Opening a hotel business, no matter what type of hotel you wish to have ownership of, involves a lot of time, effort, patience, and investment.
The hospitality industry has experienced massive growth over the years, and despite the COVID pandemic, the hotel industry is making a remarkable comeback.
For example, with the rise of remote work, people known as digital nomads freely roam the world while working remotely from hotels, hostels, boutique hotels, and others. Many find this lifestyle appealing.
As the pandemic is ending, vast amounts of people are looking to travel once again and see the world as never before.
This is why opening a hotel business might be one of the most profitable investments one can make nowadays.
Of course, everyone wants a successful hotel, but how do you make it a success? Being a hotel owner is a great career, but many things depend on your hotel business plan and several other factors.
For example, many hotel owners ignore the importance of a sound IT infrastructure.
Since so many people work remotely nowadays or browse the web, there is a constant threat looming in the air, far more significant than COVID, which is cybercriminals.
Cybercrimes are at an all-time high, coinciding with the migration of remote workers. This is why hotel businesses should focus more on the cybersecurity of their guests, as hackers can easily steal their personal information, including bank accounts.
If you want to open a new hotel business in Europe or the U.K. and make it profitable, focus on your IT infrastructure because cybercriminals will be tempted to steal your employee’s and customers’ information.
What to Consider When Starting a Hotel Business
Cybersecurity is just one aspect that hotel owners can capitalize on. Your management and service, rooms, food, location, IT infrastructure, everything is an important element towards success.
Here is what you should consider when starting a hotel business:
Hotels can stand out in a variety of ways, from service, to amenities, from food to special features such as thematic ideas.
However, in the hospitality industry, your location is the biggest asset or downfall.
Even if you start a hotel in a good neighborhood, or part of town, your business might not be making money due to other nearby and more established hotels.
You could invest in better rooms, management, marketing, but if the location is undesirable, it won’t amount to anything.
If you do find a great location to start a hotel business, you need to capitalize on it.
This is also great way of working on your unique value proposition (UVP).
Basically, it is a promise of value to be delivered, why your hotel stands out. It can be something as simple as “5-minute walk from Disneyland Park.”
Hotel amenities are vital in generating more bookings and thus money. Your hotel’s success and the guest’s experience depend on it.
Some good amenities that successful hotels usually offer include:
- Free Wifi
- Room Service
- Laundry Services
- Bathrobes and Other Accesories
- Pet-friendly or Kid-friendly rooms
- Custom Offers
- Parking, and many others
Friendliness & Cleanliness
Both friendliness and cleanliness are essential when it comes to the hospitality industry.
The cleaner your hotel, and the more suited and friendly your staff is, the more success your hotel will have.
Fewer things are as heartwarming as a pleasant smile.
Safety & Quietness
If you make your guests feel safe, they will come back again.
Your hotel rooms should have proper security measures, and if you ever watched Hotel Hell, by Gordon Ramsay, you might know how important it is for your guests to have a good night sleep.
Many hotel owners often try to capitalize on their big halls or night bars to make an extra buck.
However, the loud music or events will disturb your other clients.
You can’t please both, but remember that most people check-in so they can rest during the night, and party or visit during the day.
Food Quality and Restaurant Management Systems
Some of the best hotels have amazing restaurants.
If you can offer your guests with excellent local foods and dishes, along with the other factors mentioned above, they will love you for it and come back again and again.
If you want to open a hotel, make the food a top priority.
Offering your guests a safe and great digital experience by having a great IT infrastructure is also pivotal in making your hotel a great succes.
Your social media, online marketing, sales, and management will also depend on it.
So many people want to enjoy a great Netflix show, broadcast online, or simply work while staying at a hotel.
With a great IT infrastructure, none of them will worry about getting hacked, or having poor internet services.
Grand Opening Party & Marketing Plan
Many hotels attain success due to a well thought out grand opening party.
It is a marketing bomb that you have to capitalize on.
