How to Successfully Run a Small Hotel or Guesthouse

Choose the Right Location for Your Hotel. Before pinpointing the exact spot, think broadly and decide which city or town to establish your hotel. At the very least, consider the local tourism industry. Since this isn't a hotel chain but a small guesthouse or hotel, you'll likely cater more to vacationers and tourists than business travelers. Therefore, you need to select a location that attracts visitors. Look through travel websites or books to identify popular destinations, then start searching for a suitable spot to set up your hotel.

Decide Whether to Buy an Existing Hotel or Build a New One. This is the first decision you need to make after selecting a city. You can either purchase a hotel that's already on the market or build one from scratch. Both options come with their own advantages and disadvantages, which you should carefully consider before making a choice.

• Buying an existing hotel is often cheaper than building a new one, unless significant renovations are required. You can also retain some of the staff, making future hiring easier. However, if the hotel you plan to buy has a bad reputation, your profits could suffer. You'll need to work hard to advertise that the hotel is now under new management.
• Building a new hotel is typically more expensive. On the upside, you can design it according to your preferences, tailoring it to your unique tastes or market demands. Keep in mind that if you build a new hotel, you'll need to actively advertise to attract guests. You should also ensure the location is zoned for hotels and guesthouses.

Survey Other Hotels, Guesthouses, and Inns in the Area. You need to understand the competition you'll face and how to carve out your own market. There are several things to investigate when surveying potential competitors. This will give you ideas on how to make your hotel stand out.

• Research the pricing at other hotels. Survey nearby hotels and check their room rates. Remember, price isn't everything—if a hotel has low rates but terrible customer reviews, don't try to compete by lowering your prices.
• Read online customer reviews. This will help you understand what guests praise or complain about at other hotels. You can then identify what customers want and tailor your services accordingly.
• Explore the additional services offered by nearby hotels. Do they have a restaurant? A pool? A gym? Breakfast service?
• Book a room at nearby hotels to experience their services firsthand. Spending a night at a competitor's hotel will give you a clearer perspective and inspire ideas for your own establishment.

Understand Your Primary Market. This will help you tailor services to your target customers. Small hotels and guesthouses often attract tourists who stay for just a few nights. If your hotel is in a rural area or small town, you'll likely see many guests seeking a break from the hustle and bustle of big cities. If so, consider decorating your hotel to reflect the simple, peaceful lifestyle of small-town living.

Decide on Additional Services to Offer Alongside Hotel Rooms. Guests often seek privacy and comfort, so provide services that make them feel relaxed and at ease. Tourists staying at small hotels usually want to unwind, so consider creating a secluded outdoor space for them to relax. Small hotels may not have amenities like restaurants or gyms, but you can still offer these services. However, remember that each additional service increases costs, including construction and maintenance. Carefully budget to avoid overspending on these investments.

Hire an Accountant. Even if opening a hotel is your lifelong dream, remember that it’s a financial investment. Unless the hotel is very small or you have accounting expertise, you’ll typically need an accountant to manage finances. All hotels, even small ones, have expenses like staff salaries, utility bills, rent, equipment costs, and taxes. An accountant will help you navigate the complexities of financial management and secure your financial future. The U.S. Small Business Administration recommends the following steps to find a reliable accountant.

• Referrals are often the best way to find a trustworthy accountant. Ask local small business owners about their accountants and whether they’re satisfied with their services. Attend networking events hosted by local chambers of commerce to connect with potential accountants.
• Schedule meetings with potential candidates. Most accountants offer free consultations to introduce themselves. Meet with candidates to discuss their experience and qualifications, and determine if they’re a good fit for your business.
• Check if they have experience in the hospitality industry. Hotels require specialized knowledge, so it’s ideal if the candidate has worked in a hotel, preferably a privately owned one. This ensures they’re familiar with the challenges you may face.
• Assess their reliability. Beyond experience, you need someone who’s dependable. If they’re late, unresponsive, or careless, they’re not a good fit, regardless of their expertise. Remember, you’re building a long-term partnership to grow your business.

