Venn Homesuite: 101 Guide To Be A Hotel Owner Part 1

According to Hotel Tech Report, step by step guide to opening a hotel

Step 1: Do You Want to Build or Buy?

Decide whether to find a hotel for sale or to develop one from scratch. According to Hotel Tech Report, 72% of hotel owners prefer to build a new one than buy an existing one for their next property. This was surprising to us because building a new one is always riskier and more capital intensive.

Acquisitions of hotels have a significantly lower risk because there’s a past performance history and it’s obvious what you are getting into eg: a hotel business that’s already generating cash. Able to avoid the time-consuming logistics of getting permits, designing the space, and building out the property. Especially, a valuable database of past guests and a staff that’s already trained and familiar with the property.

On the other side, developing your own property provides you more control over building the experience from the ground up. New hotel developments prove to be more profitable long-term than buying an existing hotel. Generally speaking, upon completion there is an opportunity to make more money because more risks were taken including the potential for a future bonanza if you ever sell. But it’s also much riskier because your cash will be tied up for an extended period of time with no income.

A strong market analysis is needed to verify the positive market trends supporting new hotel developments when making the decision to either build or buy a hotel for sale. Evaluating any existing properties for potential efficiencies, such as adding new technology to streamline operations and improve bottom-line profitability is too important. These efficiencies permit you to capture more profit from that existing hotel, making it a much better investment than it would be otherwise.

Step 2: Analyze The Data And Determine Feasibility

After the first step, the next step is to make sure that the numbers work. The numbers will let you know the amount of capital you’ll need, the amount of capital will cost, the duration it will take to turn a profit, and the potential upside to the operator/owner/investor.

A feasibility analysis consists of a financial model, a pro forma, capital sources and profitability projections.

A financial model

Model the financial inputs and determine the amount of capital needed. Amount of the build-out cost, realistically expected rates, average occupancy rate, and ability to increase rate over time upon establishment of the hotel. This is where the assumptions which play a role in affecting the rest of the feasibility analysis are called out. Do consider the implications of various corporate tax structures when building a financial model. Lots of hotel owners choose to run as an LLC in order to limit legal risk and for tax purposes.

A pro forma

The pro forma consists of a balance sheet, income statement and cash flow statement to forecast the investment for farming. The forecasted income and expenses over time will too be included to project cash flow and duration to turn a profit. The pro forma accounts for front-loaded expenses within the context of a longer-term forecast so investors can see the potential of the business.

Capital sources

It’s crucial to identify sources of capital. Will these sources come from friends and family, loans from banks or savings or maybe a mixture of all three? It’s crucial to lay this out clearly to ensure that have enough capital to cover the costs of the financial model.

Profitability projections

Profitability projections relate to the cost of capital. Calculate the number of capital costs and then ensure that pro forma shows that there is enough profit to compensate for the risk.

Step 3: Create A Hotel Business Plan

This business plan will consist of the way of launching, promoting and operating a new business. The absence of a persuasive plan will make it near impossible to secure investment — especially going to traditional institutions such as banks, which have more stringent requirements.

Specifically, the plan should include an executive summary, brand positioning, market analysis, competitor analysis, guest segmentation, strategic plan, operations plan, financial plan, the team, milestones and appendix.

Executive summary

Stating the high-level overview of the hotel business plan should be a quick and concise view of the most important elements.

Brand positioning

A detailed description of the concept, the origin of the idea, the target audience, the gap in the local market, objectives in terms of revenue targets, occupancy rate profitability date, etc.

Market analysis

This analysis carries out at two levels eg: the local market and the broader industry consists of the local market travel patterns and put broader industry trends into context to enable potential investors to understand the market size and potential for future growth.

Competitor analysis

List out the business competitors. Highlight understanding of who the hotel competes directly with to highlight savvy to potential investors.

Guest segmentation

Be as specific and detailed as possible including any personas and the addressable market of the target market audience. Understanding guest personas is absolutely key to creating a successful hotel and is often under-appreciated.