On this event, you can also invite, friends, family, investors, colleagues, influencers, bloggers, and other members of the community as well.
All of them will spread the word and some will recommend your hotel later on.
New hotels use all sorts of social media to promote themselves and this is where you should act as well in your opening.
Work with a PR agency, inform the local press, invite event planners, hire some live entertainment.
You can even do some giveaways as a strategy to promote your new business.
Good photographers on the scene will also help you, taking professional photos of the property, rooms, the event, which you can later on use in your marketing.
How Do I Start My Own Hotel Business?
Owning and starting a hotel business is no small thing, but let’s see exactly what you should do to start a hotel business.
Establish Your Budget
If you want to start a hotel business, the first thing you should consider is your budget.
The accuracy of your budget is critical in the hospitality industry as there are many financial variables and things to consider.
Don’t underestimate costs or overestimate sales.
Do a hotel market research in the area you intend to open your hotel before drawing up a budget. You need to establish a clear idea of what type of hotel you wish to open.
For example, a luxury hotel intended for business travelers will require a very different budget than a hotel meant for middle-class tourists.
Your marketing plan will also look very different.
Analyze the Hotel Market
To begin your market research here is what you should do:
List the hotels that are operating near the area where you want to open your hotel
In the beginning, you shouldn’t look at existing hotels as rivals but rather as valuable sources of information.
Research their performance and highlight revenue per room or guest, how long guests stay, last-minute booking ratings, cancellations, no-show rates, and any other information that can help your financial plan and estimation.
The most important thing is establishing an occupancy rate, operational efficiency, and average room revenue.
You can get this information from your local market by analyzing the hotel-industry groups, regional tourism bureaus, travel and lodging guides, and financial reports from competing companies.
Try to discuss with hotel managers that aren’t directly competing with your hotel.
A good strategy is to take notice of the amenities provided by the other hotels as well, and analyze their weak points, such as room cost, bad service, poor IT infrastructure, or other detrimental factors.
Use their weaknesses to create your success.
Break down the costs the established hotels incur
The next step in determining the needed budget for your new hotel is to list the significant costs of other hotels, such as maintenance, food, laundry, staffing, utilities, taxes, furniture, computers, internet operations, and other equipment.
Here is when you can estimate the first year of your budget based on standard costs that will be adjusted based on anything that makes your hotel different.
This is when you might establish the size of your hotel, how many rooms it will have, and what it will take to sustain it.
Anything that will stand out from other hotels will imply costs that won’t match your competitors.
Compare the strengths and weaknesses of your hotel to your competitors
To understand if you will have a profitable business, you have to be honest about your hotel’s strong and weak points. Location is essential, as you can profit from drive-by traffic if you are the first hotel visible when cars leave the interstate for example.
If there are plenty of other hotels before you, you have a weak position that can be strengthened by implementing more amenities, superior service, look and design, and other things.
However, this is where the startup costs grow as well which you need to insert into your budget plan.
Determine annual revenue
With the information gathered until now, you should be able to determine your cash flow theoretically.
You can project your room rates and quality level to those of your competitors and decide on your annual revenue with the following formula: (Annual occupancy rate) x (room numbers) x (days open) x (daily rate).
Compare anticipated income and expenses
If, in your calculations, your income covers the costs, you will still need cash reserves as a safety precaution.
However, if your payment runs under the expenses, you should either cut your costs by sacrificing certain aspects or increase your revenue. Just make sure you don’t cut down on costs that matter.
Decide Between Buying or Building a Hotel Business
After establishing your budget to start a hotel business, you should decide between buying an existing hotel or building one.
Here is what you should consider:
Cons and Pros of Buying a Hotel Business
Buying a hotel comes with many benefits and drawbacks depending on the offer.
If you decide to buy a hotel, here are some advantages you should consider:
+ Existing data: Buying an existing property comes with valuable information such as financial and performance metrics.You can invest in the weak spots if you aren’t pleased with certain aspects, such as IT infrastructure, furniture, and other amenities.
