How to start a hotel business

Identifying a market with growth potential is key to a successful business; so why not set up in the hotel trade and tap into the burgeoning tourism market?

According the British Hospitality Association (BHA), the hospitality industry now supports more than 2.7 million people. The hotel industry represents a hugely important part of it, with more than 45,000 establishments across the UK responsible for jobs in hotels and related services.

Total combined turnover for the hotel industry is estimated to exceed £40bn – a significant portion of the £127bn tourist economy.

By 2025 this figure is forecast by accountancy firm Deloitte to rise to £257bn, which is around 10% of the UK’s GDP. It will support 3.8 million jobs at that point, which is around 11% of the UK workforce.

Actual tourism spending in 2013 reached £113bn, with £24bn via international visitors and £89bn from domestic residents. And for every £1,000 generated directly from tourists into the industry, a further £1,800 goes into the economy via the supply chain and consumer spending, Deloitte’s report Tourism: jobs and growth states.

This suggests that despite threats of terrorism, flooding, and bad summer weather in recent years, which have undoubtedly hampered the UK tourism industry, there has been strong growth, particularly following some key international events.

In 2011, overseas tourists spent £8.6bn in London alone, and this figure increased further in 2012, with the Royal Wedding triggering a honeymoon period in Britain’s hotel and leisure industry.

The 2012 London Olympics boosted the tourism industry further yet, and there is hope that its success will trigger a sustained increase in the number of people spending their holidays in the UK.

And while London predictably accounts for the lion’s share of all inbound visitor spend at 54%, the rest of England at 33%, Scotland at 8% and Wales at 2% generate billions of pounds each.

For other figures on the tourism economy, it’s worth visiting the Visit Britain website, which regularly updates industry data.

So if you enjoy meeting people and have a passion for quality of service, running a hotel could be just the type of business you’re looking for.

What is a hotel business?

David Stanbridge, formerly head of quality of the English Tourism Council (ETC, nowVisitEngland), told us: “A B&B [will] only provide breakfast and it is usually someone’s home, whereas a hotel generally offers all meals and is not a residential property. Guesthouses purely provide facilities for their own guests, while hotels can also offer extra services for non-guests.”

The crux of the hotel business is, of course, the provision of accommodation. The size of the establishment can vary widely, from just a few beds to a Las Vegas-style skyscraper, and while beds are a prerequisite, a hotel owner can also choose to incorporate a range of add-on services, such as a restaurant, conference facilities or health and spa amenities.

Having training and experience in the hospitality trade will be of great benefit in being able to provide the quality of service that guests have come to expect from hotels.

The Institute of Hospitality represents professionals within the industry; while there are no professional qualifications or association memberships required to begin trading, the Institute does have a range of management guides and training programmes for those looking to establish a hotel business.

While a track record in the hotel business may not be a requirement, the ability to work with people is a necessity. Stephen Hipwell and Jerry Lee took over the Granville Hotel on Brighton’s seafront in November 2000.

Hipwell had previously been a paramedic working in London, while Lee was a shipping manager. “Neither of us had any experience of the hotel trade, but we were both used to organising and dealing with staff and the public,” says Hipwell. “In this business, people skills are everything.”

An eye for quality is also a prerequisite; guests are looking for quality all the time, such as in the food and the standards of the rooms. If they are dissatisfied, they won’t come back. It’s also worth remembering that people travel more now, and so expectations have increased. Guests are less tolerant of rudeness or uncleanliness than they’ve ever been before, and they expect to get value for money.

Quality does not mean having to be expensive, but it means having to be good at your price level.

How to prepare before you open your hotel

First, consider what type of hotel you want to run. Is it going to be a small, cosy affair catering for couples seeking a romantic weekend break, or a larger, metropolitan establishment servicing the corporate market? Some hotels pitch for both business and private clients.

The types of clients you attract depends, in large part, on the hotel’s location. For example, in 2011 the London tourism industry grew, with more than 14.6 million journeys made; however, other parts of the UK saw a decline.

Your target clientele should inform the style and décor you go for; a rustic setting will weigh against attracting corporate clients and will more likely appeal to people seeking quiet seclusion away from the city hubbub.

