This article provides all the information you need to know if you are planning to start a hotel business. It lists down the steps required, the costs involved, investment opportunities, and the licenses and permits you need.
Put simply, the hotel business is about owning and/or running hotels either on its own or through partnerships.
Fundamentally, running a successful hotel involves earning revenue from it. According to Statista, the total worldwide market value is estimated to be over $600 billion.
To begin a hotel business, you must adhere to some regulations and have a comprehensive business plan.
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Here are the 10 Steps to Start a Hotel Business
Step 1. Planning Your Hotel Business
Planning is essential to success in business, and that’s especially true when you’re starting a hotel. A plan should include detailed considerations such as:
What are the costs associated with starting a hotel business?
When starting a hotel – regardless of budget or luxury level – you must consider the upfront costs, such as land or building acquisition, decorating and furnishing, registration and licensing fees, etc.
Two: The Ongoing Expenses of Running a Hotel
The running expenses of a hotel business involve salaries, insurance, advertising, and marketing activities, upkeep of furniture and other amenities, stationery, and utilities such as internet access, etc.
Cost of Starting a Hotel Business, by Country
Analyzing the estimated cost of starting a hotel business, which includes payroll for up to three months, in various countries.
To start a small hotel in the US generally costs between $750,000 and $1 million. For a medium-sized, standard hotel, you’ll need approximately $2.5 million. Opening a luxury 5-star hotel requires over $5 million.
Starting a small budget hotel in the UK is estimated to cost between £705,000 and £980,000. A medium-range hotel business may require an investment of around £2 million while launching a luxury hotel venture is estimated at approximately£4.5 a million.
Establishing a small-scale hotel in Canada will require an investment of between $750,000 and $1 Million. For mid-range hotels, $2.5 Million needs to be allocated, while luxury 5-star hotels require more than $5 Million.
Small-scale hotel business in Australia requires between AUD$750,000 and AUD$1 million for startup costs. A middle-range hotel calls for a minimum of AUD$2.5 million, while a luxury hotel could cost you over AUD$5 million.
Identify the intended customers for your hotel business and adjust accordingly.
When starting a hotel business, consider the budget, classification, and other factors that will help to identify who your target audience should be. Doing so will make running your business smoother and easier.
The costs and revenues associated with the hotel business.
To maximize profits from your hotel business, you must first establish appropriate prices according to the standards and amenities of your hotel.
You can then further increase profits by expanding your business, for example, by opening additional locations or franchises.
What is the name of your hotel business?
When selecting a name for your hotel, it is just as important to consider the corresponding rates. Make sure you select an inventive and suitable title.
Examine the domain availability and then secure it immediately. Consult this guide: How to Name Your Business for additional help.
Step2. Market research
Thorough market analysis is vital for securing investors or a bank loan to launch something as large-scale as a hotel business.
Initially, assess the hotels in your area. To get an accurate representation of what kind of hotel you would like to start, you need to understand the occupancy rate, mean rent, and earnings for similar kinds of hotels.
You can either search for this information online or consult organizations such as PWC, STR, and VHS for the data. This will give you an accurate idea of the market you plan to enter.
After that, so as to answer questions relating to the demand for your hotel’s place of residence, such as why travelers mainly come to this location and from where, you must access information from tourist organizations and airports. By doing this, you can get a better image of the people who are likely to become your customers.
Then, conduct a competitive analysis. Your rivals generally fall into two classes—abstract and locality. Conceptual competitors are those in the same realm of your hotel business.
Proximity competitors are those found close to your hotels. Perform comprehensive research on every aspect of your opponents such as their rent, services, etcetera. This will give you an advantage when gaining knowledge of them as well as over your rivals.
Research the competition in your area by looking at new hotels, and use that knowledge to determine what market share your hotel business can have.
Your market research’s most vital part should be the forecasted profit and loss statement of your hotel business. Avoid being overly ambitious; rather, stay realistic and honest.
To get to your GOP (gross operating profit), you must combine predictions from all operational departments (restaurant, bar, banquets, front office, housekeeping, engineering, etc.). In order to make estimations for costs, you can use local industry standards as a reference point.
Step 3. Feasibility Study to Start A Hotel Business
Similar to market research, this will provide a clear picture for you and aid in the key decisions surrounding beginning your hotel business.
Before anything else, you should analyze the location of your hotel business. Is this area enticing? What type of transportation access (such as roads, rails, or airways) is there? What kind of workers are nearby? These queries require reliable answers.
Determine the total expenses associated with creating infrastructure, recruiting personnel, obtaining registration, and other related costs.
Be informed about the rates, amenities, demand, and occupancy of the hotels in your area.
Secure your primary income through rent, food, beverages, and the like. Utilize estimated sales, rental rates, and occupancy levels gained from market research.
When calculating the ROI, make sure to take several metrics into account. These can include Internal Rate of Return (IRR), Net Present Value (NPV), Debt Coverage Ratios, Discounted Cash Flow (DCF), and more. This will help you determine if the return on investment is sufficient and whether outside financing is required.
