How to Start a Hotel Business (+Cost and Business Plan)
January 28, 2020
An entrepreneur is always on the lookout for their next opportunity. Business opportunities can come at any time, and when they see the right one, they’re ready to tackle the challenge head-on. Those entrepreneurs that have strong hospitality traits make them perfect candidates for opening a hotel business.
Opening a hotel goes beyond having a building with a bunch of rooms and charging people to check-in. It’s one of the big things that make hotels different from hosting an Airbnb. A hotel is a sanctuary for the tired traveler.
It should be a place that guests feel comfortable and can relax when they’re in their room. If you’re the type of person that thrives on helping others and known as the ultimate host, you’d be the ideal person to open a hotel.
The best hotels are focused on the guests. Your reputation as a hotel relies on the satisfaction of the people that stay there. In the modern age of online reviews, anyone can go online to say anything they want – positive and negative – about any business.
The truth of the matter is that someone will be more likely to be vocal about a negative experience than a positive one. The best hotels realize this and do everything they can to make sure that nobody has a negative experience, and happy guests are so thrilled they can’t help but leave a positive review.
- Location: Travelers are looking for something convenient – either close to top attractions or travel hubs like airports and the interstate.
- Amenities: Hotel amenities play a huge role in the success of the business. Depending on the hotel’s target customer personal, this could be things ranging from a pool, complimentary breakfast, dog-friendly rooms, wine-tasting hours, business amenities, and more. Not only do great hotel amenities lead to recurring guests and positive customer experiences, it gives marketing teams weapons to promote their hotel.
- Cleanliness: A basic but crucial component of a hotel’s success is general hygiene. A dirty and unclean room is a hotel’s PR nightmare.
- Friendliness: Small things go a long way for guests. Remember, your customers are here for a vacation or business trip – and want to feel at home. Hiring the right team members to staff your hotel is the first step to creating a foundation of friendliness in your business.
- Safety: Similar to location, the area around the hotel plays a role in the safety of your customers.. If guests are worried about what else might be going on in the area, it will make it harder for them to relax. Nothing ruins a vacation more than trying to fall asleep to the sound of oncoming police sirens.
The average cost of starting a hotel in the US ranges from $750,000-$1,000,000 for a small motel, to the national average being around $22,000,000 for a hotel with around 115 rooms, and much higher for luxury and high-rise hotels (source.)
1. Start with a Plan
All good businesses start with a plan. You need to have an idea of what market you’re entering before making any significant commitments.
If you’re not familiar with working at a hotel, start by diving deep into learning as much as you can about the hospitality industry as possible. Learn the ins and outs of what makes a hotel successful, figure out what the best hotels do well and what the bad hotels did poorly.
Learn about your target markets and identify what your audience looks like. You should know what type of people will stay in your hotel and consider what you can do to attract them to your business.
Consider how you will attract clients to your business. A marketing plan will help bring your clients into the door to keep your rooms booked. Marketing is an ongoing process, but as you develop your initial business plan, you will need to add a marketing plan to bring awareness to your opening.
2. Choose Your hotel Identity
There are many types of hotels. Depending on what style of hotel you decide on, some of your business decisions will be different.
Boutique hotels are smaller and often have a unique characteristic to them. They may be in a historic building or may have been converted from another business.
Family hotels are focused on what they have to offer the entire household. These hotels typically have larger rooms, extra beds, and swimming pools, and are often located close to family attractions, like theme parks.
Budget hotels have lower rates on their rooms, but with that comes a lower quality of stay. The build quality of budget hotels isn’t always the greatest, and guests might be able to hear noises between the walls. Budget hotels typically scale back the amenities to pass the savings on to the customer.
On the opposite end of the spectrum, luxury hotels are the four and five-star hotels that have high price tags. However, in exchange for the hefty rates, guests receive top-notch service and access to conveniences that aren’t generally received at lower value hotels. Luxury hotels will typically have room service, spas, a concierge, anything to make a stay feel closer to home.
Picking the style of your hotel will impact the rest of your business decisions. It isn’t very easy to transition from one type of hotel to another, so do plenty of research before you commit to a decision.
Hotel Star Rating Definition: Hotels are rated between one to five stars in the US, one to four in Europe, and one to seven in China and the UAE. Learn more about hotel ratings, how they’re rated, and how to improve your rating in our guide to hotel star ratings explained.
No on-site restaurant or kitchen required. Mobile guest ordering. QR menus. Get started today!
3. Form Your Business Status
The best way to protect yourself is to form a business entity, such as an LLC. When you establish a business entity, you protect your personal assets from your business obligations. While nobody wants to think about failure, if the worst-case scenario of bankruptcy occurs, your personal assets cannot be taken to pay for your business debts.
4. Decide If You Want to Build or Buy a Hotel
Building a hotel allows you to customize and build with the materials that you think will be best for your hotel. However, building a hotel can cost $22 million for an average 3-star hotel.
Purchasing a hotel is an option for those looking to save some money. Depending on the quality of the hotel, some can be bought for as little as $3 million. It’s important to remember, though, that purchasing a used hotel will likely require renovations, which will add additional costs to the purchase price.
5. Obtain Hotel Permits and Licenses
There’s always red tape that needs to be addressed for any business. Different permits and licenses are required depending on the local government of where your hotel is, so be sure to research your local regulations.
6. Secure Funding
With a well thought out plan and strategy, it shouldn’t be hard to secure the funding needed to start your hotel. There are many options in doing so that can help you get cash flow to help you build your dream.
A business loan will likely be the first start of your funding. This can be tricky and will have many factors that the bank will consider. If you’re unsure of your qualifications, it would be recommended to have some professional guidance on the best ways to get approved for a loan.
While loans aren’t the only option, they will probably be your best bet for getting funding. However, if you’re exploring other options, it might be worthwhile to look into venture capitalists, angel investors, crowdsourcing, and even pitching in some of your own money. If you’re determined and have a great plan, there will be a way to obtain funding.
7. Hire and Train Staff
You won’t be able to run your business all by yourself. Running a hotel takes a team of employees to manage the day to day duties while you’re busy making the big picture decisions. Your staff will need to work at the front desk, clean the rooms, valet parking (if you plan to offer it), room service, concierge, and other managers to oversee the employees.
Remember to look for employees that you think exemplify the traits that you feel are most important to your hotel. Your employees are a reflection of your brand and will be the ones interacting with customers on a day to day basis. They must portray the company in a way that you think is best.
8. Create a Hotel Marketing Plan
Once you have everything else set up, it’s time to promote your business. As part of your business plan, you should have developed a hotel marketing plan. This plan will be what you will use to advertise the opening of your hotel.
Some potential marketing ideas to explore are:
- SEM and PPC Advertising
- Content Marketing
- Video Marketing
- Social Media Marketing
- Print and Traditional advertising
- Partnership Marketing (think booking sites, such as Booking.com)
- Hotel Review Sites
Be creative and brainstorm how you can make your business stand out. If you’re struggling, there is an abundance of agencies and consultants that are always willing to assist you in reaching your marketing goals.
9. Open Your Hotel
Opening day is here, and after all of the hard prep work, you’re ready for business. Running a company is tough work, but if you’re prepared for the challenge, you’ll have no trouble getting started.
Now that you know the best practices for opening a new hotel, the cost of building a new hotel business, and all the steps involved in the process – it’s time for you to take the next steps.
Start preparing your hotel business plan to use to secure funding and investors with our free hotel business plan template.
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