Start a hotel business by following these 10 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your hotel business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Check out our How to Start a Business page.
STEP 1: Plan your business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How much can you charge customers?
- What will you name your business?
Luckily we have done a lot of this research for you.
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 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.
Who 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.
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.
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.
What will you name your business?
Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Hotel Business Name Generator
When registering a business name, we recommend researching your business name by checking:
- Your state's business records
- Federal and state trademark records
- Social media platforms
- Web domain availability.
It's very important to secure your domain name before someone else does.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your hotel business is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
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.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
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.
STEP 5: 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.
STEP 6: 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.
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.
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.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: 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.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
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.
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.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Recommended: Find the best phone system for your business; check out our review of the Best Business Phone Systems 2021.
Start A Hotel Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
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.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
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 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 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.
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Take the Next Step
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.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
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 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.