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Starting a Hotel Business – How Much Does It Cost?

Do you want to know exactly how much it cost to start a hotel? If YES, here is a detailed cost analysis for starting a hotel and raising finance.

All over the world, the hospitality business is seen as a very serious trade and the reason for this is not farfetched. The reason the hospitality business – especially hotel business is being taken seriously is because of its relationship with the tourism industry.

Either locally or internationally, one of the ways to make people who arrive at unknown places at ease and comfortable is by having a very relaxed hotel in place for them to lodge in. This is one of the reasons why the hotel business continues to witness a boom.

Having provided you with a:

  1. Hotel Industry Overview
  2. Market Research and Feasibility
  3. Hotel Business Plan
  4. Hotel Business Marketing Plan
  5. Hotel Business Name ideas
  6. Hotel Licenses and Permits
  7. Cost of Starting a Hotel
  8. Hotel Marketing ideas

We will consider how much it cost to start a hotel from scratch including the operating costs.

  • Industry Overview

The hospitality industry has been in existence from time immemorial and it is still waxing strong simply because people can’t do away with the services they offer. When you talk about a hotel, you are talking about an establishment that provides lodging for guests/travelers, tourists, visitors et al, on a short-term basis for a fee. When people lodge in hotels, they have the option of subscribing to other services the hotel offers; services like feeding, drinks, laundry, fitness center, swimming pool, conference room, business room, amongst others.

Starting a hotel business could eventually be one of the best things to happen to you. This is because of the lucrative nature and the prosperity involved in this industry. Every day, foreigners as well as local migrants and business people travel from one point to the other and the option they are faced with is staying in hotels. It is pertinent to note that there are different categories of hotels, like the 5 star, 4 star and even 3 star hotels. One of the essential things that is unique to each category of hotel are the facilities that make them up.

The facilities provided by some hotels may range from a basic bed and storage wardrobe, to luxury features such as en suite bathrooms, mini parlors et al. It is the norm for big hotels to provide additional guest facilities like swimming pool, conference center, business center, childcare, self-service laundry, fitness center and social function services.

In some countries, hotels are required by law to serve food and drinks to all the clients that lodge in their facility while in some countries, you would have to choose the additional services you want from the hotel. The bottom line is the higher the amount you pay in hotels, the more the services you are entitled to.

Starting a hotel business is capital intensive and it is considered a long-term investment because it takes a while for the owners to break-even and starts making profits. No doubt it takes a big-time investor to consider starting his or her own hotel business, which is why loads of hotels are owned by groups of investors.

One good thing about the hotel business is that the business can grow so big that it will not only have active presence in key cities in the country where it started from, but in major cities in all the continents of the world. It is important to state that hotel operations vary in size, function and cost which is why hotels are classified into different grades (two star hotels, five star hotels, seven-star hotels et al).

Over and above, any aspiring entrepreneur can comfortably start his or her own hotel business by acquiring an existing hotel and then refurbishing it to meet the expected standard or start the business from the scratch by constructing a new hotel facility and then equipping it with the needed facilities.

How Much Does It Cost to Start a Hotel Business?

The cost analysis as it relates to starting a standard hotel business in the United States of America, Canada, United Kingdom, and Australia can be said to be almost the same except for few variations. For example, the cost of setting up a full-service state of the art hotel facility which has the following services and facilities; lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non–alcoholic drinks), swimming pool, gym, self–service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al, are same especially when bench–marked against the US dollars.

For instance, if you live in the United Kingdom and you decide to engage an international construction company to help you build your hotel, you will pay same price for their services no matter the part of the world you live in, the only variation will be the cost of shipping construction materials and equipment to your destination and of course labor cost.

Other factors that may be slightly different in terms of costing when it comes to starting a standard hotel business in any of the countries listed above are cost of labor, cost of transportation and logistics, local tax, insurance policies, branding and advertising cost, business incorporation fee, rent/leasing amongst other factors.

Over and above, when it comes to starting a medium scale hotel business, you should be prepared to either rent or lease a standard and centralized facility with good human and vehicular traffic; this is going to be one of the areas where you are expected to spend the bulk of your start–up capital.

How Much Does It Cost to Start a Hotel Business in the United States?

