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Accounting Information for Planning - Forecasting in the Hospitality Industry

Hospitality managers working in restaurants and hotels simply must be able to accurately
predict the number of guests they will serve as well as when those guests will arrive. If they
cannot, guest service levels or profits will surely suffer. In this article you will learn how
hospitality managers forecast business revenues so they can carefully plan to maximize
guest satisfaction.
It has been said that average managers know what has happened in their operations
in the past and good managers know what is currently happening in their operations.
However, the very best managers also know what will happen in the future. While it may
not be possible for managerial accountants to predict their future business volume with
100% accuracy, it is possible to create and utilize management tools that will become very
accurate in estimating future revenues, expense requirements, and staffing needs.
The advantages of maintaining accurate sales forecasts are many but include greater
efficiency in scheduling the employees needed to service anticipated guests, greater accuracy
in estimating food production requirements, improved levels of inventory maintained
(because demand for products will be better known), and greater effectiveness in developing
and maintaining purchasing systems.
In the restaurant business, an understanding of anticipated sales, in terms of either
revenue dollars, guest counts, or both, will help you have the right number of workers,
with the right amounts of product available, at the right time. For hoteliers, knowing the
anticipated demand for guest rooms and other hotel services also allows for the proper
scheduling of employees; however, it does even more. Because hotel room rates (unlike
a restaurant’s menu prices) are often adjusted monthly, weekly, or daily to reflect the
immediate demand for rooms, a good understanding of how to forecast room occupancy
rates allows hoteliers the ability tomaximize RevPAR through the effective pricing of rooms
and the elimination of room discounts during periods of high room demand.
In this article, you will learn how managerial accountants can accurately forecast
revenues as well as how they utilize this information to maximize profit and increase
operational efficiency.
- The Importance of Accurate Forecasts
- Forecast Methodology
- Utilizing Trend Lines in Forecasting

The Importance of Accurate Forecasts
One of the first questions restaurateurs and hoteliers must ask themselves is very simple:
‘‘How many guests will we serve today? This week? This year?’’ The correct answers to
questions such as these are critical, since these guests will provide the revenue from which
basic operating expenses will be paid. Clearly, if too fewguests are served, total revenuemay
be insufficient to cover expenses, even if costs are well managed. In addition, purchasing
decisions regarding the kind and quantity of food or beverage to buy, the number of rooms
to clean, or the supplies to have on hand are dependent on knowing the number of guests
who will be coming to consume those products.
Labor required to serve the guests is also determined based on the manager’s ‘‘best
guess’’ of the projected number of customers to be served and what these guests will buy.
Forecasts of future revenues are normally based on a careful recording of previous sales,
since what has happened in the past in an operation is usually the best predictor of what will
happen in that same operation in the future. Finally, operating, cash, and capital budgets
cannot be prepared unless an operator knows the amount of revenue
upon which these bugets should be based.
In the hospitality industry, there are a variety of ways of counting or defining sales. In its
simplest case, sales are the dollar amount of revenue collected during some predetermined
time period. The time period may be an hour, shift, day, week, month, or year. When used
in this manner, sales and revenue are interchangeable terms. It is important, however, to
remember that a distinction ismade in the hospitality industry between sales (revenue) and
sales volume, which is the number of units sold. In many areas of the hospitality industry,
for example, in college and university dormitory food service, it is customary that no cash
actually changes hands during a particular meal period. Of course, the manager of such a
facility still created sales and would be interested in sales volume, that is, how much food
was actually consumed by the students on that day. This is critical information because, as
we have seen, a managermust be prepared to answer the question, ‘‘Howmany individuals
did I serve today, and how many should I expect tomorrow?’’

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