How to start a hotel business in 2022?

hotel employee tending to tables

If you have been wondering how to start a hotel business for quite some time, you have reached the place. Just like you, there are so many people who have always dreamt of starting a hotel business but have not been able to figure out the “how” of it, and that dream never turns into reality.

But we are here to help you with that, so that not only can you set up your own hotel business, but also generate good profits from it. A hotel business involves a lot of variables and earning out of it is not very easy, and that’s why we have created this step-by-step guide to take you through the complete process.


#1 Do A Proper Market Research

The first and foremost step in how to start a hotel is to gain a deep understanding of the functionality of the hospitality industry throughout the world and in your location as well. Pick your favorite hotel news sources, gather information, and then dive into detailed market research. 

Detailed market research will help you understand how your competitors are, how the bigger hotel chains are working, what gaps you can find, and how much the actual demand is in the market for your hotel.

Better than coming up with an idea and trying to merge the research into it, is to find a problem and then come up with an idea that can solve it perfectly. Where is demand outpacing supply? Is any audience underserved? What kind of hospitality and accommodation services is lacking in your location?

If you don’t know what to include in your market research, here are a few tips:

  • Type of property – There are different kinds of hotels, some have spas, some are resorts, some are boutique hotels, and even the hostel kind is popular these days. Determine which type you want to offer, and in that category what hotels exist in your location.
  • Size of the hotel – How many rooms are your competitors offering and how many are you planning to offer?
  • Star rating – What are the services and amenities that you will be providing to your guests? Free wifi, a swimming pool, a banquet or conference hall, and so on will help in boosting your ratings.
  • Location – What location do you want your hotel to be in, and how is the demand there? Is it by the airport, near a beach, any event venues, and so on?
  • Guest demographics – What kinds of guests will you be targeting? Are they family vacationers, solo travelers, honeymoon couples, retirees, business travelers, etc? This will help you in understanding how your hotel will be, what services and amenities it will offer, where exactly it will be located, how many hotels are accommodating such guests, and what the demand will be like for you, and so on. 


#2 Define Your Goals

After you have got a clear understanding of what the market needs, you will have to come up with the perfect solution to satisfy it. The concept of your hotel, its location, the services it offers, its decor, and the additional amenities that it provides, will all come together in building something that will help you capture your market share.

You will need to strategize and set goals according to your hotel so that you know whether or not you are meeting them, and whether your business is going in the right direction. For instance, if you were wondering how to start a boutique hotel, you will need to set goals that will be specific to boutique hotels in your location.

Defining your goals will include considering your revenue management, sustainability, events, customer satisfaction, how to approach pricing, and more. S.M.A.R.T goal criteria are a great way to set your goals, where they are specific, measurable, attainable, relevant, and time-based.

If in doubt, you can include the following goals too:

  • Measuring and increasing customer satisfaction.
  • Creating a solid revenue management system.
  • Building a strong online reputation.
  • Attending at least one hotel industry conference.
  • Partnering with a consulting firm to overcome the common issues new hotel owners face.

As long as your goals are set keeping in mind your market demand, your target audience, and your business needs, you are good to go.


#3 Run Your Numbers

Once your research and goals are ready, it is time to run your numbers in the “start hotel guide”. These numbers will help you figure out how much capital you will need, what will the capital cost, how long before you start churning profits, etc. Here is what a feasibility analysis should include:

  • A financial model – Model the financial inputs to determine how much capital you need. How much will it cost to build the hotel or purchase one on sale? How much should the average occupancy rate be and what can you expect in the real world? How much scope is there for you to raise these rates over time? Since it’s a good idea to run a hotel as an LLC for tax purposes and limiting liability, you need to keep that in your financial considerations as well.
  • A pro forma – The pro forma includes your income statement, cash flow statement, and your balance sheet. This will help you in forecasting your income and expenses, project your cash flow, and determine when exactly you will be able to start making profits.
  • Capital sources – If you have been wondering how to start your own hotel, you will also need to know how to generate the capital for it. Do you have enough savings for your capital? Will you take help from your friends and family? Will you be taking a business loan from a bank? Will you approach investors to invest in your idea? Figure this out properly to generate enough capital to cover the costs that were outlined in the financial model.


#4 Plan Your Funding

Once you have decided how you want to raise capital for your hotel business, you need to plan the funding. If you are planning to finance your hotel from external sources, you will need to understand the complete scope of the financing option.