Create a Business Plan. When opening a hotel, you’ll likely need funding from a bank or private investors. Both will want to review your business plan to decide if your venture is worth investing in. A solid business plan also helps you outline your goals and visualize how to achieve success. Your hotel business plan should include the following:

• Services your hotel will offer. Highlight what sets your services apart from competitors. Are your room rates more competitive? Do you offer more personalized services? Investors want to know what makes your hotel unique.
• Target customers. Define your audience and explain why they’ll choose your hotel over others.
• Revenue projections. Investors want to see profitability. With your accountant’s help, estimate your annual revenue, how long it will take to break even, and your hotel’s financial outlook in the coming years.
• A detailed cost analysis. Starting a hotel involves significant expenses, from purchasing or leasing property to renovations and furnishing. Provide accurate estimates of startup costs and include a breakdown of daily operational expenses. It may take months to attract enough guests to cover costs, so ensure you have funds to sustain operations during that period.

Secure Startup Funding. Once your business plan is ready, present it to potential investors. A well-prepared plan demonstrates your hotel’s profitability and convinces investors to contribute the funds you need. You have two primary funding options, often used in combination.

• Bank loans. You can borrow money from a bank with repayment terms ranging from months to years, depending on the loan type. This can help cover startup costs and initial operational expenses.
• Private investors. These could be friends, family, or other business owners interested in investing. Clearly define whether they’re lending you money (to be repaid with interest) or investing in your business. Draft a formal agreement outlining the terms and have it notarized to avoid future disputes.

Set Your Pricing. When opening a hotel, your pricing strategy will directly impact profitability. Room rates vary based on local competition, operational costs, tourist seasons, and numerous other factors. The key is to set prices low enough to attract guests but high enough to ensure profitability. Here are some considerations when determining your rates.

• Understand your costs. Calculate your daily operational expenses accurately, then multiply to determine monthly costs. Your revenue must at least cover these monthly expenses; otherwise, sustaining your business will be challenging.
• Identify what guests are willing to pay. This requires experimentation. Initially, base your rates on operational costs. After a few months, if rooms are consistently booked, consider raising prices. If occupancy is low, reduce rates. You can also survey guests after their stay to gauge their perception of your pricing.
• Adjust prices seasonally. During peak tourist seasons, increase rates to capitalize on higher demand. In off-peak periods, lower prices to attract budget-conscious travelers.

Cut Costs When Necessary. Even with sound financial management, your business may face slow periods. Regularly analyze expenses to distinguish between essentials and non-essentials. During downturns, eliminate unnecessary costs. For example, if occupancy is low and only a few rooms are booked, you might not need a full-time receptionist. Handling reception duties yourself can save on staffing expenses.

Hire Essential Staff. The size of your team depends on the hotel's scale. A small guesthouse may only need a few helpers, while even small hotels with multiple rooms require a dedicated team for smooth operations. When hiring, consider filling at least the following roles.

• Housekeeping staff. Cleanliness is a top priority in the hospitality industry. A dirty hotel quickly gains a bad reputation, driving guests away. Depending on your hotel's size, you may need one person or a team. One housekeeper can typically handle 10-15 rooms per day—keep this in mind when hiring.
• Reception staff. Even small hotels need someone at the front desk. You can cover some shifts yourself, but a 24/7 reception team is essential.
• Maintenance workers. One or two maintenance staff are sufficient for a small hotel. They should be versatile, handling tasks like plumbing, electrical repairs, painting, and minor fixes. This allows you to address small issues in-house and hire professionals only for major problems.
• A chef. If you plan to offer dining services, hire at least one cook. Small hotels may only serve breakfast, so a part-time chef working a few hours daily might suffice.

Thoroughly Vet All Candidates. Interview all potential employees and speak with their references. Conduct background checks as well. Remember, your staff will have access to guest rooms and belongings. Ensure every team member is trustworthy before granting them such access.

Provide a Comprehensive Employee Handbook. Establish clear guidelines that all staff must follow to ensure consistent service quality. Require every employee to read the handbook as part of their training. The handbook should outline your expectations for each role.

• Emphasize that all guests must be treated courteously. Poor service will drive customers away and harm your business.
• Clearly state prohibited activities within the hotel and specify conditions for contract termination.