+ Permission ready: When you build a hotel, you have to do a lot of paperwork and get various permissions. When you buy a hotel, you go through a quick and easy owner transfership.
+ Already known: Your new hotel will already have a reputation, and it can generate money right away. Hotel marketing will be much easier.
+ Less expensive: Buying a hotel is generally less expensive than building a new one, but it depends on the property.
+ Less hiring: Saving time in hiring staff. You might keep the team already working there when you buy a hotel.The existing hotel manager might also help you in many hotel endeavors.
Although buying a hotel is fine and dandy, there are also some cons. Here are the disadvantages of buying a hotel:
– Potential renovations: Depending on the hotel you are buying, you might need to invest some money in renovations.These renovations might be minor, applicable to only a few rooms.However, some might need entire renovations, including the front desk, perhaps even elevator repairs or other significant issues.
– Creative boundaries: In some cases, such as buying a franchise property, you will have to stick with the design guidelines laid out by the corporate franchise.
– Location: Many hotels shift in popularity based on their site. Some areas might get popular, while others fade into obscurity, hence why the hotel owners decide to get rid of them.
– Hotel staff: In some cases, when you buy a hotel and keep the team, it might take some time until both of you get accustomed to each other. Keeping the staff can be an advantage or disadvantage.
Cons and Pros of Building a Hotel
A successful hotel can be both a property that you buy or build from scratch.
Just as buying a new hotel has its pros and cons, so is the case when making a hotel. Here are the advantages of building a hotel:
+ Creative control: When you build a hotel, you have complete control over how you want it to look. With the rooms, sizes, the decor, and floor plans, you have complete creative freedom.
+ Everything is new: Starting a new hotel business by building an entirely new building has a different business plan that can also come in with a fantastic marketing strategy.Everything is brand new, and this might appeal to customers very differently than it would if you buy an existing hotel. A grand opening done right can do wonders with proper management.
+ Deciding location: When you build a hotel, you have the advantage of choosing your site and could benefit from it in various ways.
+ Target market: Based on your location and the type of hotel you wish to build, you can decide your target audience more quickly.
Building a new hotel will give you a sense of pride once it is completed. You might even care for it differently than you would if you bought an existing property. However, there are some cons to consider as well:
– Cost: The most significant disadvantage of building a hotel is the costs implied. Both the construction and the land price must be carefully considered.
– Time: Building a hotel requires a lot of time, and you won’t be able to generate revenue with your hotel until it is complete. You will also need to invest a lot of time finding the best location for your new hotel.
– Zoning laws: Zoning is a government planning tool that regulates the use of private property. Western Europe has some regulations which might hinder your hotel business plans.
Take a Step Back and Determine Feasibility
If you have decided between buying or building a hotel, you need to get back at your finances and see if the numbers fit according to your decision.
Based on your business plan and budget, you should be able to see how much capital you need.
The costs, and the time it will take to make a profit, and what the potential upside may be to you as the hotel owner, investor, or operator.
To determine feasibility, you need to perform a deep analysis of the information already gathered.
You will need to make a financial plan, a pro forma, and figure out where you will get your capital sources.
The financial model step is essentially establishing your budget, as discussed above, and other vital key information such as what would it take to break even or not, among other things.
This is where you should consider taxes, and how it will affect your budget. In general, hotel owners typically use an LLC since it allows them to limit the legal risk and also it has some tax advantages and purposes.
The pro forma should include your balance sheet, income statement, and cash flow statement, as you will use it to evaluate your income and expenses over time to project cash flow and speculate when you will turn a profit.
The pro forma can be used to attract investors as you present them with important information about your business potential.
In regards to how you can get your capital, you have to decide between investors, friends, family, your own savings, colabortaing with a bank, or mixed resources.
It is critical to establish your capital sources so you can see if you have enough to cover the costs of your financial model.
