest.

c. Sell the company to others. If your business has the possibility of going up for sale to other interested parties, the investor should know details such as possible buyers, how much they could pay, the value of the business at the point of sale, etc.

d. Pay out of equity. Let’s say Steve wants equity in George’s company and receives 20%. Steve loans George the initial funding and an agreement is made that Steve will own this equity for 10 years. Each year, George will pay Steve 20% of the gross profits. At the end of ten years, if any money is still owed on the loan, which is doubtful, George will pay the equity of 20% and a balloon payment of anything that remains on the loan. All this, of course, must be agreed upon at the outset, so make sure you define this clearly.

7.) How much money do you need and how will it be used?

As weird as it sounds, we have had business proposals come past our desks that explain how much money is needed — but fail to tell us what it’s being used for. An investor will balk at someone who says they need $100 million for an oil well project yet doesn’t explain where all this money is going. Our business proposals include a special heading for Start-up expenses (when dealing with a start-up company, of course), that explains and lists the expenses the investment will cover, and for how long.

If you want to really impress investors, include what we call a “phase plan”. For example, let’s say you want to start that oil well project. In Phase One, you show the investor what you’ll be spending, in this case, for surveys of the land, preparations for drilling, etc. Phase Two could show expenses for drilling equipment, personnel, and construction of the wells. Phase Three could discuss refining procedures expenditures, and so on. You have detailed out a full “shopping list” for the investor, and they not only know what you’re spending, but how it’s being spent, and an estimated time when it will be spent.

8.) How will the money be paid back?

On the heels of exit plans, an investor likes to know how you’re going to pay him or her back. If you can agree on a certain percentage each month, or each year, that is fine. If you want to offer annual equity and a share of profits, that’s great too. But whatever your options are, make sure the investor knows what you’re offering. Detail out all the pay-back options that are available, and order them in importance to you. You might want to think twice if your business has the ability to make $50 million per year, and your investor only gave you $5 million at the beginning, yet you offer a 35% equity every year! Reward your investors, yes, but don’t shower them with untold riches for nothing. A happy investor is always good, but make sure you’re happy too so that your business continues to prosper.

9.) What is the SWOT like?

SWOT stands for Strengths, Weaknesses, Opportunities and Threats — and if you do not know these, you have no business, well, running a business. Your proposal should describe each of these areas accurately and with great detail, at least a few paragraphs for each.

Strengths: What really makes your business stand out? Where does it excel?

Weaknesses: Where does your business need help? Where is it lacking?

Opportunities: What positive trends, actions or events do you see that will have a profound and positive effect on your company’s success?

Threats: What negative trends, actions or events could cause harm to your business — and how will you sail past those rough waters smoothly?

10.) How relevant is the business to our society?

A lot of people will try to tell you that investors really don’t care about this factor, but from our experiences you would not believe the amount of investment firm applications we have seen that ask this exact question. How your business impacts society, whether locally, nationally or world-wide, can have a positive or negative impact on investor interest. If you have a business proposal that offers 4,000 jobs to your city, or will strengthen economical development, or includes environmentally-friendly factors or some sort, your proposal looks that much better. Try to take the time when writing to think about how your project affects others around you. What are the benefits? The long-term effects? The opportunities for others? Every business has the ability to impact society in some way. Informing an investor in detail about how your particular project will do so, tells an investor that you care enough about your project to do the extra research, go the extra mile — and it shows a great deal of determination and heart.

And every investor loves that!

Whether you are a start up or established business, and whether you are a non-profit organization, writing a business plan can be one of the most useful things you can do for your business. Obviously there are different types of business plans depending on the nature of your company or organization. It’s not enough that you have a “hunch” your new start up will be a roaring success, or you believe your latest web. 2.0 idea a surefire “ten bagger” success for the lucky venture capitalist. There are people who need to take a close look at your business plan; whether it’s you, internal management or external investors. In this article, we will look at the top three reasons for writing business plans.

First to answer the question: “Is the business feasible?”

Before you actually commit funds, manpower and time on starting a business, it helps to actually have a “dry run” to see if the venture you have in mind has a good chance of success. The business planning process forces you to look at what your competitors are doing and to ask yourself how you can differentiate your product or service. Typically we call this a SWOT analysis – Strengths, Weaknesses, Opportunities and Threats. At the same time you want to identify, as clearly as possible your unique selling proposition. This can be a special feature or something unique about your branding. Just be different and attractive in the eyes of your target market. Going through this process will give you a better idea of you chances for success in the marketplace.

Then look at your projected financials – do you have the required funds to start your business? Where are you going to raise the capital? How soon will the business break even? All of them are pertinent questions.

Secondly, a business plan is used to help secure loans from banks or financing from outside investors. Typically if you are a start up, you will find it very hard to get any financing from your local bank unless you have landed collateral, regardless if you have a plan written or not. If your business is established for several years and have healthy cash flow, then the bank will definitely want to see your financials before given you any loans or bridge financing.

If you are looking for angels or venture capital investment, then a business plan, particularly the executive summary is what they will require. What’s more important to these investors, more than the plan itself, is the entrepreneur’s track record and the strength of your management team. Be sure to include these important points in your bplan.

Last but not least, a written business plan should be constantly evolving. It acts as a blue print to guide management in the execution of business strategy and to meet goals. By constantly reviewing and updating the plan, it is used as a useful communication tool within the company to guide business growth.

We’ve looked at some good reasons from writing business plans. Now, if you don’t think you know how to write one, help is available. Look for a template online, such as at the site given below. Or better still get business plan software. The good ones, such as Business Plan Pro 2007, are easy to use and will guide you to input the necessary text and numbers and come out with a complete plan for you. There’s absolutely no reason why any business person should not have a business plan blueprint.