These are the key expenses you are expected to make when starting a medium scale but standard Hotel business in the United States of America

  • The total fee for registering the business in the United States of America – $750.
  • Legal expenses for obtaining licenses and permits (Health department license and business license) and permits (Fire department permit, Air and water pollution control permit, Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – $15,300.
  • Marketing promotion expenses for the grand opening of the hotel in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580.
  • The cost for a hiring business consultant (including writing business plan) – $2,500.
  • The cost for insurance (general liability, theft, workers’ compensation and property casualty) coverage at a total premium – $30,400.
  • The cost for leasing a standard facility in a good and centralized location – $450,000
  • The cost for remodeling the facility to fit into a standard hotel – $800,000.
  • Other start-up expenses including stationery ($500), phone and utility(gas, sewer, water and electric) deposits ($20,500).
  • The operational cost for the first 3 months (salaries of employees, payments of bills et al) – $120,000.
  • The cost for start-up inventory and equipment (supply of food ingredients and drinks, beds and pillows, cabins, racks, fridges, kitchen gadgets, washing machines, bar equipment amongst others) cleaning supplies ( soap, detergents/washing powder, bleach, starch/adhesive, laundry bags, invoices for wash-and-fold, bathroom supplies, racks, and hooks/hangers et al)- $45,000.
  • The cost for store equipment (cash register, security, ventilation, signage) – $13,750.
  • The cost for the purchase of furniture and gadgets (flat screen TVs, sound systems, telephone, printing machines, computers, tables and chairs et al) – $40,000.
  • The cost of purchase and installation of CCTVs – $15,500.
  • The cost for building and hosting a website – $600.
  • The cost for opening party – $20,000.
  • Miscellaneous – $50,000.

You will need an estimate of two million, five hundred thousand dollars ($2.5 million) to successfully set up a medium scale but standard hotel (within the category of 4 Star) in the United States of America. Please note that this amount includes the salaries of all the staff for the first 3 months of operation and a hotel with basic services and facilities such as lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non–alcoholic drinks), swimming pool, gym, self – service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al.

Starting a small scale but standard hotel business with minimal lodging and facilities that can only service a handful of clients per–time in just one location in the United States of America will cost about seven hundred and fifty thousand dollars to one million dollars ($750,000 to $1 million).

When it comes to starting a standard and large scale hotel business in the range of 5 star with services and facilities such as lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non – alcoholic drinks), swimming pool, gym, self – service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al in the United States of America and a hotel with the intention of selling franchise, then you should look towards budgeting well over five million dollars ($5 million).

How Much Does It Cost to Start a Hotel Business in the UK?

These are the key expenses you are expected to make when starting a medium scale but standard hotel business in the United Kingdom;

  • In the United Kingdom, online applications are usually registered within 24 hours and cost £12 (paid by debit or credit card or PayPal). Postal applications take 8 to 10 days and cost £40 (paid by check made out to ‘Companies House’). There’s a same day service costing £100.
  • Legal expenses for obtaining licenses and permits (Health department license and business license) and permits (Fire department permit, Air and water pollution control permit, and Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – £13,300.
  • Marketing promotion expenses for the grand opening of the hotel in the amount of £3,500 and as well as flyer printing (2,000 flyers at £0.04 per copy) for the total amount of £3,580.
  • The cost for hiring a business consultant (including writing business plan) – £2,500.
  • The cost for insurance (general liability, theft, workers’ compensation and property casualty) coverage at a total premium – £28,400.
  • The cost for leasing a standard facility in a good and centralized location – £405,000.
  • The cost for remodeling the facility to fit into a standard hotel – £780,000.
  • Other start-up expenses including stationery (£300), phone and utility (gas, sewer, water and electric) deposits (£19,500).
  • Operational cost for the first 3 months (salaries of employees, payments of bills et al) – £118,000.
  • The cost for start-up inventory and machines and equipment (supply of food ingredients and drinks, beds and pillows, cabins, racks, fridges, kitchen gadgets, washing machines, and bar equipment amongst others ) cleaning supplies ( soap, detergents/washing powder, bleach, starch/adhesive, laundry bags, invoices for wash-and-fold, bathroom supplies, racks, and hooks/hangers et al) – £43,500.
  • The cost for store equipment (cash register, security, ventilation, signage) – £9,500.
  • The cost of purchase and installation of CCTVs – £4,500.
  • The cost for the purchase of furniture and gadgets (flat screen TVs, sound systems, telephone, printing machines, computers, tables and chairs et al) – £30,500.
  • The cost for building and hosting a website – £600.
  • The cost for opening party – £18,300.
  • Miscellaneous: £48,000.

You will need an estimate of two million British Pounds Sterling (£2 million) to successfully set up a medium scale but standard hotel in the United Kingdom. Please note that this amount includes the salaries of all the staff for the first 3 months of operation and a hotel with basic services and facilities such as lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non–alcoholic drinks), swimming pool, gym, self – service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al.

Starting a small scale but standard hotel business with minimal lodging and facilities business that can only service a handful of clients per–time in just one location in the United Kingdom will cost about seven hundred and five thousand to nine hundred and eighty thousand British Pounds Sterling (£705,000 to £980,000).