When it comes to profitability projections, ensure that your capital costs are as accurate as possible, and make sure that your pro forma is inclined towards making a high enough profit to compensate the risk.
Make a Hotel Business Plan
Your hotel business plan is the foundation of your project, as it will define and shape how you will launch, promote, and operate your hotel business.
Without a neatly, persuasive, and detailed business plan, you might fail to attract investors, especially banks.
A business idea without a business plan will only remain an idea, or it might fail quickly. In your hotel business plan, you should evaluate your strengths, weaknesses, opportunities, and threats (SWOT analysis).
Your business plan is like a case representing your hotel business, how it fits in the local market, and broader industry. Here is what an effective hotel business plan should include:
The executive summary is the highest-level overview of your hotel business plan.
When you start a hotel business, you should have a clear idea of what you want to create and offer, and this is where you will write down a concise and quick view of the most important elements.
When starting a hotel business, you will need a concept, a story, a target audience, and a way of standing out in the local market.
The brand position part of your business plan is where you will highlight these things and mark your objectives, including occupancy rate profitability, revenue targets, and other realistic ideals.
Hotel marketing is conducted in it’s infancy (before actually opening the hotel), during the grand opening, and after it.
You have to be able to conduct a proper market analysis in the local hotel market, and the broader industry, and include it in your business plan to attract potential investors.
If you can convince people to invest in your hotel, you will also be able to market it to consumers.
This is where you need to write down the market travel patterns, and even implement broader industry trends into context.
You have to make investors understand the market sizing and potential for the business growth.
No one will be able to take your business plan seriously without competitor data and analysis.
And you, as a future hotel owner, won’t be able to stand out just or accomplish proper marketing strategies without competitor analysis.
In this business plan segment, you have to outline your competitors, no matter how big or small, and highlight how your hotel competes directly with them.
This section of the business plan expands on the brand positioning segment mentioned earlier.
Here is where you will showcase your target marketing plan. Who is your target audience?
How do you adress that market?
If you want to own a boutique hotel that will target mostly millennial travelers, you need to emphasize how large this group of people are.
Most importantly, here is where you will showcase how well you understand your guest personas.
The strategic plan section of your hotel business plan should clearly detail your strategies around marketing, distribution and revenue management.
Here is where you might convince investors that you have a perfect strategy to attract customers, manage your inventory, and maximize revenue.
For example, you can highlight a strong IT infrastructure plan that will make guests feel secure.
In the operations plan of your hotel, you need to highlight how you will operate your business.
This includes the technologies used, the hiring process, roles that need to be filled, service standards, and all other relevant operations info.
The financial plan is where you will copy your pro forma and showcase your forecasts and profit potential.
Make sure it is as accurate as possible.
If you have a management team by your side, this is where you will need to sell them to the investors.
Showcase your team’s ability and knowledge of how they will execute your vision laid out in the hotel business plan.
When it comes to milestones, potential investors are interested in seeing a direct timeline of relevant milestones for the project.
This is where you will showcase the timeline events, from initial permitting to build out, staffing, grand opening, and eventual profits.
The appendix is your last change to add any additional information or supporting documentation for your business plan.
This is where you can implement anything that might be too complex for the other segments.
Obtain Hotel Licenses and Permits
Unfortunately, starting a hotel business involves a bit of paperwork, but it is unavoidable and worth it.
To establish any new business, you need to check that you have all the necessary regulatory, legal, and insurance requirements.
This is where you might want to consult with your insurance, legal, accounting, and operations teams and establish the requirements of your location.
You will need a business structure and insurance, building or renovation permits, hotel licensing, and a license for serving alcoholic beverages or foods.
It all depends on what you want to offer.
Both health and safety requirements needs to be ensured as you complete or renovate the building. Keep your team close, consult with them and check the local, state, or federal level requirements.
Hire & Train Hotel Staff
Once you have created your business plan, hotel identity, secured funding, and obtained the necessary licenses and permits, you are one step away from becoming a proud hotel owner.
