How to Start a Hotel Business

Have you been thinking about starting a hotel company lately? As a result of the global pandemic, upstart hoteliers are more than ever required to be diligent and strategic when launching their entrepreneurial journeys in a world where anyone can become a hotelier by uploading their property on Airbnb. It’s never been easier to turn your dream of starting a new hotel business into a reality, despite the challenges we face in the pandemic.

It is never easy to make a dream a reality, however. Taking a thoughtful, thorough approach is necessary given Airbnb’s hyper-competitive environment. Creating a business isn’t just a hobby, there’s a lot more to do. If you’re going property by property, unit by unit, it takes time for you to accumulate enough cash to scale your business. Making bigger bets and taking more risks will help you grow wealth as a hotel entrepreneur.

A hotel management company, independent owner, and hotel brand rely on Hotel Tech Report every month to find the latest technology to help run their hotels.

You can benefit from the insights of these entrepreneurs as you plan to open a successful new hotel business. In order to start a hotel business, you will need to take concrete steps. Here is where the journey begins. This guide provides a high-level overview of how to get started in the hotel industry. Here’s what you need to know about starting a new hotel business in today’s hyper-competitive market step-by-step.

You can turn your hotel business idea into a reality by planning carefully, being strategic and using the right technology.

You might find this article useful if you wish to open a hotel someday. The most common image of hotel owners is of billionaire magnates like Conrad Hilton or Willard Marriott. However, owning a hotel is not so different from running a retail store or convenience store. Compared to other small businesses, hotel management requires a bit more capital, but they are more profitable and sellable.

How much does it cost to start a hotel?

Obviously, the cost of starting a hotel business depends on a lot of factors, including:

• Location: For instance, New York City is much more expensive than New Delhi
• Quality: Five star resorts are obviously more expensive than roadside motels
• Size: In terms of cost, there is a direct correlation between the number of rooms, restaurants, and meeting spaces

When estimating the startup costs of a “typical” hotel, we can consider some data points. HVS data show an average ground-up hotel cost of £323,500 “per key” (or per room). It’s not the cost of a bed and breakfast with 10 rooms, for example, but rather a lifestyle full-service hotel. There are five buckets in that figure:

• Land: £33,900 (10%)
• Building/Construction:  £221,500 (66%)
• SoftCosts: £41,800 (12%)
• Furniture, fixtures, and equipment: £29,100 (9%)
• Pre-Opening & Working Capital: £10,700 (3%)

Step-by-step guide

Step 1: Do you want to build or buy?

Starting with a hotel for sale or a hotel you develop from scratch is your first decision. For their next property, 72% of our hotel owners preferred building a new hotel over buying an existing one.  We were surprised by this since building is always riskier and requires more capital.

The risk associated with hotel acquisitions is lower because the business already generates cash and has a past performance history. Additionally, you eliminate the time-consuming process of getting permits, designing the space, and building the property. Furthermore, the hotel has a valuable database of past guests and a knowledgeable staff.

In contrast, you have more control over the overall experience when you develop your own property. As well as producing more profit long-term, new hotel developments can produce more profit than buying an existing hotel. You will generally make more money once you’ve completed your project because you’ve taken on more risk. If you sell it in the future, you could end up with a windfall. You will be stuck with your cash for a longer period of time without any income, which is much riskier.

It is important to conduct a strong market analysis when you’re considering building or buying a hotel for salein order to verify the positive market trends that support new hotel developments. Additionally, you can improve bottom-line profitability by implementing new technology to streamline operations. With these efficiency improvements, you’ll be able to make a much better investment from your existing hotel.

Step 2: Analyse the data and think about your options

It’s important to ensure that your numbers work once you’ve decided whether to buy or build. In addition to estimating the amount of capital you’ll need, the cost of that capital, and how long it will take to turn a profit, you’ll also see the potential upside for the operator, owner, or investor.