Your target clientele will also determine the relevant amenities you might need to offer; for example, conference facilities or a hotel phone system for room service.

A hotel that combines proximity to a reasonably sized town with the quiet of the country can appeal to a wider segment of the market.

Many hotels attract mainly corporate clients from Monday to Friday, before the clientele switches to wedding guests and city dwellers looking for an escape at weekends.

Hotels in Brighton see demand from all quarters. The conference season, which runs from March to November, attracts a steady stream of visitors. Like Blackpool, Brighton is often host to political party conferences.

Meanwhile, being a seaside resort draws a lot of tourists from abroad, particularly during the summer months. Brighton’s proximity to London also makes it a popular destination for people seeking to escape the capital for a weekend.

“There is a good all-year round business in Brighton as a result of its proximity to London and the number of conferences that are held here,” explains Hipwell. “But our bread and butter are the couples who come at the weekend for a romantic break.”

Although achieving a ‘star’ status from VisitEngland or the AA, or specialist websites such as tripadvisor.co.uk, is not compulsory, accreditation helps provide your prospective customers with a yardstick of what to expect. Accommodation will be rated on factors such as cleanliness, range and quality of facilities, service, quality of fixtures and fittings, and ambience.

The standards of VisitEngland and the AA were merged in 1999, but each still has its own guides and websites by which it promotes accredited hotels, so you can choose to join one, both – or none. “Each organisation’s costs are very competitive with each other,” says Stanbridge. “The cost depends on the size of the accommodation, but it is in the hundreds of pounds, rather than the thousands for the average provider.”

The rules and regulations involved in starting and running a hotel business

There is a mass of legislation pertaining to hotels. The main areas are: health and safety rules; strict regulations on kitchens, including food hygiene requirements; and the labyrinthine employment law.

For a rundown of the main rules and regulations, you can check out the Pink Book, which give up-to-date regulatory information.

The specific regulations pertaining to your business will vary according to your location and size, and the amenities you offer. With this in mind, David Stanbridge advises contacting your local authority to find out what the specific requirements will be for your premises.

The amount you will need to do in meeting the regulations depends on whether you are buying an existing hotel or setting up a new establishment. “We were buying a going concern [when we acquired our hotel], so the regulations, such as the fire certificates, were already in place. However, we got a solicitor to check the various legal requirements were being met,” says Hipwell.

Bear in mind that hotels undergo a thorough inspection each year. Any breaches have to be put right, or you could be closed down.

How much can I make as a hotelier?

There are two schools of thought when it comes to turnover. The first is to keep earnings below the VAT threshold, which is £81,000. If you fall beneath the threshold, you may be able to make a 40% profit on turnover.

The alternative is to go all out to earn as much as possible. To make it worthwhile you need to earn considerably more than the VAT threshold, which means taking £100,000 plus.

So what can you do to maximise your income? The main source will almost certainly be from accommodation. In trying to attract visitors year-round, location will be a major factor. Brighton is a popular getaway from London, so targeting couples looking for a weekend break, as well as the lucrative stag and hen market, has proved lucrative for several hotels, including the Granville.

If your location leans towards a particular market, you could improve your prospects by offering tailored facilities. For example, if you’re going to be based in a coastal spot which attracts plenty of divers and surfers, you could boost your profile by providing drying rooms for equipment.

Offering supplementary facilities and events can also help expand your earnings. Some hotels house a restaurant that is open for lunch and dinner, thereby enticing guests to use the hotel’s facilities, rather than spend their money elsewhere. A number also host wedding receptions; many require the wedding party to take over the entire hotel from Saturday until Sunday lunch, thus ensuring that all its rooms will be paid for.

Given the overall seasonality of the hotel business, cash flow remains a major consideration, warns Smith. “If it is a couple looking to go into the business, we encourage one of them to keep up an outside income, at least in the early stages. That way you can earn some money through the winter to help supplement the summer income.”

While fluctuating income and hard work can be a disincentive to setting up in the hotel business, the potential financial reward and opportunity to meet people may ensure this is a bed you are happy to lie in.