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A hotel can be any commercial building that charges money to travelers who need a room to stay. This can be anything from a standard multi-unit building to luxury stand-alone villas. As airline prices drop and the economy improves, corporate and personal travel continues to increase. The hotel industry generated just under $200 billion in revenue in 2016.
Who is this business right for?
This business is good for someone who enjoys the hospitality business. Those who run hotels have to be adept at catering to a number of different needs, so an owner will need to be flexible when it comes to how they respond to different travelers and consistent when it comes to delivering unparalleled customer service. From business travelers to young families, each guest will have their own priorities when it comes to where they stay.
What happens during a typical day at a hotel business?
Hotel owners may have to deal with a range of responsibilities in their day-to-day job, including the following tasks:
- Hiring/scheduling/managing staff
- Negotiating room rates for different days
- Completing paperwork and administration duties
- Handling financial obligations/investors
- Completing ongoing education regarding the hotel market
What is the target market?
The target market can be anyone looking for a room for the night — whether a traveler is coming from across the world or across the street. However, all hotel owners will develop their own target demographic based on their amenities and location. Luxury travelers will not want to stay at the same hotel as a mid-level executive who is in town for a conference.
How does a hotel business make money?
Hotel owners make money based on the profits of the hotel, meaning they'll need to work out how much they want to make a year before setting their room rates to account for their salary. They usually pay themselves a standard amount per year and then invest the rest of their profits into the property.
What is the growth potential for a hotel business?
There has been a lot of talk about how the hotel business is being hurt by websites like Airbnb. The amenities and service tend to be more intimate at private homes or property, which can be appealing for people who who are sick of the corporate structure or lack of empathy on the part of hotel employees. However, the growth potential for hotels can still be substantial for a number of reason.
There are still plenty of travelers out there who would prefer to stay at a hotel, especially considering that there is a certain level of hesitation for many people when it comes to staying with strangers. In addition, websites like Airbnb are likely to become more heavily regulated in the next few years which may make it more difficult for travelers to take advantage of the lower rates.
What are some skills and experiences that will help you build a successful hotel business?
People who have experience in the hospitality industry will have a head-start because they will have already seen many of the hiccups that come with running a hotel or a restaurant. Those with an MBA or formal hospitality training can also use their education to help them make smarter, more cost-effective decisions.
What are the costs involved in opening a hotel business?
Regardless of whether you’re opening a boutique hotel with five rooms or a mega hotel with hundreds of rooms, the costs to get started can be substantial. Between the land, the equipment, the furniture, and the licensing requirements, owners typically need a lot of capital to get started. Even a Super 8 hotel can cost up to $4.5 million to open. However, there is no industry average because the costs range widely based on the value of the property and the building materials used.
What are the steps to start a hotel business?
Once you're ready to start your hotel business, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your hotel business is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your hotel business keeps your finances organized and makes your business appear more professional to your customers.
- Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
- Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I find a business mentor?
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a hotel business?
The best thing an owner can do is narrow down their demographic so they can start catering to them right away. Ideally, you’ll identify a need that isn’t being served in the area you wish to open. Maybe business travelers are being catered to by chain hotels, but tourists are looking for something a little more personalized. Perhaps you open up a themed hotel that focuses on a particular niche in your area (e.g., a hotel designed specifically for scuba diving tourists.)
You should also invest in your staff from the very beginning. The leaders and even the everyday staff members will be your eyes and ears when you can’t be there. Giving them the respect and the compensation they deserve can go a long way to boosting morale and keeping customers happy. Hotel owners should also look at what their competition is doing in an effort to attract more people. Just because a hotel is different from the most popular Airbnb destinations, doesn't mean a hotel owner can't offer some of the amenities that make the Airbnb destinations so heavily desired.
How to promote & market a hotel business
Advertise strongly to get your name into the public eye, especially online. Travelers aren’t necessarily going to find their hotel by the radio or television, so either use paid ads or organic content to boost your rankings in a search engine. However, it’s also important to let word of mouth serve as a powerful tool (even at the beginning.) The more specials and discounts you offer, the more likely it is that customers will see the hotel as desperate or not worth their time.
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How to keep customers coming back
Hotel owners will thrive based on their customer service. Even the most jaded of business travelers isn’t immune to having a little bit of personality and charm delivered to their experience. Customer issues should be solved as quickly as possible, and emergencies should be addressed and rectified immediately.
How and when to build a team
You will need to build a team immediately to do everything from managing the staff to cleaning the rooms. Find people who can use discretion on the job so guests feel like they're in good hands. The more layers of bureaucracy you build into your hotel, the harder it will be for customers to get an answer to even the simplest of problems.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a hotel. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Maintain Personal Asset Protection
Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
Two of the simplest steps that will protect your business, and yourself, are to:
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
Certificate of Occupancy
A hotel is generally run out of a large building. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a hotel business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your hotel business will be in compliance and able to obtain a CO.
How much can you charge customers?
The average cost for a hotel room is $137 a night, but there are some luxury hotel suites that cost $80,000 a night to stay. Hotel owners need to be careful about how they're pricing their rooms based on demand. A holiday weekend can potentially kick up prices by triple their normal cost or more, so it's important to set prices based on what people will pay.
What are the ongoing expenses for a hotel business?
Ongoing expenses include facility upkeep, employee wages/salaries, advertising, insurance, replacing beds and furniture, office supplies, utilities and high-speed internet. Plan to spend at least a couple hundred dollars per month on replacing room mattresses, shower curtains, carpet, dressers, etc. The exact figure will hinge on the number of rooms your facility has and the age of the beds, furniture etc. Low-level employees who check in guests and clean the hotel will earn between $8 and $15 per hour. A hotel manager, marketing professional, and accountant will make between $30,000 and $60,000 per year. Budget at least a couple hundred dollars per month for facility upkeep. A maintenance person will earn between $12 and $25 an hour. Budget $50 to $100 per month for office supplies. Utilities including high-speed internet for the entire hotel will likely cost $150 to $300 or more per month. Dedicate at least $200 to $500 or more for monthly advertising. The exact cost of marketing hinges on the economics of your local market.
How much profit can a hotel business make?
A hotel has enormous profit-making potential. Some hotels make six figures per year. Others rake in millions per year. Unfortunately, some hotels fail to make a profit. The level of profitability depends on a number of different factors. Grow the business, expand to a second location and you will likely exceed the six figure mark. Continue to add locations and your hotel business will approach the million dollar profit range.
How can you make your business more profitable?
Successful hotel owners can consider franchising their business or opening up more locations in an area. They can even give educational courses to other hopeful hotel owners about how to succeed in a competitive industry.