Have you long had dreams of becoming a hotelier? If so, you're on the right page.
There are several factors to consider before turning your dream of running a hotel can become a reality, and with 8 simple steps, we're here to guide you along the way.
In the guide below, we'll review the most pressing questions around how to open a hotel, including how to carry out market research, come up with a concept, secure funding and create a stellar business plan to ensure your hotel succeeds. Ready, set, go...
1. Market research in the hotel industry
The very first step in any business venture, whether it be a corner shop, cafe, or hotel, is to verify whether it’s commercially viable to open the business up within your proposed location.
In our guide on how to carry out market research for a hotel, you'll find solid advice on collating data on the most important aspects of market research, including hot hotel industry trends, your competition, and the habits of your target customers.
The UK hotel market
The UK is the 10th most internationally visited destination in the world - with over 266m international overnight stays in 2018.
The cities attracting the most tourists are Edinburgh, London, Brighton, York, and Birmingham - with the hotel industry generating a turnover of approximately £20.7 billion in 2018.
Whilst the industry remains in decent health, it's undergoing major changes that budding hoteliers need to watch out for. These include the introduction of:
- Alternative accommodation (via online platforms such as Airbnb) is increasingly popular and creating strong competition for hotels.
- Online booking websites such as Booking.com or Expedia have also seriously stepped up their game: this is good and bad news for hoteliers, who can use these platforms to improve their occupancy rate but at the cost of paying additional commission.
When opening your hotel, you need to keep in mind the hotel market split into two sectors:
- Independent hotels: represent 51% of the market. In 2019, they had an occupancy rate of 70%.
- Hotel chains: represent 45% of the entire industry, but have three times the capacity of independent hotels. Hotel chains also have a more efficient occupancy rate (76% in 2019), due to the fact that they attract more business customers.
It should also be noted that hotels can be classified by star ratings, ranging from 1 to 5. In many European countries, hotels are inspected by tourism officials who assign them a star rating based upon the quality of services and amenities offered.
In the US, 2019 saw hotel occupancy reach its highest level in 25 years. Reaching a total revenue of $206 billion in 2019, the US hotel and motel industries combined have outperformed the wider economy for the last 5 years - making it an area of great interest to entrepreneurs.
Future trends in the hotel market
New concepts are disrupting the hotel market, including the increase of low-cost, lifestyle hotels. Catering to the growing volume of Gen Z travellers, these hotels combine the fun aspects of a hostel (including lively common areas, pub crawls and game nights) with classic hotel services. These are elements you need to consider when opening your hotel.
Some aspects of hotel regulations
There's a whole host of regulations to consider before opening a hotel. The main areas are health and safety, regulations around the preparation of food, and employment law.
In the UK, businesses operating within physical premises will need what's called a Certificate of Occupancy (CO). A CO is proof that your shop meets the government regulations and zoning laws (especially regarding fire safety) imposed on retailers. You can find out more about these standards by visiting the HSE's website if you are based in the UK or osha.gov for US businesses.
If the premises don’t comply with the current standards, you’ll have to plan out the amount of building work required to ensure that it does (and factor this into your financial forecast) before opening your hotel.
When it comes to food hygiene, several regulatory requirements will need to be satisfied. Firstly, in the UK, before opening your hotel, you'll have to register the premises with your local authority's environmental health service at least 28 days before you start trading.
It's important to note that this process doesn't cost any money. It simply involves allowing a local official to visit your premises to check out the space you'll be using to prepare food and ensure it's safe and hygienic. To register for a visit from your local authority, click here.
It's mandatory for new business owners to draft a plan based on the Hazard Analysis and Critical Control Point (HACCP) Principles. This plan will ensure your food is safe from biological, chemical, and physical hazards, as well as allowing you to identify potential hazards.
You'll also be required to comply with any rules established by the Food Standards Agency - a government body providing guidelines on hygiene standards, sampling, labelling, and traceability.
Finally, if you wish to sell alcohol, you'll need to apply for a premises license. This will also enable you to play live and recorded music and serve hot food and drinks after 11 pm. For more information on how to obtain the licenses above, you can visit the Gov.uk license finder.
In the US, you will be required to register for a business license when you open a hotel. You can visit the SBA website for more details on how to obtain this.
You will also need a food service license, a food handler’s permit and a liquor license for serving alcohol. Each state has its own Alcohol Beverage Control Board that regulates the serving of alcohol.
To obtain a liquor license, you must contact your state's ABC board. You can find a national directory of ABC boards here.
2. Choosing the concept before opening your hotel
Once your market research is completed, it's time to consider the type of hotel you want to open.
From starting your own boutique hotel to joining an already established chain or creating a hybrid hotel-restaurant model, your decision will be based on the type of atmosphere you'd like to offer your guests.
Besides your own vision for the hotel, your choice of concept when opening a hotel should be guided by the results of your market research. Above all, you need to make sure you're offering the type of amenities that meet the expectations of your future customers and set you apart from your competitors.
This means carefully considering the type of customers you want to attract, the services they're after, the marketing tools you'll use to promote these services to the right people, and, finally, what this means for your average price per room and occupancy rate.
