Do you want to start a hotel business? If so, you have landed in the right place. Here in this article, we have listed down the steps to follow in starting a hotel business with cost, investment, licenses and permits, and much more.
In simple words, a hotel business may be called the business of owning and/or operating hotel properties directly or through joint ventures. In other words, running a hotel and earning profits from it is the essence of the business. As per Statista, the total value of the global industry is valued at more than 600 billion Dollars
If you want to start a hotel, you have to follow a few rules and along with them have a well-thought-out business plan.
Here are the 10 Steps to Start a Hotel Business
1. Create a Business Plan
To succeed in any kind of business, you need detailed planning, to begin with. So, you have to make a plan for your hotel business first. The Plan will cover aspects like:
Whether you go for a budget hotel, or a 5 Star Luxury hotel, you need the initial cost. You have to buy land or a building, and then there are costs of decoration, Furniture, equipment, registration and licensing, etc
Ongoing costs of your hotel include salaries of staff, insurance, advertisement and publicity, maintenance of furniture and other items of the rooms, office supplies and utilities like the internet, etc.
2. Fix the Target Clients
The target audience will largely depend on the type of hotel you have decided to start. According to your budget, classification, and some other factors, decide the type of clients you want to serve in your hotel. This will make your operations easier as well as smooth.
Related: Profitable Hotel Business Ideas
3. Name your Hotel Business
Finding a suitable name for your hotel business is as important as fixing its tariff. So, give a suitable and creative name for your hotel. Look for the domain availability and book the domain as fast as you can. Check this Guide: How to Name Your Business.
4. Market research
Normally, you would need investors or a bank loan for a big business like Hotels. So, you have to do your market research and analysis very well.
Begin with the performance of the hotels nearby. You need to know the occupancy rate, average rent, and revenue earned of the types of hotels that are similar to the type you want to start. This will give you a clear picture of the market you want to enter. You can get the data from the internet or you can consult companies like PWC, STR, and VHS for the required data.
Then come to the business sources. You need to have the answers to questions like, what is the reason behind the demand for the location of your hotel? Or, why and mostly from where the travelers come to this place. You have to go through the tourist organizations’ data and the data from the airport. This will give you an idea about the profile of your prospective customers.
5. Analysis of Competition
Next, do a competitive analysis. Your competitors are mainly of two categories- conceptual and proximity. Conceptual competitors share the same concept as your hotel business. The proximity competitors are those which are located near your hotels. Do detailed research on all the points of the competitors like their rent, facilities, etc. You will have an idea and get the edge over your competitors.
Check how many other hotels are coming up in your area. Take their details. You will have an idea of the market share your hotel can have.
The most important point of your market research will be the projected profit and loss statement of your hotel. Don’t be too ambitious. Try to remain honest and realistic. Add revenue and cost predictions from all operational departments (restaurant, bar, banquets, front office, housekeeping, engineering, etc. …) to get to your GOP (gross operating profit). To estimate costs you can use local industry standards as a benchmark.
6. Feasibility Study to Start A Hotel
This is very similar to market research. This will give you the real picture and help you in making the final decisions about starting your hotel.
Firstly, do the location analysis of your hotel business. Is the location attractive enough? How well is it connected by roads, rails, or airways? What kind of manpower is available in the location? These are the primary questions that you need to ask and have answers to.
Calculate the total cost involved in developing infrastructure, hiring manpower, getting registration, and others.
Know the details of your local hotels including their tariff, facilities offered, demand, and occupancy.
Establish your main source of revenue which will come chiefly from room rent, food, beverage, etc. Use projected sales, rent, and occupancy figures, which you will get from your research and study.
Calculate the projected ROI very carefully. ROI is estimated by using several metrics, including internal rate of return (IRR), net present value (NPV), debt coverage ratios, and discounted cash flow (DCF), as well as others. They help to show if the investment return is enough to proceed and if you will need to find financing from elsewhere.
If this study is favorable enough, you can go ahead with your hotel business.
7. Legalisation & Registration
Establish a legal entity for your hotel. Take the help of a registered agent in this regard. Register your hotel business for many state and federal taxes. To register, you have to apply for EIN, which is free.
