Forecasting and flexible budgets for businesses in the South West

Effective forecasting and flexible budgets are essential for businesses to flourish. In the South West we are blessed with stunning landscapes, coastal charm and places of historic interest creating a vibrant hub for the hospitality industry. Whether it’s cosy inns in the Cotswolds, luxury hotels in Bath, or seaside resorts in Cornwall, this region attracts a steady stream of tourists.

To thrive in this competitive and dynamic market, businesses must adopt flexible financial budgets and regularly review them against actual results.

Alex Tozer, Trainee Chartered Accountant at Westcotts, explores why adopting flexible budgets is essential for businesses and how to adapt to changing industry trends in the South West.

What is a flexible budget?

A flexible budget is a planning tool that allows businesses to adjust their expenditure based on the changes in the activity levels. It is the adaptability specifically that can help businesses avoid overspending and make more accurate performance evaluations – ultimately leading to better decisions.

The necessity of flexible financial budgets

In the hospitality industry, static budgets can quickly become irrelevant. Flexible budgets, which can be adjusted based on actual performance and evolving circumstances, provide a more realistic and adaptive approach.

The South West experiences significant seasonal fluctuations, with peak tourist seasons in summer and quieter periods in winter. Flexible budgets allow businesses to manage resources effectively throughout the year, ensuring optimal staffing, inventory management, and marketing efforts.

Market fluctuations are also something to be considered. Economic changes, shifts in consumer preferences, and unforeseen events like the COVID-19 pandemic can drastically impact revenue. A flexible budget enables to swiftly adjust costs or reallocate funds to essential areas.

Furthermore, adopting forecasting and flexible budgets can help a hospitality business to seize more opportunities. New trends, technologies, and market opportunities are frequently emerging. Flexible budgeting allows businesses to invest in these areas without disrupting overall financial stability.

Short-term vs. Long-term budgets

Both short-term and long-term budgets are crucial for the financial health of a hospitality business.  Understanding their distinctions and how they interact is key to effective financial management.

Short-term budgets typically cover a period of one year or less and their focus is on emphasising operational efficiency, daily expenses and more immediate revenue targets. They also need to be more frequently adjusted based on monthly or quarterly variance reports. They need to reflect the real-time financial performance of the business as well as market conditions.

In contract, long-term budgets span multiple years, typically three to five years. Their focus is less immediate, and they consider strategic goals, capital investments, expansion plans and the long-term financial health of the business. They need to be reviewed annually or semi-annually and consider broader economic trends and long-term forecasts.

Recognising and adapting to changing trends

The hospitality industry in the South West is perpetually evolving, influenced by technological advancements, shifts in consumer behaviour, and global events. Here’s how to recognise these changes and pivot effectively:

1. Stay informed: Regularly monitor industry reports, market research, and customer feedback specific to the South West. Use data analytics to track emerging trends and patterns. Your own data here is the most crucial place to start. Hospitality businesses build a wealth of customer data that can be regularly reviewed to consider what can be done to affect the profitability of a business and plan offerings effectively.
2. Engage with technology: Embrace innovations such as contactless check-ins, AI-driven customer service, and personalised marketing. Investing in technology can enhance customer experience and operational efficiency. This can also give greater access to data and even direct feedback from customers, further enabling strong business decisions.
3. Sustainability and wellness: Growing awareness of environmental issues and health consciousness among consumers is shaping preferences. Integrating sustainable practices and wellness offerings can attract eco-conscious and health-focused clientele.
4. Flexibility in offerings: Adapt to changing demand by diversifying services. For instance, offering remote workspaces during normally quiet hours of operation, hybrid event solutions, and personalised travel packages can cater to new market segments.
5. Training and development: Equip staff with the skills to adapt to new trends and technologies. Continuous training ensures your team is capable of delivering the latest offerings and maintaining high service standards.
6. Financial forecasting and budget adjustments: Incorporate trend analysis into your financial forecasting. Adjust budgets to align with predicted market conditions and new business opportunities. The most important part of the process, the information and data gathered remains useless until it is utilised to make a substantial impact.

Next steps

The dynamic hospitality industry demands a proactive approach to financial management. Creating flexible budgets and regularly reviewing them through variance reporting enables businesses to remain resilient and agile.

By recognising changing trends and adapting budgets and forecasts accordingly, hospitality businesses can navigate challenges, capitalise on opportunities, and ensure long-term success.

At Westcotts, we are experts at supporting businesses in the South West to create budgets to help them thrive. If you are interested in our services contact Alex Tozer by email at alex.tozer@westcotts.uk or call 01752 666601.