Schedule Regular Staff Meetings. Weekly or monthly meetings help maintain good relationships with your team. Use these sessions to ask for feedback on potential improvements and encourage staff to suggest changes. Recognize and praise employees for their good work to foster a sense of teamwork. Listen to their input—even as the owner—because they may have industry experience you lack and can offer valuable insights.

Be Accessible to Your Team. Let employees know they can approach you anytime with questions or concerns, and assure them you’ll listen. Be present at the hotel regularly and take an active role in management. This approach makes staff feel more comfortable and open with you. If you’re rarely around, you may seem distant, and they’ll hesitate to communicate openly.

Design a Website. Without an online presence, your hotel remains virtually invisible to potential guests. You can create your own website, but investing in a professional design is worthwhile—cheap websites are easily noticeable. At a minimum, your site should include the hotel’s name, location, contact details, and room rates. Small hotels often attract guests seeking privacy, so cater to this by providing detailed information. Ensure all content is accurate and up-to-date, as outdated information can make your hotel appear inactive or unprofessional, harming your business.

• Include photos of the hotel. Guests want to see where they’ll stay. Post images of rooms and surrounding areas.
• Add personal information. Personalize the site by sharing details about yourself. If staff are willing, feature them as well. This creates a private, welcoming feel that appeals to guests.
• Highlight the hotel’s history. If your hotel is in a historic building, attract history enthusiasts by detailing the building’s and area’s past.
• List any special rates or offers.
• Describe nearby attractions. If your hotel is close to tourist spots, promote this to position it as a convenient stay for travelers.

Advertise on Travel Websites like Expedia, Viator, or Hotels.com. These platforms cater to travelers searching for accommodations and destinations. Listing your hotel here attracts guests from across the country and even internationally.

Place Small Advertisements at Intercity Bus Stops. Most bus stops have areas for travel brochures and advertisements. Contact these locations to see if you can place your promotional materials there. Small hotels often benefit from spontaneous decisions by travelers. This advertising method can help you tap into a potential market.

Offer Special Deals. Group discounts, complimentary breakfasts, and reduced rates for extended stays are excellent ways to attract budget-conscious guests. Promote all your offers on your website. However, ensure that your discounts still cover operational costs.

Host Events. Events like weddings or corporate retreats can bring in significant business. Even if your hotel has only a few small rooms, it might still have enough space for intimate gatherings. While large conferences may not be feasible, many businesses now prefer smaller, more personal venues for executive meetings. A small-town guesthouse can be an ideal setting for such events. Advertise on your website and travel platforms that you’re open to hosting events and offer special rates for attendees.

Collaborate with Local Businesses. Small hotels often operate near popular attractions. Leverage this by partnering with nearby businesses for mutual promotion. Contact managers of parks, historic sites, restaurants, and theaters to explore collaboration opportunities. Offer to display their brochures in your lobby if they recommend your hotel to visitors. This can attract local tourists who might not otherwise see your ads.

Ensure Every Guest Has an Exceptional Experience. Beyond other advertising methods, word-of-mouth is incredibly powerful. Guests who stay at your hotel may share their experiences with friends, family, and on social media. Strive to ensure all feedback is positive, as even one dissatisfied guest can harm your business if they post negative reviews online. By guaranteeing a wonderful stay, you build customer loyalty, which is one of the best forms of advertising.

Nurture Repeat Customers. Guests who have enjoyed their stay at your hotel represent a valuable market. Beyond providing excellent service during their visit, there are several ways to encourage them to return.

• Build an email list. Use this list to inform guests about ongoing promotions. It’s better to let guests opt-in rather than emailing everyone who has stayed with you. Unsolicited emails can annoy customers and drive them away.
• Reward loyal customers with special offers. There are many ways to do this. Offer discounts for extended stays, a free night after a minimum number of visits, or a points-based system where guests can earn rewards.
• Respond to guest feedback. Many travel websites allow hotels to reply to reviews. Take advantage of this feature by addressing both positive and negative comments. This shows guests that you value their opinions and increases the likelihood of their return. It also signals to potential customers that you’re committed to excellent service.