Step 4. Legalisation & Registration
Creating a legal entity for your hotel business requires assistance from a licensed agent. Your hotel business must also be registered for numerous state and federal taxes, which you can do by applying for an EIN (Employer Identification Number), which comes at no cost.
Step 5. Accounting System of the Hotel Business
To ensure the successful management of your hotel business, you must create a methodical accounting system. This will help you accurately monitor finances and analyze the progress of your business. Additionally, an effective accounting setup can provide helpful strategies in the event of financial losses or overspending.
Step 6. Bank Account & Credit Card
To manage your hotel business, you’ll need a business bank account and credit card. This will enable you to keep your personal finances distinct from the capital and expenses for the business.
Step 7. Permits and Licences for your hotel Business
Obtaining necessary permits and licenses is essential for a successful hotel enterprise, as failing to do so can result in steep fines. Compliance with State and local regulations is necessary, as well as securing a Certificate of Occupancy when leasing or purchasing premises.
Step 8. Business Insurance for Hotel Business
Securing your hotel business is essential. You should also ensure that your staff is adequately insured; speak to an insurance advisor to purchase liability coverage that suits your commercial needs.
Step 9. Hiring Manpower to Start Hotel Business
Finding the right and efficient staff for your accommodation business can be challenging, but modern technology can make it easier. Here are some tips for recruiting personnel.
Create detailed and honest job descriptions. Develop a powerful brand identity as an employer.
In addition to salary, it is important to properly value your employees by providing them with career opportunities and a positive work environment.
Advertise your hotel business to acquire qualified personnel. Your posting should be distinct and make a good impression on your enterprise.
Construct an appealing career site to draw in potential applicants with great profiles. Provide a straightforward approach for prospective workers to apply. Leverage social media platforms to secure skilled candidates.
Refer to your present staff or those familiar with the hotel industry for candidates. Vet them before hiring whoever appears to be most energetic and extraordinary. Assess their qualifications with regard to the departments that they have applied for.
Step10. Establish Your Brand
For your hotel business to become a reputable brand, sufficient research and market surveys need to be done. Spending money on radio, TV, and print commercials are recommended. Furthermore, connecting with people on a personal level will help spread word-of-mouth publicity in favor of your hotel.
Additionally, do not forget to provide special discounts on festivals and special moments such as a honeymoon or anniversary.
Strengthen your hotel’s online presence by setting up online reservations on both your website and various social media platforms. Create individual pages for your hotel on these platforms and keep them up to date with photos, special offers, and discounts.
In order to initiate your hotel business, you are expected to take the following steps. Nonetheless, further contemplation is essential. Consider if you find joy in the hospitality industry and whether or not you can manage everyday tasks and fiscal measures. If you indeed meet the criteria, then go for it and start your business.
Put in a personal approach when welcoming guests and make them feel special. Assign your core team with the duty of managing such operations and look for a mentor to direct you in running your hotel business.
Some Interesting Facts about Hotel Business
- Statista.com reports that Wyndham Hotel Group, Marriot International, and Hilton Worldwide are major industry players with 8976, 6,542, and 5,405 properties respectively worldwide.
- According to Statista.com, in 2019 Hilton Hotels & Resorts was the most valuable hotel chain in the world, with a brand value of about 7.4 billion U.S. dollars. Other top-ranked brands included Marriott, Holiday Inn, and Hyatt.
- In August 2019, European hotels earned an average of 115 U.S. dollars per available room (RevPAR), which was 28 U.S. dollars more than the Americas had during that month (Statista.com).
- The average U.S. RevPAR of hotels in September 2019 was around 89 dollars, although it typically goes down during December and January. (Statista.com)
- Over two-thirds of people prefer eco-friendly accommodation, even if they don’t specifically look for it (Booking.com, 2019).
- According to PWC (2019), hotels leveraging virtual tours have seen an increase of up to 135% in online revenue.
- According to Deloitte (2019), the in-destination industry worldwide is projected to reach $183 billion by 2020.
- According to a 2019 PWC survey, 37% of vacationers opt for a value hotel over shared lodging.
- According to a 2019 survey by the Expedia Group, 58% of family travelers stayed in a hotel on their last trip, 21% stayed in a resort, 17% were hosted by friends/family, and 16% stayed in a vacation rental.
- According to a PWC study in 2019, the majority of millennials access hotel WiFi upon arriving.
- According to the 2019 Expedia Group survey, 55% of family travelers take trips for relaxation, 54% for entertaining activities, 47% to visit friends/family, 41% for sightseeing, 25% for a romantic getaway, 21% for special events and 21% for leisure purposes.
- Attractive visuals are significant during the decision-making process, with 54% of travelers basing their choices on this factor. Additionally, other factors that are taken into consideration include discounts (53%), knowledgeable content (50%), reviews from previous customers (44%), and plain language (35%) (Expedia Group, 2019).
- According to a 2019 PWC study, 64% of millennials use their phones to book hotels.
- According to PWC’s 2019 report, 25% of Millennials book their holiday accommodation through social media.
Armed with a comprehensive understanding of the hotel industry, including facts and figures, you can move forward and launch your hospitality business with confidence.
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