Ch  1 Hospitality
Ch  2 Basics
Ch  3 Theme
Ch  4 Better Old
Ch  5 Legal
Ch  6 Front Desk
Ch  7 Remodeling
Ch  8 Finance
Ch  9 Schedule
Ch 10 Labor
Ch 11 Marketing
Ch 12 Accounting
Ch 13 Now What
Ch 14 Forms

Financing Options

     It is all about the business plan. If you have a profession looking and detailed business plan then you can normally find get a bank or private investor to fund your business. So what should be in this plan and how do you find the bottom line?

    Your first step is to find out how much money you can expect to make. No need to figure how much it will cost until you know what you have to spend. Your room rate will vary based on may factors and should be in the ball park of your competition.

    Most rates vary during the season and can usually be separated by on season and off season. Also the size, amenities, view, location, and many other factors must be taken into consideration. Also you may want to start a little below the competition so that you can insure a better occupancy rate for the first year or so.

    Now you need to know the average occupancy for your region and competition. It may be around 60% so a start up business can expect half that in the first year or 30%. Remember the bank is looking for realistic numbers so do not fudge on this. Most business plans span three or more years so you can expect a 10% increase by the end of the first year, and a 30% increase the second. By the end of the third year you should reach the area average of 60%.

OK, lets start adding it all up.

  • Write down the peak and off season price of each room.

  • Total the peak season income using first year occupancy of all your rooms and divide by total number of rooms to find average peak season rate. For this example lets say it is $200

  • Total the off season income using estimated occupancy of all your rooms and divide by the total number of rooms to find your off season rate. For this example lets say it is $150

  • Find your max occupancy by multiplying your total rooms by 365 and then multiply this number by 50% of the maximum regional occupancy. ie. 5 rooms times 365 times .30 will give you the first years average of 547 nights.

  • Next you will multiply the 547 times the number of on season average priced nights and then add 547 times the number of off season average priced nights. Example: if peak season were 200 days then 547 – 200 = 347 off season nights. 200 times $200 = $40,000 plus 347 times $150 = $50,050 for a grand total of $92,050.00

  • Repeat this process for two more years adding 10% occupancy increase to second year and 30% occupancy to second year, followed by the regional average on the third year.

    Now you have a pretty good idea of what you can expect to earn for the first year and beyond. Hope you are still with us. The numbers are often disappointing especially because we already have a rough idea of our expenses. But now you know the budget and maybe you can make some adjustments on your expenses to compensate.

    So let's ignore the start up expenses for now and start looking at the operating expenses. The biggest in all likely hood will be advertising or RSO reservation services. Either way you can expect to pay 20% to 30% of each customers invoice to advertising or RSO expenses.

    Next, based on how much you must borrow for the property and start up expenses you will need to add in the mortgage/business loan payments you will be making each month.

    Now you can add in things like utilities, expendable supplies, including food costs. Depending on your wallet you will be adding in cleaning services, laundry services, and accounting services.

    Let's compare the income to the costs. Still want to do this? Remember, if you are creative you can reduce the costs and with good marketing skills, you can increase the income. It will be hard work but if this is your dream the long hours and sacrifice to get started will pay off big time. Most Inns do not make a profit until the third year.

    Again make sure that you package all this information in a professional looking package with charts and reports that show as much detail as possible. And keep in mind that there are lots of alternatives to financing other than the local bank. Check with the chamber or commerce for local investors. Also do not forget relatives, and credit cards.