When it comes to starting a standard and large scale hotel business in the range of 5 star with services and facilities such as lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non–alcoholic drinks), swimming pool, gym, self–service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al in the United Kingdom and a hotel with the intention of selling franchise, then you should look towards budgeting well over four million, five hundred thousand British Pounds Sterling (£4.5 million).

How Much Does It Cost to Start a Hotel Business in Canada?

These are the key expenses you are expected to make when starting a medium scale but standard hotel business in Canada;

  • For federal incorporation of business in Canada, the cost to incorporate is $200 if filed online through Corporations Canada’s online Filing Centre ($250 if filed through other means).
  • Legal expenses for obtaining licenses and permits (Health department license and business license) and permits (Fire department permit, Air and water pollution control permit, Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – $15,300.
  • Marketing promotion expenses for the grand opening of the hotel in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580.
  • The cost for hiring a business consultant (including writing business plan) – $2,500.
  • The cost for insurance (general liability, theft, workers’ compensation and property casualty) coverage at a total premium – $30,400.
  • The cost for leasing a standard facility in a good and centralized location – $450,000.
  • The cost for remodeling the facility to fit into a standard hotel – $800,000.
  • Other start-up expenses including stationery ($500), phone and utility (gas, sewer, water and electric) deposits ($20,500).
  • The operational cost for the first 3 months (salaries of employees, payments of bills et al) – $120,000.
  • The cost for start-up inventory and equipment (supply of food ingredients and drinks, beds and pillows, cabins, racks, fridges, kitchen gadgets, washing machines, and bar equipment amongst others) cleaning supplies ( soap, detergents/washing powder, bleach, starch/adhesive, laundry bags, invoices for wash-and-fold, bathroom supplies, racks, and hooks/hangers et al)  – $45,000.
  • The cost for store equipment (cash register, security, ventilation, signage) – $13,750.
  • The cost for the purchase of furniture and gadgets (flat screen TVs, sound systems, telephone, printing machines, computers, tables and chairs et al) – $40,000.
  • The cost of purchase and installation of CCTVs – $15,500.
  • The cost for building and hosting a website – $600.
  • The cost for opening party – $20,000.
  • Miscellaneous – $50,000.

You will need an estimate of two million, five hundred thousand dollars ($2.5 millionCAD) to successfully set up a medium scale but standard hotel (within the category of 4 Star) in Canada. Please note that this amount includes the salaries of all the staff for the first 3 months of operation and a hotel with basic services and facilities such as lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non–alcoholic drinks), swimming pool, gym, self – service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al.

Starting a small–scale but standard hotel business with minimal lodging and facilities that can only service a handful of clients per–time in just one location in Canada will cost from seven hundred and fifty thousand dollars to one million dollars ($750,000 to $1 million).

When it comes to starting a standard and large scale hotel business in the range of 5 star with services and facilities such as lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non – alcoholic drinks), swimming pool, gym, self – service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al in Canada and a hotel with the intention of selling franchise, then you should look towards budgeting well over five million dollars ($5 million).

How Much Does It Cost to Start a Hotel Business in Australia?

These are the key expenses you are expected to make when starting a medium scale but standard hotel business in Australia;

  • In Australia, the fees to register your business name with ASIC include: $34 for 1 year. $80 for 3 years.
  • Legal expenses for obtaining licenses and permits (Health department license and business license) and permits (Fire department permit, Air and water pollution control permit, and Sign permit et al) as well as accounting services (CRM software, Payroll software, P.O.S machines and other software) – $15,300.
  • Marketing promotion expenses for the grand opening of the hotel in the amount of $3,500 and as well as flyer printing (2,000 flyers at $0.04 per copy) for the total amount of $3,580.
  • The cost for hiring a business consultant (including writing business plan) – $2,500.
  • The cost for insurance (general liability, theft, workers’ compensation and property casualty) coverage at a total premium – $30,400.
  • The cost for leasing a standard facility in a good and centralized location – $450,000.
  • The cost for remodeling the facility to fit into a standard hotel – $800,000.
  • Other start-up expenses including stationery ($500), phone and utility (gas, sewer, water and electric) deposits ($20,500).
  • The operational cost for the first 3 months (salaries of employees, payments of bills et al) – $120,000.
  • The cost for start-up inventory and equipment (supply of food ingredients and drinks, beds and pillows, cabins, racks, fridges, kitchen gadgets, washing machines, and bar equipment amongst others) cleaning supplies (soap, detergents/washing powder, bleach, starch/adhesive, laundry bags, invoices for wash-and-fold, bathroom supplies, racks, and hooks/hangers et al) – $45,000.
  • The cost for store equipment (cash register, security, ventilation, signage) – $13,750.
  • The cost for the purchase of furniture and gadgets (flat screen TVs, sound systems, telephone, printing machines, computers, tables and chairs et al) – $40,000.
  • The cost of purchase and installation of CCTVs – $15,500.
  • The cost for building and hosting a website – $600.
  • The cost for our opening party – $20,000.
  • Miscellaneous – $50,000.