In commercial financing, there are two categories for funding a hotel business – traditional credit and specialty credit. Both have their own pros and cons and depending on your preferences you can pick either.

  • Traditional credit – In this, you receive funding based on your long-term assets, for instance, the real estate that your hotel owns and the cash flow projections that you had submitted during the underwriting. Lenders will go through these assets carefully and then grant you the loan.
  • Specialty credit – In this, you receive funding based on your near-term assets, like hotel equipment or accounts receivable invoices. The main idea behind this is that these backings are much more liquid in nature than the ones in traditional credit.

Both traditional and specialty credit are great funding options for hotels depending on what your capital needs are. However, if your hotel is on the larger side, specialty credit might come in more handy than traditional credit as large hotels manage a significant amount of account receivables.

While planning your funding, make sure to consider the amount of potential credit card transactions and vendor operations for hospitality as well. The higher the amount involved in these kinds of transactions, the more you will benefit from financing options like specialty credit.


#5 Keep Your Paperwork In Order

Just like every other business, fulfilling the necessary legal, regulator, and insurance requirements is a must for hotel businesses too. The exact requirements might vary from one state to another, but you can consult with your legal, accounting, insurance, and operations teams to find out the respective requirements for your state.

Setting up the business structure and obtaining business insurance is the bare minimum. Apart from that, you will need to apply for building or renovation permits, get licenses for hotel services, and for serving food and alcohol. There are various other health and safety requirements as well, that you will need to comply with when you complete your building or renovation for your hotel.

Applying for all these permits and licenses and keeping the paperwork in order do not usually attract enthusiasm, but they are highly essential. If you don’t keep all this in check, you might have to pay fines or unnecessary repair costs later on. 


#6 Hire And Train Your Team

Even after you figure out how to start a hotel business, you can’t run it on your own. A business is only as good as the team behind it, and that holds true for the hotel business as well.

You will need to hire efficient employees for every level of your team, and they will together play a major role in making your hotel business a success. You can start by hiring for your executive and departmental positions, as that will help in setting the tone and direction in which you want to move forward.

These leaders can also add their suggestions as to what kind of people they want for their teams and how many. Then together you can hire employees that will take up their respective roles and add value to the business.

Define what roles and skills you are looking for in the people you want to hire and keep the application and interview processes smooth. Communicate your core mission and values and try to hire people whose thoughts align with them. 

Your job does not just end at hiring though. Even if you think you have found the perfect set of employees for your hotel business, you will still need to train them. This step will help in making sure that your employees treat and serve your customers in the same way you want to and that there is a uniform approach throughout the business.

It will also help in improving the performance of the employees who don’t even have to deal with customers. And the ones who do, will need additional training on how to provide great customer service and build long-term relations with the guests by providing them with courteous and warm treatment.


#7 Devise Your Marketing Strategy

Once you know how to start your own hotel, and are done with all the above steps, it’s time to tell the world about it. The success of your hotel business will depend on how well you market it because only then will people know about it and come to stay.

The first and foremost step would be to create a good-looking website for your hotel, with all the information about your hotel. You can talk about yourself, your team, the services you provide, the food and beverage options, additional benefits like pool, gym, and spa, and how to contact you.

You can attract visitors to your website with the help of blog writing and optimizing it for search engines with the help of SEO techniques. You can create an email marketing list by asking your website visitors to share their email IDs and keep sending them promotional or sometimes just well-wishing emails occasionally to remind them about your hotel.

Make sure to add the email IDs of your hotel customers to this list as well, to encourage repeat business. Social media is another great way to promote your hotel business, as a huge part of the audience is out there and planning trips just by looking at properties on social media platforms.

Create your account on visual platforms like Instagram and Facebook, and regularly post content that can reach out to your potential customer base and attract them. But remember, in a hotel business, the most important marketing trick would be to give your customers an unforgettable experience.

Your hotel business won’t grow based on how many people visited it for the first time, but on how many times they visited again, and how many people did they recommend your hotel to. Nothing works like the word-of-mouth strategy in the hotel business, and that will depend on the quality of the service you provide.


Final Thoughts

When you have finished all the above-mentioned steps, have the perfect plan, and have the perfect team to execute it, it’s time to launch. If you need help with naming your hotel business, just go to Namify’s Hotel Name Generator, you’ll find unique and memorable hotel name ideas in the click of a button. You can organize an inauguration event where you launch your hotel, and invite your friends and family, the general public, and the press to create a buzz about your hotel. Good luck!

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