The following are included in a feasibility analysis:

1. A financial model. Calculate the required capital based on the financial inputs. What is the cost of building out (or buying a hotel for sale)? At what occupancy rate can you realistically expect to get rates? Once your hotel is established, will you be able to raise your rates? Your assumptions here are the foundation for the rest of your feasibility When building your model, take into account the implications of different corporate tax structures.  For tax reasons and to limit legal risk, many hotel owners choose to run their businesses as LLCs.
2. Pro forma. You use the pro forma to show how you forecast the investment for farming, including yourbalance sheet, income statement, and cash flow statement. To determine how long it will take to turn a profit, you need to forecast your income and expenses over time. In the pro forma, your account for your front-loaded expenses within the context of a longer-term forecast to show investors how the business might develop.
3. Capital sources. In addition to determining where you will get your capital, you’ll also need to determine how you’ll pay for it. How will you raise money? Will you get investors like friends and family, go to a bank, or draw on your own savings? Maybe it’s a combination of all three. To ensure your financial model can be funded, you must lay this out clearly.

Finally, you should carefully consider your profitability projections, especially their relation to capital costs. Make sure the profitability of your pro forma is enough to compensate for the risk of your capital investment.

Step 3: Create a hotel business plan

It’s time to make a hotel business plan now that you understand your financial projections. The plan describes how your new business will be launched, promoted, and operated. In traditional institutions such as banks with stricter requirements, it will be nearly impossible to secure investment without a persuasive plan.

In your hotel business plan, what should you include? SWOT analyses assess your business’ strengths, weaknesses, opportunities, and threats. Your hotel business is also compared to the local market and broader industry trends. You should avoid overly formalising everything since it is ultimately a storytelling document. There will be a certain level of temptation to ‘talk business’.

Your plan should include the following sections:

1. Executive summary. Your hotel business plan is presented here at a high level. The most importantelements should be outlined quickly and concisely.
2. Brand positioning. Describe your brand in your own words. What is the concept of your business? Why is it important? What is its target audience? What gap does it fill in the local market? Be sure to include your objectives, such as revenue targets, occupancy rates, and profitability dates.
3. Market analysis. An analysis should be conducted at two levels: at the local level and at the industry level. Potential investors will get a better understanding of the size and future growth potential of the local market by showing the local travel patterns and providing a context for broader industry trends.
4. Competitor Provide a clear description of your competitors. Don’t be afraid to be honest. Any glaring omissions will be acknowledged by investors. Show potential investors your savvy by understanding your hotel’s direct competitors.
5. Guest segmentation. In the brand positioning section, we discussed demographic targets. What is the target audience for the hotel? If you have identified any personas or the addressable market for your target market, be as specific and detailed as possible. The understanding of guest personas is absolutely critical to creating a successful hotel and is often underappreciated, for instance, if your boutique business hotel will target Millennial travellers.
6. Strategic plan. Describe your revenue management, distribution, and marketing strategies. Your goal is to convince investors that you have a solid plan for connecting with customers, managing inventory, and maximising revenue.
7. Operations plan. Explain in detail how the hotel is operated, including the type of technology she’ll use, how you will hire, what roles she’ll need to fill, the service standards, and anything else relevant to operations.
8. Financial plan. Outline your forecasts and profit potential in your pro forma.
9. The team. Sell your management team! The ability of the management team to implement the plan is what investors are looking for.
10. This is a timeline of relevant milestones, from the initial permitting to the building out to the staffing and grand opening.
11. You should include any additional information or supporting documentation at the end of the plan. If something is too complex, push it here so you can focus on the most important highlights elsewhere. Plan editing should be based on the objective of securing investment.

Step 4: Launch your digital presence and think about strategy

When you reach this stage, you’ve secured financing and you’re moving towards developing your own line of business strategies. It’s both exciting and frightening at the same time.

Creating your hotel website is the first step. You are putting your best foot forward with this calling card! With one booking engine for all devices, it should be a modern website designed and optimised for eCommerce. To maximise your commission-free bookings, your website must serve as the centrepiece of your direct booking strategy.

It’s also important that you list your business on third-party sites such as Booking.com, Expedia, TripAdvisor, and others. In order to make your profile engaging, you’ll need to craft a compelling description and use compelling images. Spend time on your profile and don’t rush through it; it’s proven to bring more bookings!

Don’t forget to claim your social media handles on Facebook, Twitter, and Instagram as well. You should secure as many handles as you can to prevent squatters, even if you don’t plan to use all those platforms.

Finally, you should interview several PR agencies to promote your property. In the early stages, you will want to alert relevant travel agents and news media to your upcoming opening. A successful opening depends on early digital buzz. Put your PR agency to work as soon as your website is up, and your social media handles are locked in.