You will need an estimate of two million, five hundred thousand dollars (AUD$2.5 million) to successfully set up a medium scale but standard hotel (within the category of 4 Star) in Australia. Please note that this amount includes the salaries of all the staff for the first 3 months of operation and a hotel with basic services and facilities such as lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non – alcoholic drinks), swimming pool, gym, self – service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al.

Starting a small–scale but standard hotel business with minimal lodging and facilities that can only service a handful of clients per–time in just one location in Australia will cost from seven hundred and fifty thousand dollars to one million dollars (AUD$750,000 to AUD$1 million).

When it comes to starting a standard and large scale hotel business in the range of 5 star with services and facilities such as lodging, meals (local delicacies, Chinese cuisines, intercontinental cuisines et al), drinks (wines, beers, distilled spirits, martinis, beverages and non–alcoholic drinks), swimming pool, gym, self–service laundry room, business center, mini mart, conference room, banquet venue, childcare and shuttle service et al in Australia and a hotel with the intention of selling franchise, then you should look towards budgeting well over five million dollars (AUD$5 million).

Estimating Start-Up Cost for Hotel Business Based on the following factors;

  • Specific Location

Hotels are part of human lifestyle hence it must be located in a good location; a location that is highly secured and easily accessible from airports and business districts if indeed you want to maximize profit from the business.

It cannot be over-emphasized that the location you chose to open your hotel is key to the success of the business, hence entrepreneurs are willing to rent or lease a facility in a visible location; a location where the demography consist of people with the required purchasing power and lifestyle.

If you make the mistake of renting or leasing a facility for your hotel business in a not too visible or hidden location simply because it is cheap, then you must be prepared to spend more in promoting the business and perhaps giving direction to potential customers.

  • Staff/Manpower

When it comes to starting a standard hotel business on a large scale, you would need the services of the following professionals;

  • Chief Executive Officer (Owner)
  • Hotel Manager
  • Human Resources and Administrative Manager
  • Bartender/Baristas
  • Accountant/Cashier
  • Merchandize Manager
  • Marketing and Sales Executive
  • Facility/Maintenance Manager
  • Marketing Officer
  • Front Desk Officer
  • Cleaners/Washer men
  • Security Officers

Can Hotel Business be Bootstrapped on a Lean Budget Right from Home?

Because of the nature in terms of size and cost of the facility and equipment involved in starting and operating a hotel, it is obvious that it cannot be bootstrapped on a lean budget from home.

As a matter of fact, the business is open to the general public and you would not want complete strangers to continue to storm your house on a regular basis and at different times of the day simply because you want to run a hotel business.

On the other hand, if you want to start a similar business such as bed and breakfast business, then you can successfully bootstrap the business on a lean budget right from your home especially if you already have the required spare rooms and other key facilities on ground.

How Much Does It Cost to Buy a Hotel Franchise?

In the United States of America, the Average Cost of Purchasing a Hotel Franchise is: Initial Franchise Application Fee ($85,000 plus and additional 300 for each guestroom in excess of 275 guestrooms). Examples of 3 Well – Known Hotel Franchising Companies in the United States of America are;

  • Wyndham Hotels and Resorts
  • Hilton Hotels & Resorts
  • Marriott International

In the United Kingdom, the Average Cost of Purchasing a Hotel Franchise is £50,000. Examples of 3 Well – Known Hotel Franchising Companies in the United Kingdom are;

  • InterContinental Hotels and Resorts
  • Choice Hotels Europe
  • Radisson Blu Edwardian hotels

In Canada, the Average Cost of Purchasing a Hotel Franchise is: Initial Franchise Application Fee ($85,000CAD plus and additional 300 for each guestroom in excess of 275 guestrooms). Examples of 3 Well – Known Hotel Franchising Companies in Canada are;

  • Choice Hotels Canada®
  • Travelodge or Thriftlodge Hotel Franchise
  • Best Western Hotels and Resorts

In Australia, the Average Cost of Purchasing a Hotel Franchise is: Initial Franchise Application Fee (AUD$85,000 plus and additional 300 for each guestroom in excess of 275 guestrooms). Examples of 3 Well – Known Hotel Franchising Companies in Australia are;

  • Quest Apartment Hotels
  • AccorHotels
  • Choice Hotels Australia®
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