Tour operators, travel agencies and hoteliers must understand their financial position and put plans in place for stable, durable growth. Budgeting and forecasting are indispensable tools for the travel and hospitality industry to formulate, determine and align organisational short-term and long-term goals.
The practices are slightly different, but combined, they help businesses in the travel and hospitality industry ensure that they are on a firm financial footing.
What is budgeting?
Budgeting refers to the process of setting financial targets for an organisation.
Your budget is a comprehensive document outlining how much money you allocate to different departments, activities, and projects across the business.
Budgets are usually set for a fixed period, often for each financial year, and are used to monitor and control expenses whilst measuring actual business performance.
What is forecasting?
Preparing a forecast will give you a more realistic overview of the year ahead.
Forecasting is a framework for predicting future financial outcomes based on historical data, market trends, and other relevant factors. Using forecasts will identify potential risks and opportunities, assess the impact of different scenarios, and make informed decisions.
How do budgets and forecasts differ?
The main difference between budgeting and forecasting is that budgeting focuses on setting targets and allocating resources, whereas forecasting predicts future outcomes and identifies potential risks and opportunities.
Budgeting is a proactive process that helps companies plan and control their finances whilst forecasting reflects what will happen and enabling companies to respond to changes in the market.
Potential challenges
Budgeting and forecasting equally have their challenges, with forecasting maintaining the potential for error.
The travel and hospitality market is unpredictable as the industry is influenced heavily by external factors such as the economy, industry trends, and unexpected events such as the Covid-19 pandemic.
Limitations on the availability and accuracy of data can also present challenges. Companies need to have access to reliable data from a range of sources to generate forecasts. Effective data sharing is crucial across the organisation.
Accurately predicting future outcomes with these factors can be difficult.
Budgeting is usually more straightforward, but several variables can make a difference, including uncertainty of demand, seasonality, cost of goods and services, competition, and currency fluctuations. Companies must carefully monitor these factors and adapt their budgets to remain competitive and achieve their financial goals.
How to get it right
There is no single quick fix for accurate budgeting and forecasting. Getting it right is usually the result of attention to detail, thorough analysis, and good practice over time.
Caryl King heads up the travel and hospitality team and shares some advice for business owners within the sector.
“When creating your budget plan, you must define your goals whilst understanding the risks and get to grips with your cash flow and income. Include all expenses and allow for some slack across activities or departments.
To prepare your forecast, you must gather historical data on the company, the industry, and other external factors that impact your business.
Be realistic. Assess your business plan thoroughly, monitor performance regularly and have a contingency plan for the unexpected.
You must regularly revisit your budget, checking it aligns with your forecast and adjust or amend as necessary throughout the year.”
By taking valuable insights from past performance, being alert to potential risks and opportunities, and adjusting their budgets accordingly, travel and hospitality businesses are better placed to ensure their stability and achieve their financial goals.
Do you require budgeting and forecasting help for your travel, hospitality, or leisure business? You can arrange a free consultation with our team of specialist travel and hospitality advisors.