Step 5: Pre-opening strategies

It is becoming increasingly imperative to differentiate on experience as more properties and brands enter an already overcrowded market. To stand out in a crowded market, your new property must provide great guest service that earns great reviews.

Make the most of the time during construction to set up your hotel’s operations the right way from the beginning. Staffing, operations, and technology are your three key pre-opening strategies.

What are the roles you’ll hire for, how will you fill them, what is the timeline for staffing up, and how will they be trained before opening? A GM and director of sales and marketing are key roles that need to be hired when the build-out phase is unpredictable.

• GM: A year before opening, start planning the operational framework, select key employees, build a training program, and prepare for launching the hotel.
• Directors of Sales/Marketing and Finance: Approximately 8 months before opening, start planning for profitability.
• Director of Engineering/Facilities: 10 months before opening so they can familiarise themselves with the building.

As a second step, you must create a blueprint for the hotel’s operations. The hotel standard operating procedures (SOPs) make sure that each element works together consistently and predictably. The following are some things you’ll want to focus on at this phase:

• Brand standards. Provide guidelines on how to represent your brand to the public, including room cleanliness, staff/guest interactions, service recovery, and communication.
• Create a checklist for each process. The use of these inputs will also make your software tools more useful, making them easier to train and more consistent.
• What legal documentation do you have in place to protect your investment? Is your employment contract up to date? How about buyout deals, maintenance contracts, or other commercial arrangements?
• HR policy. It is important to pay attention to how you hire, fire, and retain your employees. Also, you’ll need job descriptions, an interview process that is standardised, and a strategy to deal with the inevitable conflicts between employees.

Third, use hotel software that enables you to run your business more efficiently and effectively. Evaluate software with your key hires based on its form (can it be used easily?), function (can it do what it’s supposed to?), and budget (is it affordable?)  The most challenging part of opening a hotel was setting up the right IT and technology systems, according to 36.4% of the hotel owners we interviewed for this article.

Hoteliers of all sizes need the following tech stack to run a profitable business:

• Property Management System: This is the backbone of your hotel’s  This is the place where live inventory is managed, and all other systems are powered. Checking in guests with the PMS is what your front desk agents do every day.
• Hotel Website: OTAs and travel agents still play a major role in bookings for many small hotels. This is a big and expensive mistake. Hotels without For prospects to learn about your hotel, create a website that acts as a digital brochure.
• Direct marketing requires agency partners if you want to win. Booking Engine: The hotel industry’s equivalent of a shopping cart”. Still today, many smaller hotel websites require guests to contact them before making a It is rare for these hotels to succeed, and they are missing out on huge opportunities. Booking engines allow your website visitors to book live inventory from your Property Management System (PMS).
• Reputation Management Software: The importance of reputation cannot be overstated  Travel agents and brands were the only sources of hotel information 50 years ago.  To find out what guests like them are saying, guests turn to TripAdvisor, Google, and OTAs.  You can use online reputation software to ensure your hotel is found by creating and maintaining a presence on these third parties.
• Channel Manager: On the one hand, you want your inventory to be listed on as many relevant channels as possible, but on the other hand, you don’t want to spend all day managing availability and changing  Once you have been found on third party sites, channel managers make it easy to book your property.
• Commercial Wi-Fi: Without WiFi, your guests will be hard pressed to come back, unless your property is positioned as an “off-the-grid” experience.
• Rate Shopping Tool: As market conditions change, your hotel’s price should change as  Knowingwhat your competition is doing locally can help you develop a winning strategy.  You can use a rate shop tool to scrape third party websites in real time and get pricing intelligence.
• Revenue Management Software: Seasonal flat pricing is a thing of the  It is at least good news that these hotels will be gone soon.  Your guests will book with your competition if you charge too high, but if you charge too low, you’ll lose revenue.  Without guesswork, RMS tools help you price rooms using machine learning.
• Staff Collaboration Software: Simple tools such as Slack channels or Trello boards could be enough for properties with five or fewer  In addition to servicing guest requests and maintaining a property, even small properties can have complex operations. It is highly recommended that hotels of all sizes use specialised hotel operations software.

Step 6: Throw a memorable opening party

Finally, it’s time to celebrate your hard work: an opening party! Certainly, this is a moment worth celebrating with family, friends, colleagues, investors, and even influencers who will be able to amplify your hotel’s launch.