8. Fix the Accounting System
From the very beginning of your hotel business, you need to set up a methodical and efficient accounting system. This will enable you to keep a good track of finance and assess the growth of your business. In the case of excess spending or loss, an able accounting system can come up with effective suggestions.
9. Bank Account & Credit Card
You need a business account in a bank for your hotel business. Along with it, a credit card is also a must for your business. This will help you to separate your personal finance from the business capital and expenses.
10. Permits and Licences for your Hotel
Getting required permits and licenses is very important for your hotel business, as without them you may be charged with very high fines. You have to fulfill State and local licensing requirements. You also need a Certificate of Occupancy for both leasing and purchasing a place for your hotel.
11. Buy Business Insurance
Buying business insurance for a hotel business is a must for you. You will also have to get your employees insured. Talk to insurance and buy liability insurance that fits your business needs.
12. Hiring Manpower
Getting the right and efficient manpower for your hotel business is perhaps the most difficult part. It is a challenging job, but if you take the help of modern technology, it will be easier for you. Here are some tips for hiring manpower.
Write the job descriptions for each post very clearly and candidly. Build a strong brand of yourself as an employer.
Give the proper value to your employees. It is not just the compensation you are offering. It includes the other facilities, their career prospects, and a congenial work atmosphere.
Write a good advertisement for hiring manpower. This writing should project a good impression of your hotel as well as stand apart from the stereotypical ads. Create a good career site for your hotel business to attract candidates with good profiles. Make the method of application easy for prospective candidates. Use social media to get good candidates.
Use referrals from your existing staff or experienced persons. Test the candidates. Hire the most energetic and impressive candidates. Test them according to the departments they are applying for.
13. Establish Your Brand
You have to establish your hotel business as a trusted brand. Do your groundwork and market surveys. Spend on radio, TV, and print advertisements. Give some personal touch to spread word-of-mouth publicity in your hotel’s favor. Do not forget to offer special discounts on festivals and for special occasions like a honeymoon, anniversary, etc
Make every possible effort to make a strong online presence for your hotel. Make arrangements for online booking through your hotel’s website and also social media platforms. Furthermore, create special pages for your hotel on social media platforms and keep them updated with various pictures and offers, and discounts.
These are the steps you should follow to start your hotel business. But there are some more things to consider. Ask yourself, do you enjoy being a part of this hospitality industry? Can you handle the day-to-day operational details and financial particulars? If yes, then you should go for this business.
Try to give some personal touch in handling the guests. Make them feel privileged and honored. Make your core team carry out such operations. And also, try to find a mentor to guide you in your hotel business.
Frequently Asked Questions
What is the Cost of Starting a Hotel Business?
Let us look at the estimated cost of starting a hotel business in different countries. Remember, these costs include the salaries of all the staff for the first 3 months.
Country-wise Cost of Starting a Hotel
In the US, starting a small-scale hotel will cost you about $ 750000 to $ 1 Million. A medium-range standard hotel will cost you about $ 2.5 Million. To start a luxury hotel in the 5 Star category you need over $ 5 Million.
In the UK, the estimated cost of starting a small-scale budget hotel is between £705,000 to £980,000. While for medium-range hotels, the estimated cost is £2 million. Starting a Luxury hotel in the UK will cost you about £4.5 million.
In Canada, you require between $750,000 and $ 1 Million to start a small-scale hotel. For a medium-range hotel, you need $ 2.5 Million. And for starting a 5-star category hotel in Canada, you need more than $ 5 Million.
In Australia, for small-scale hotels, you need AUD$750,000 to AUD$1 million. Middle-range hotels will cost you about AUD$ 2.5 million. And for the Luxury hotels, you have to dish out more than AUD$5 million.
How Much Profit Can You Make from a Hotel?
The profit margin in the hotel industry depends on several factors. Some of them are seasons, location, hotel size, etc. However, on average, the profit margin in the hotel business ranges between 10% to 15%.
About the Author: 99businessideas.com led by Rupak Chakrabarty is committed to helping beginners, entrepreneurs, and small business owners in starting, managing, and growing their businesses.