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 hotel 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 business, you have to follow a few rules and along with it have a well-thought-out hotel business plan.
Here are the 10 Steps to Start a Hotel Business
Step 1. Planning Your Hotel Business
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:
1. Cost of opening your Hotel Business
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, and equipment, registration and licensing, etc
2. Recurring Costs of Hotel Business
Ongoing costs of your hotel business 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.
3. Country-wise 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.
In the US, starting a small-scale hotel business will cost you about $ 750000 to $ 1 Million. A medium-range standard hotel business will cost you about $ 2.5 Million. To start a luxury hotel of 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 hotel business, the estimated cost is £2 million. Starting a Luxury hotel business 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 business. For a medium-range hotel business, 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 hotel businesses, you need AUD$750,000 to AUD$1 million. Middle-range hotel business will cost you about AUD$2.5 million. And for the Luxury hotel business, you have to dish out more than AUD$5 million.
4. Fix the Target Client of your Hotel Business
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 business. This will make your operations easier as well as smooth.
Related: Top Profitable Hotel Business Ideas
5. The Charges and Profit of hotel business
You have to fix the charges according to the standard of your hotel and the amenities you provide. That builds the basis of your profit from the hotel business. To increase profit, you have to expand your hotel business by adding more locations or opening a franchise.
6. 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.
Step2. 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, 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 the 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.
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 business can have.
The most important point of your market research will be the projected profit and loss statement of your hotel business. 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.
Step 3. Feasibility Study to Start A Hotel Business
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 business.
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.
Step 4. Legalisation & Registration
Establish a legal entity for your hotel business. 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.
Step 5. Accounting System of the Hotel Business
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, and able accounting system can come up with effective suggestions.
Step 6. 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.
Step 7. Permits and Licence for your hotel Business
Permits and licenses are 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.
Step 8. Business Insurance for Hotel Business
Ensuring your 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.
Step 9. Hiring Manpower to Start Hotel Business
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 business 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 from the hotel business. Test the candidates. Hire the most energetic and impressive candidates. Test them according to the departments they are applying for.
Step10. 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 the 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 business. Make arrangements for online booking through your hotel’s website and also social media platforms. Make special pages of your hotel on social media platforms and keep it 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, 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.
Some Interesting Facts about Hotel Business
- Major players in the industry include Wyndham Hotel Group, Marriot International, and Hilton Worldwide, with 8976, 6,542, and 5,405 properties, respectively, across the world. (Statista.com)
- Hilton Hotels & Resorts was the most valuable hotel brand in 2019, with a global brand value of approximately 7.4 billion U.S. dollars. Other major hotel brands in the ranking included Marriott, Holiday Inn, and Hyatt. (Statista.com)
- In August 2019, European hotels generated close to 115 U.S. dollars in revenue per available room (RevPAR). This amount was roughly 28 U.S. dollars higher than the revenue earned in the Americas that month. (Statista.com)
- In September 2019, the monthly average revenue per available room (RevPAR) was about 89 U.S. dollars for hotels in the United States. The average U.S. RevPAR tends to be lower in December and January. (Statista.com)
- 70% of global travelers are more likely to book eco-friendly accommodation, whether they are looking for a sustainable stay or not. (Booking.com, 2019).
- Hotels that are using virtual tours are getting up to a 135% increase in online revenue. (PWC, 2019).
- The global in-destination industry will hit $183 billion by 2020. (Deloitte, 2019).
- 37% of vacation travelers prefer staying at a value hotel than at a shared lodging. (PWC, 2019).
- 58% of family travelers stayed in a hotel on their last trip. On the other hand, 21% stayed in a resort, 17% were hosted by friends/family, and 16% stayed in a vacation rental. (Expedia Group, 2019).
- Once checked in, 90% of millennials connect to the hotel WiFi. (PWC, 2019).
- The majority (55%) of family travelers take trips to relax, 54% take family play vacation, visiting family/friends (47%), sightseeing (41%), romantic gateway (25%), special events (21%), and leisure trips (21%). (Expedia Group, 2019).
- Most importantly, appealing imagery influences 54% of travel decisions. Other things that influence decisions include deals (53%), informative content (50%), helpful reviews (44%), and simple language (35%). (Expedia Group, 2019).
- 64% of millennials book hotel rooms on their smartphones. (PWC, 2019).
- 25% of Millennials find their holiday accommodation through social media platforms. (PWC, 2019).
So, now you have a detailed discussion, facts, and figures for the hotel business. So, now you can go ahead and start a hotel business confidently.
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 business. Our aim is to educate the entrepreneur on the various stages of entrepreneurship.