An alternative approach is to have a limited number of friends and family attend a private “soft opening” party. By doing so, you can get a feel for the space and see if it is suitable for hosting events. Afterwards, you invite influencers, VIPs, and other locals to an “official” launch party.

Think up some Instagram-worthy backdrops and a theme for the big night. Opening parties should also include:

• Make sure that all relevant local press and other outlets are invited, in consultation with your PR agency
• Invite some local influencers in addition to journalists through your PR agency. A hotel can reach a wide audience by partnering with lifestyle, food, and travel influencers in almost every city.
• Event planners. Event planners should also be invited to come experience the space in person at the  Getting potential prospects involved in this way is a great way to kickstart the relationship!
• Bring your space to life with live entertainment that aligns with your brand promise. Social media posting can also be encouraged by live music or other entertainment.
• Food and drink. A party wouldn’t be complete without delicious food and drinks. You can also introduce the new F&B offering to the community at your property’s opening party if you have your own.
• Give away some swag and a few stays to celebrate. In a new hotel, these small touches make a big impression.
• Investing in a professional photographer is a worthwhile investment. Using these photos on social media and sharing them with others is a great way to promote your event.
• Photo booth. In addition, you might want to give attendees the option of taking funny photos and sharing them online, so that you can create complementary advertising for your event.

Celebrate your launch with a paid advertising campaign and a special offer that is available for a limited time only. People can start building word-of-mouth by experiencing the hotel through these methods.

Step 7: Arrange funding

Here are the key steps to securing funding to start a hotel in the UK:

• Develop a comprehensive business plan: Outline your hotel concept, target market, revenue projections, and expenses to show investors or lenders why your hotel is a good investment opportunity.
• Determine your funding needs: Calculate the total cost of starting and running your hotel, including construction, equipment, staffing, and operating expenses.
• Explore various funding options: Consider options such as traditional bank loans, venture capital, crowdfunding, or government grants.
• Network and connect with potential investors: Attend industry events, join business organizations, and reach out to investors who have a track record of investing in the hospitality sector.
• Prepare a strong pitch: Show investors why your hotel is a unique and profitable opportunity and how their investment will contribute to its success.
• Consider offering equity: Be open to the idea of offering equity in your hotel in exchange for investment.
• Seek advice from a financial advisor: Get help from a financial advisor or consultant who can guide you through the funding process and help you secure the best financing options for your hotel.

Frequently asked questions

How much does it cost to start a hotel business?

To start a hotel business it costs around £1,000,000 to open in the United Kingdom, whereas 115-room hotels cost around £22,000,000. In addition to the cost of land and construction costs, furnishings, decor, licenses, permits, franchise fees, marketing expenses, and wages, the initial cost of the business may include other factors

How much money do you make owning a hotel?

You make about 25 - 40% after paying staff, franchise fees, mortgages, and taxes. Typically, a well-run hotel will have EBITDA, meaning that if you bought a hotel that generates £1M in revenue, you'd make between £250k and £400k per year, which is about 3-5x the salaries of hotel managers. It goes without saying that taking on extra risk has its benefits.

How do I start my own hotel business

To start your own hotel, most hotel businesses are sometimes started by purchasing existing hotels or by building new ones. Creating a business plan comes first, followed by marketing efforts, obtaining licenses and permits, securing financing, building, or renovating the hotel, hiring staff, and, finally, reopening it.

How can I start a hotel with no money?

To start a hotel with no money you need investors to feel confident that their investment will generate a good return, your hotel needs a solid, well-researched business plan. Funds can be raised from private investors, investment groups, friends and family, or banks.

Conclusion

Starting a hotel business in the UK requires careful planning, research, and preparation. The first step is to determine the type of hotel you want to start, such as a boutique hotel, a luxury hotel, or a budget-friendly hotel. You should also conduct market research to determine the demand for your hotel in your chosen location and understand your target audience.

You will need to secure funding for your hotel, which can be done through a combination of loans, investment, crowdfunding, or government grants. You will also need to obtain the necessary licenses and permits to operate a hotel in the UK. Additionally, you will need to hire staff, purchase equipment and supplies, and develop a marketing strategy to attract guests. It is important to have a solid business plan that outlines your goals, strategies, and financial projections. By following these steps, you can set your hotel up for success and create a thriving hospitality business in the UK.