Strategic Plan

Explain your strategies around marketing, distribution and revenue management. This is where you’ll convince investors that you have a sound plan to connect with customers, manage your inventory, and maximize your revenue.

Operations plan

Specify the operation of the hotel in a detailed way including the types of technology that will use, how you will hire, what roles you will need to fill, your service standards, and any other relevant operations info.

Financial plan

Include pro forma to outline forecasts and profit potential.

The team

Investors pay attention to the management team’s ability to execute the vision laid out in the plan.

Milestones

A timeline of relevant milestones, from initial permitting to build out to staffing, grand opening, and eventual profitability.

Appendix

The end of the plan is where any additional information or supporting documentation will be included. Push anything that’s too complex here so that to focus on the most important strategic highlights elsewhere. Remember that the objective is to secure investment so should edit the plan accordingly.

Step 4: Create Your Digital Presence and Distribution Strategy

To start, create your hotel website. It should be a modern website, designed and optimized for eCommerce, with its own booking engine that works across all devices. As the centre of direct booking strategy, the website needs to work well and help capture as many commission-free bookings as possible!

It’s necessary to get listed on third-party sites, like Booking.com, Expedia, TripAdvisor, and others. Craft an engaging profile with on-brand descriptions and captivating imagery. Great profiles are proven to bring more bookings!

Ensure to claim social media handles on Facebook, Twitter and Instagram. Even if it’s not in the plan to use all those platforms, ensure to secure as many handles as possible to prevent squatters!

Finally, get interviewed by different PR agencies to promote the property. Early on, raise awareness about upcoming openings with relevant travel agents and news media. This is the kind of early digital buzz that can lead to a successful opening. Once the website is up, and social media handles locked in, put the PR agency to work.

Step 5: Pre-Opening Strategies

As more properties and brands enter an already-crowded market, differentiating on experience takes centre stage. It’s a *must* to deliver an exceptional guest experience that earns great reviews and helps the new property stand out in a crowded field.

Use the time during construction wisely to set the hotel’s operations up the right way from the get-go. Three key pre-opening strategies are staffing, operations and technology plans.

First is the hiring plan: which roles are hiring for, how to fill those roles, what’s the timeline for staffing up and how will train them prior to opening. Given the inherent unpredictability of the build-out phase, it’s never easy to know when to hire key roles, such as the GM and the director of sales and marketing.

GM: around 12 months before opening start planning the operational framework for the hotel, select other key hires, build a training program, and craft a launch plan.

Directors of Sales/Marketing and Finance: around 8 months before opening to begin plotting the path to profitability.

Director of Engineering/Facilities: around 10 months before opening so there’s enough time to become familiar with the building and its equipment.

Second, create the operations blueprint for the hotel. This is how each element works together and is planned out, including the standard operating procedures (SOPs) that structure the hotel for consistency and predictability. At this phase, work on things like:

Brand standards. Set the standards for how the brand is represented to the public, including room cleanliness, staff/guest interactions, service recovery and communications guidelines, among others.

Checklists. Operationalize each process into a corresponding checklist. This makes for stronger consistency, and easier training and will also be handy input for software tools.

Legal. Is there the right legal documentation, right employment contracts in place, contracts for buyouts, preventive maintenance, or other commercial relationships

HR policy. The way to hire, fire, and retain employees. Job descriptions, a standardised interview process, and a plan to manage the inevitable interpersonal conflicts are needed.

Third, set up property with hotel software that enables smarter, leaner operations. In partnership with key hires, evaluate software according to form (ease of use), function (perform as needed), and budget (affordability). 36.4% of the hotel owners that the Hotel Tech Report interviewed for this article said that setting up the right IT and technology systems was the most difficult part of opening their hotel.

Here’s the basic tech stack that every hotel absolutely needs to run a profitable business no matter the number of rooms:

Property Management System: this is the core operating system of your hotel. It’s the place that manages live inventory and powers all of the other systems used. The PMS is what front desk agents use every day to check guests in.