Now, it’s time to hire and train hotel staff.
Any successful hotel needs proper employees that exemplify the traits that are the most important to the respective hotel.
What your hotel offers, along with the professionalism of your staff, is pivotal to guest experience.
You need to hire staff for the front desk, room service with a focus on cleaning, valet parking if you offer it, caretakers, chefs, bartenders, and other managers to oversee them.
Create Your Digital Presence and Distribution Strategy
A hotel without digital presence won’t have too many guests. In fact, it won’t exist in the industry no matter how good your service is.
Hotels thrive out of online marketing, so you should create your own hotel website as soon as possible.
Your website needs to be optimized for eCommerce, having a booking engine that works on all devices.
Your website needs to be fast and work well so you can attract guests with commision-free bookings.
Sales are also impacted by third-party sites, so you will want to get listed on websites such as Expedia, Booking, or TripAdvisor.
Here is where you should create an engaging profile, with appropriate descriptions, and high-quality photos evidencing your rooms and location.
You should also create social media pages for your hotel, and regularly post on them. Great online profiles will surely bring in more bookings.
Next, you should consult with different PR agencies to promote your hotel.
Set Up IT Infrastructure
A crucial aspect often neglected by hotel owners that can greatly influence their sales and guest experience is IT infrastructure. Your hotel, once established, will host valuable data, such as transaction history, important personal guest or employee details and other sensitive information.
Without a good IT infrastructure, you can even face bankruptcy after a cyberattack. Cybercriminals that might attack your website won’t just damage you financially, but your reputation as well.
All those marketing efforts might go to waste once you face a data breach. In the cold business world, even a rival hotel owner might employ hackers to ruin your business and reduce competition.
If there is an important event near your hotel, such as an annual event where tourists and travelers look for bookings the most, a simple DDoS attack can slow down your website and booking procedures, resulting in bad costumer experience, poor sales, or even loss of income.
Cybercriminals aren’t motivated just by quick financial gains through stealing bank accounts. They can also make money by selling personal information, or they might spy or stalk your guests and employees.
Traditional thiefing in the hospitality industry isn’t as prevalent in our days as it was ten or twenty years ago. However, cybercrimes are the newest threat that most online businesses face, and this is why your new hotel business needs a strong IT infrastructure.
Hotel Pre-Opening Strategies
Before you launch your grand opening party for your new hotel, there are some pre-opening strategies that you should consider, the first of which is the hiring plan.
When you hire a grand manager (GM), you should do so 12 months before the grand opening so that they can start planning the operational framework.
This includes creating a training program for other employees, select other key hires, craft a launch plan. The directors of sales/marketing and finance should be hired eight months before opening so they can start working on profitability.
The director of engineering/facilities should be hired ten months before, allowing them to become familiarized with the building and equipment. The next thing you should consider is creating the operations blueprint for the hotel, and hotel software. The IT part of your hotel is crucial, involving:
- Property management systems,
- Hotel website,
- Booking engine,
- Reputation management software,
- Channel manager,
- Commercial Wi-Fi,
- Rate shopping tool,
- Revenue management software, and
- Staff collaboration software
All of these things will influence your sales, security, online presence, marketing, amenities, management, reputation, and more.
How Much Does it Cost to Open a Hotel?
The average cost of opening a hotel in Europe ranges from $300,000 to several million. It all depends on what type of hotel you wish to open, the number of rooms, amenities, and location.
How Profitable is Running a Hotel?
Owning a hotel can be a highly profitable real estate investment. According to data, relatively modest hotel owners might make anywhere from $49,000 to $74,ooo a year, or more.
How Do I Get Funding to Start a Hotel Business?
One of the best ways to receive funding and start a hotel business is by creating an efficient hotel business plan. Here, you get the chance to outline how your hotel stands out, estimate profits, and convince investors or banks to fund you.