How to start a Hotel?

Published in Entrepreneurship Articles category by MBA Skool Team , Published on January 07, 2016

The article lists the steps on how to start a hotel. To open a hotel business, the first thing to do is to have a proper business plan. It is necessary to have an idea about the scope and requirements well before planning.


Steps for opening a Hotel

Step 1 Funding:

Funds become the most critical element in planning. Appropriate measures are to be taken to ascertain investment in the new venture. Investments are to be backed by intelligent financial planning. Traditional source of raising funds would be by approaching banks for loans. The bank loan approval usually requires a business plan as a part of the loan application. Therefore, it is necessary to have a well thought out plan at hand before approaching a bank. The owners are to arrange 30 percent of the capital requirements while the rest can be arranged via banks or other sources.

Step 2 Hotel type and Location:

Before starting the strategy part, one has to determine the kind of hotel we would want to set up. It could be mid range, high level, business class or economy class. The decision for the type of hotel to choose from is aided by the funding a person is able to raise.

The different types of hotels include:

1. Airport Hotels: Compartmentalized hotels exclusively for airport

2. Boatels: House boat hotels

3. Based on Size: Small, medium, large.

4. Economy/Budget hotels: Focuses on comfort stay

5. Mid Market Hotels: Living room and kitchen facility

6. Luxury hotels: World-class facilities.

7. Heritage Hotels and Ecotels: Theme based hotels targeting tourists.

8. Business Class hotels: Hotels such as Gingerbread and Marriott

Location factors go in the decision making process as well. For example, it would probably be profitable to start a premium range hotel in a well-known tourist spot, but not so much in a tier-2 city.

A right location matters in this business. Besides the scenario, one has to be privy of the competition in the area. The location should be strategically decided upon. Placing a hotel near a railway or an airport automatically fetches customers. A shopping and entertainment area near to the hotel is a plus.

Step 3 Market surveys for the Hotel:

It is a wise move to hire professionals to do a basic marketing survey before finalizing the requirements of the business, area etc. On the ground surveys and research helps understand the locality and potential customers better thus giving a competitive advantage. A radius up to 10 km can be covered for the research. The relevant competitors should be identified and their rates should be known before deciding on the pricing. For a start, a strategy involving lower rate for the same services offered by competitors can be adopted to attract customers. It is not possible to pleases all of the people all of the time. While planning, one might have to forgo certain customer groups and target a few others. Such decisions are to be taken after careful planning.

Step 4 Licenses:

Lodging,water, sewage and food require licensing. A majority of the licenses that are acquired needs to be renewed at a yearly basis. The hotels also require license from the pollution control board before starting up.

Separate licenses re required for planned events and live shows hosted at the hotel premises. Concerned officials need to do proper verification done before issuing licenses for fire codes and elevator operations. Following are the list of licenses needed to start a hotel business.

1. Building permit: Issued by national building code. The code goes as “no person shall carry out any development, erect, re-erect or make alterations or demolish any building or cause the same to be done without first obtaining a separate permit for each such development/building from the Authority. Therefore, all hotels must have a proper building permit”

2. Fire Safety Permit: After incorporating proper fire prevention and safety measures as required under fire safety rules and regulations, post which a fire safety permit will be issued.

3. Police license: Since hotels are public places, the police department monitors them. Hence, proper log books are to be mandatorily kept and a valid permit from the police department is to be maintained. (licensing of Places of Public Entertainment; Commissioner/Additional Commissioner of Police.)

4. Trade License: Issued by the municipal corporation. Compliance with hygiene and safety norms, which are relevant, is required to obtain this license.

5. Business registration: The hotel is considered as a company or an LLP. (Limited Liability Partnership). Liability of the promoters will be limited and business becomes easily transferable.

6. ESI Registration: Ministry of Labour and Employment, Government of India, have Employee State Insurance Registration for those who employ more than 10 staff. 4.75% of the wages for all the employees earning 15000 or less for ESI employer dues.

7. PF Registration: If an establishment employs more than 20 persons in India, it is mandatory to register for employee provident fund (PF). Relevant insurance and pension schemes are required.

8. Bar License: Provided by departments operating under state government, bar licenses are required if there is a bar in the hotel.

9. FSSAI Food Business License: Under Food Safety and Standard Act. This license needs to be renewed every year.

10. Service Tax Registration and VAT registration

Step 5 Marketing:

In order to attract customers, effective marketing campaigns are to be thought upon. Good advertisements attracts the right crowd into the business. Tie ups with travel agents and franchise will help in boosting business by providing exposure. Going online, and registering in booking websites . Direct bookings should be encouraged as well. Having a website facilitating direct booking can help customers save and the commision provided to booking websites can be passed on to customers.

Step 6 Hospitality – Hiring Staff:

In the end, customer services are absolutely necessary to ensure the sustainability of a business. The recruitment of ground staff such as housekeepers, cleaners, customer care executives etc. as well as top management executives such as hotel managers should be done carefully. It is of paramount importance to treat customers fairly. Only proper customer satisfaction can ensure success in this business.

Step 7 Top Facilities and World Class Services:

The customers look out for world-class facilities. It is imperative to offer them special services incorporating specific benefits and tasks like Free Wi-Fi, complimentary breakfast, wake up calls, TV etc. The hotel, based on the hotel type, can decide to have Facilities such as pool, office center, meeting rooms, and restaurants etc., which provide an extra benefit to customers. Attention to minor details such as providing towels nearby pools can greatly enhance customer experience and add to the positive word of mouth marketing you receive from them.

Step 8 Ratings and promotions of the Hotel:

The Indian Tourism board provides ratings to the hotels all over India. The ratings vary within 1-, 4-, 2-, 5-, 3-, and 5 deluxe star systems. All the relevant licenses should be procured to ensure the highest ratings and approvals.

The article has been authored by Sharika Nambiar, SIBM Pune.

Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.

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