Wow. You’ve come up with an amazing concept that provides unique services to guests. The next step is to write a hotel business plan. It’s like a checklist and a map combined. As an experienced expert in hotel management, I’ve seen that this is the point where most entrepreneurs get stuck.
Why? Many don’t have the time and don’t know what to write or how to properly calculate finances.
A hotel owner on one of the Indian Ocean islands, who was just finishing up, approached me when he realized that without sufficient competencies and only enthusiasm, he reached a point where he didn’t know what to do next. We met for the first time in person at the hotel where he was staying during the construction of his nearby resort, and it was in the large pool early in the morning before breakfast. It was my first business meeting in a swimsuit. He told me, “I expect a return in two years.” Since I had never encountered a return of less than 10 years in my practice, I was immediately interested in how he came to this number. He replied, “It’s simple, 60 rooms times $500 times 365 days, that’s almost 11 million a year. Costs are low, labor is cheap, we don’t need much electricity.”
At that moment, I wondered if he was a victim of illusions caused by the heat, but it was only 7 a.m. His calculations were nowhere near reality and pointed to a naive idea that in this case led to one-third of the investments being completely wasted.
As the author of dozens of feasibility studies, concepts, and plans, I must note that the idea of a two-year return on investment in a hotel is extremely unrealistic. The typical return in this sector is around ten years, especially when considering all operating costs, seasonal occupancy fluctuations, and the need for reinvestments in maintenance and marketing. The assumption that the hotel will always be fully occupied and that costs will remain minimal indicates a lack of market understanding and financial planning. This situation highlights the importance of thorough financial analysis and realistic expectations when planning investments.
Until you complete your business plan, you will not be able to obtain financing. In the end, you will end up with ideas that lie in your head and your dream will fade away. Or you will embark on something that I will later have to help you with, and it may happen that neither I nor anyone else will be able to help.
In reality, it’s not that hard to put together a good hotel business plan. It’s just a structured summary of your idea. Most people try to include everything related to their hotel concept in the plan. This leads to a super novel, something like Harry Potter. But that’s already been written by Rowling.
The key to success is knowing what to include in the hotel business plan and what to leave out. Create a clear success plan. Investors are more likely to be excited than bored to death, as most business plans full of redundant information do. When an owner shows me around his hotel and explains the connections, it’s sometimes a really sad walk.
In your plan, you must guide the reader exactly the way you want.
One of the main problems is that after reading the first page, most entrepreneurs often do not fully understand what the hotel is about. And yet it takes so little.
Hotel style, category, focus, size.
For investors and creditors, it is essential to understand your plan quickly without having to read the entire document. The basics of hotel business planning are key. If you don’t have the luck to become my client, I have prepared a simple hotel business plan template for you.
Your plan should have 10 parts plus an appendix with attachments.
The first part should consist of two main sections: mission and goals. The mission should include about a line of company description that captures only the essence of your hotel. The goals describe what you want to achieve, such as “Achieve 90% annual occupancy.”
The second part should include more detailed information about the USP (unique selling points) of your hotel or restaurant concept.
The third part provides information on current industry trends and the current state of the market and how it will impact your hotel.
The fourth part should include in-depth information about your target market, including geographic, demographic, socio-economic, psychographic, and behavioral segmentation data.
The fifth part should analyze your local competition and list individual strengths and weaknesses, occupancy rates, and market share (SWOT analysis). Be sure to mention how you differ from them.
The sixth part should include a strategic plan consisting of three parts: marketing, distribution, and revenue management. In the marketing section, describe exactly how you will attract customers/guests. Distribution focuses on the third-party channels you will use and how you will manage availability. In the revenue management section, describe the pricing and revenue techniques you will use.
The seventh part is the operational plan that describes how you will operate your hotel. Focus on staff, their job descriptions and responsibilities, service standards, and inventory management.
The eighth part is dedicated to the management team. Provide brief resumes of your team members and focus on what uniquely qualifies you to make your hotel successful.
The ninth part is the financial plan, which includes the initial costs of the hotel, ongoing business costs, operating expenses, and revenue projections for the next five years. If you plan to obtain a loan, state how much funding will be needed and when. Explain how you will generate a return on investment for investors, or when creditors’ deposits will be paid off.
The tenth part focuses on key milestones that will increase the likelihood of your hotel’s success. Consider location selection, permits and licenses, hotel construction, staffing and training, opening, and financial indicators such as GOP and EBITDA.
The last part contains appendices where you will provide any additional important information, videos, photos, and tables that support the main parts of your plan.
In the infographic at the beginning, you can see what it looks like when everything goes perfectly and your hotel has 100% occupancy. Successful hotels with occupancy around 80% are usually considered to be at the edge of performance. More on that another time.
In conclusion, I would like to mention that, just like the concept, it is important to think about operational contexts. Without competencies, you can also get badly stained. In one tropical resort, they made a beautiful septic tank and somewhat forgot that the machinery couldn’t reach it. The first draining thus took place using a 30-meter hose, which burst in two places during breakfasts in the tropical garden of the restaurant and turned the place into an unwanted fountain.
Without the necessary competencies, you can easily get into situations that surprise you and bring unexpected problems.
A proper hotel business plan is thus not only a foundation for obtaining financing and realizing your dream but also a tool that will guide you through the pitfalls and challenges of the hotel business. Without it, your dream can easily turn into a nightmare where instead of satisfied guests and a prosperous business, you will be dealing with problems that you could have avoided with careful planning and expert knowledge.
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