Alternatively, you might decide you'd like to takeover an existing hotel, which would enable you to benefit from an already established concept and loyal base of customers. To find out more, check out our 7 tips for taking over a hotel.
3. Scoping out a location to open your hotel
Now that you've settled on your concept, the next step in our guide on how to open a hotel is looking for a location.
Scoping out the right location for your hotel is a crucial part of the process, as its commercial success and occupancy rate depend on it.
If you're set on attracting tourists, it will be essential to be centrally located (if you're in a city) or by the waterfront (if you're in a seaside town). Adversely, if you're targeting business clientele, you'll want to pick a spot located close to the financial district, with handy links to the nearest train station or airport.
4. Choosing the legal structure of your hotel
With your hotel location sorted, it’s time to deal with the legal side of things to open your hotel.
Choosing the right legal structure is not a task to be taken lightly as it has many implications - in particular on how the company is run, how much tax it pays and the liability of the partners in case of bankruptcy.
To help you make your choice, you can find more detailed information on the different legal forms available to you on the gov.uk guide for UK business owners and SBA guide for those of you based in the US.
5. The equipment and staffing needs to open a hotel
Next up in our guide on how to open a hotel is identifying the supplies (and manpower) that will be necessary for the smooth running of your hotel. These items and operational costs will then have to be quantified in the financial forecast.
First of all, you'll have to focus on kitting out your premises with the right equipment and decoration. Important start-up investments will include:
- Preparing the bedrooms: furniture, bedding, decorative pillows/flowers/plants, bathroom supplies, etc.
- The layout of the reception area: desk, computer stations, printer, pens and paper, card machine, etc.
- Equipment for common areas: tables, chairs, toilets, flowers/plants, candles, etc.
- Depending on the hotel's facilities: equipment for the bar, kitchen, restaurant, swimming pool, SPA, etc.
- Security-related equipment: door with access control, video surveillance cameras, etc.
- Promotional material: signs, website, flyers, etc.
Whether the walls could do with a lick of paint or you're in need of a re-carpeting job, renovation costs of a hotel can also be quite heavy - so make sure you list what needs done and add up the cost of each service.
The success of a hotel also depends heavily on customer service - so you'll need to think carefully when devising your recruitment plan about the type of individuals you'd like to welcome to your team (ideally friendly people with prior experience working in the hospitality industry). Your staffing needs will strongly depend on the size of your hotel and the type of services you wish to offer when you open a hotel.
You must also consider the additional services that are needed to keep your hostel running in tip-top condition.
These will include enlisting an insurer, as well as a chartered accountant to help you keep track of your accounts and the day-to-day management of the hostel (e.g. VAT, payroll management and tax calculations). You might also want to hire a cleaning company to help with the maintenance of the common areas and rooms, as well as suppliers for food and alcohol.
Whether you’re picking an insurer or a supplier, make sure you ask for quotes and compare prices to obtain the best deal possible when you open a hotel.
6. Setting out the marketing plan for your hotel
To promote your business and build customer loyalty, you'll need a solid marketing plan when opening your hotel.
With 57% of all hotel bookings now made online, having a strong webe presence is a must. This includes everything from ensuring you're referenced on online booking platforms and paying up for online advertising, to creating a website and social media profiles for your hotel - to showcase everything you have to offer.
Nothing's stopping you from also chasing traditional methods of partnering up with travel agencies or requesting a mention in leading travel guides such as the Lonely Planet.
Finally, you'll need to implement an effective strategy to optimise your occupancy rate during the off-peak seasons - such as offering discounted rates or spa stays during the week.
7. Writing the business plan to open a hotel
A business plan is a document with one goal in mind: to convince its reader to invest money in your business. This document will support you in approaching potential investors or banks when looking for funding.
The business plan of a hotel has two main sections:
- A written section aimed at showing how viable your business idea is and what are its strengths
- A financial forecast highlighting the need for financing and the expected profitability of your project
The business plan, therefore, weaves together all of the previous steps, including the market research, the concept of your hotel, choice of location, equipment needs and so on.
If you’ve never done a business plan before, don’t panic, as you can use online business plan software to help you put it together. Using this solution will give you several benefits, including:
- Being led step by step through the writing process, with instructions and examples given for each part of the plan.
- Answering simple questions and letting our business plan software crunch the numbers for you
- Getting access to ready-made business plan templates
- Creating, in the end, a professional document, formatted, and ready to be sent to your bank.
If you are interested in giving our online software a shot, you can try it for free by signing up here.
8. Securing the funding needed to open your hotel
Once the business plan for your hotel has been drafted up, the last step is to secure the funding required to launch your business.
Opening a hotel without any money is difficult, but with the tricks, it's not impossible. To find out more about funding options available, check out our guide on how to take over a hotel with no money.
Useful links for how to open a hotel
- UKHospitality - the UK's leading hospitality trade association
- StayNTouch - online guide offering a wide range of hospitality resources and articles
- Hospitality Net - offers the latest news on the US hospitality industry
- American Hotel & Lodging Association
Now you know everything there is to know about how to open a hotel. We hope you found this article useful. If you have any questions or queries at all please don't hesitate to get in touch with our team.
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