Hotel Website: Many small hotels still choose to rely solely on OTAs and travel agent partners for bookings which is a huge and costly mistake. A direct channel is most profitable and hotels without a dedicated website lose trust in the eyes of guests. At a minimum, create a website that acts as the hotel’s digital brochure for prospects to learn about the property. To win direct an agency partner is needed.

Booking Engine: This is the equivalent of the hotel industry’s “shopping cart”. Shockingly, many smaller hotel websites even today require guests to inquire about bookings. These hotels are missing massive opportunities and rarely succeed. A booking engine makes live inventory from Property Management System (PMS) available to book from the website.

Reputation Management Software: Reputation is everything in today’s world. 50 years ago travellers relied on travel agents and brands to select hotels. Today, guests look to places like TripAdvisor, Google and OTAs to see what guests like them are saying. Online reputation software enables establishing and maintaining a presence on these third parties to make sure the hotel is getting found.

Channel Manager: List inventory on as many relevant channels as possible but don’t want to spend all day changing rates and managing availability. Channel managers allow to automate these connections and ensure that once discovered by third parties, that property is bookable.

Commercial Wi-Fi: Unless the property is positioned as an “off the grid” type of experience, good luck getting guests to come back without WiFi.

Rate Shopping Tool: The pricing of hotels should change as market conditions evolve. Getting signals from the local competition can help inform strategy. A rate shop tool will scrape third-party websites and give pricing intelligence in real-time that enabling act on to win more guests.

Revenue Management Software: Gone are the days of seasonal flat pricing. Well, at least the hotels that still price like this will soon be gone. Price too high and guests book with the competitor, price too low then losing revenue. RMS tools use machine learning to help price rooms without guesswork.

Staff Collaboration Software: For the smallest properties (5 rooms and under) a simple Slack channel or Trello board might do. But even small properties can have complex operations when it comes to servicing guest requests, maintaining a property and managing workflows between shifts. Specialized hotel operations software is highly recommended for almost any hotel size.

Step 6: Throw A Killer Opening Party

At long last, it’s time to revel in the fruits of labour: an opening party! This is certainly a moment worth celebrating alongside friends, family, colleagues and investors — and also with influencers that can amplify the hotel launch.

One approach to launch is to have a private “soft opening” party for a limited group of friends and family. This allows testing out the space and getting a feel for hosting events there. Then, once work out the kinks, open up the doors to an “official” launch party that includes influencers, VIPs and other locals.

As you plan the big night, give your party a theme and dream up some Instagram-worthy backdrops. Some other elements of a killer opening party:

Press. Work with your PR agency to ensure that you have all relevant local press in attendance, as well as any other outlets that may be interested

Influencers. In addition to journalists, collaborate with your PR agency to identify some local influencers to invite. Nearly every city has lifestyle, food, and travel influencers that can put your hotel in front of a broad audience for a minimal investment.

Event planners. Your sales and marketing team should also take advantage of the launch to invite event planners to come experience the space in person. This is a great way to jumpstart the relationship with potential prospects!

Entertainment. Book some live entertainment that brings your space to life and aligns with your brand promise. Live music or other entertainment is also a nice enticement for people to post to social media during the party.

Food and drink. Of course, it’s not a party without delicious food and drink! If your property has its own F&B, the opening party is also a great way to introduce the new offering to the community.

Giveaways. Mark the occasion by giving away a few stays and some swag. These are small moves that add up to big impressions for a new hotel.

Photographer. It’s a worthwhile investment to mark the occasion with a professional photographer. You can use these photos on your social media accounts and to share with event goers.

Photo booth. You might also want to have a photobooth that’s connected to social media so that you can encourage attendees to take funny photos and share them online, creating a direct line to some complimentary advertising.

To amplify your opening, consider adding a paid advertising campaign and some exclusive, limited-time only promotions to celebrate the launch. These are great ways to get people through the door to experience the hotel and start building word-of-mouth.

If you would like to learn more about how to be a shareholder in a more easier method do stay tuned to our next blog.