Entering Innkeeping, Part 5

As you explore the physical opportunities for entering the Inkeeping world, talking with realtors, chambers of commerce, current owners of B&Bs and Inns, even those who casually rent space in their homes, it will be important to begin to do some analysis. Careful analysis of the elements of your business as it develops is important to reaching the goals you've established for yourself and your business. I’ve organized the areas of analysis into these five categories:
• Site
• Market
• Size
• Competitive
• Supply & Demand

The site. Here we’re talking about the physical components of your potential new enterprise, and let’s not forget your new home. This business development is about you, your preferences, and your interests. Be sure the location and site are conducive to your interests. If, for example, you hate the heat, don't consider properties in the deep south. If you hate gardening, don't consider a property with acres and acres of lawns, fields, gardens.

You will spend a great deal of time at your home/business and it will become a reflection of your tastes and interests. As you begin your search you might want to make a short list of specifications that starts somewhat like:
• In a skiing area for your love of all winter sports and the mountains
• A city population of no less than 20,000 with excellent schools
• With-in a two hour drive to major medical facilities

You'll also want to assess the amenities at the location that will meet your guests' needs. As examples:
If you're considering a beach resort community, will your business be convenient to the beach, shopping, dining, parking?
If food service is not nearby, are you planning to provide that service in-house?
If you are interested in a remote location, is there sufficient road signage for guests to physically find your property in the night?

Market analysis is a collection of economic data of the area. The local government or Chamber of Commerce collect and maintain records of the area's economic health. You'll want to have historical data to review the economic trends for your potential hometown, its present economic health, and projections for its future including any developments in the planning stages. The big question you want to have answered, Is there a market for your new venture in the location that you are considering? This is not the time to depend on anecdotal information, but rather cold, hard facts. This information isn’t sexy or romantic, but crucial for your success.

Size analysis is a matter of determining the number of guest rooms you will manage. This is another important analysis that will affect the outcome of your venture on a number of levels. If you plan for a B&B/Inn of 2-4 rooms, you may find you are completely comfortable working the business with no additional staff.
To the other extreme, if you plan for a 32 room property, you will rely on employees and you may find yourself more heavily involved in staff management than you would prefer. How are you planning your personal time each day?

Your financial goals are another consideration. If your goal is some additional income, then you may find a small property appropriate. To the other extreme, if your new business is to be your primary means of income, the sales potential of a larger property may be necessary to meet your goals.

Carefully consider the property size in relation to your interests and financial goals.
Real estate investment that will provide a specific (substantial) return in a specific projected time frame.
In and Out in 5-10, etc? You know your goals. Do they match the site you have in mind, the market you’ve selected?

So far, most of your focus as been on you, your wants, and how to get, it. Now we’re focusing on the community that will be around you.

• How many other lodging businesses are in the area and how many rooms do they constitute?
• What are their rates?
• Do they offer discounted pricing?
• Are there minimum stay requirements, which indicate they are busy enough to be selective?
• Are any of the properties similar to your property?
• What markets are being served by your competitors?

When you have the answers to these questions, you'll be able to determine where and how your property will fit in the lodging landscape of your area.

The last area of analysis is supply and demand. Much of this information will also be available from local government and Chambers of Commerce, especially in communities who rely on tourism for at least part of their economic health. However, in some areas you may have to make some assumptions on which to base your analysis because area hoteliers and innkeepers may not have or be interested in sharing statistical information.

However, a little well thought research can help you come to some good conclusions.

• Calculate the area's overall occupancy rate, OCC. This is a sum of all the potential rooms available in your market, compared to the number of these rooms that are occupied in a specific time frame.
• You'll also want to calculate an estimated average daily rate, ADR. You’re looking for the total room revenue collected in your market for a specific time frame. You will compare that number to the total number of room nights for the same period. You want to make some comparative calculations between the information you can gather from your market area, and what you have in mind for your own venture.
• Make a careful review of the different market segments being served and any known goals for market growth or expansion. For example, if you discover there is a 400 room hotel about to be developed in your area, that certainly changes your market and you may be uncomfortable competing for travelers in that market.
• Based on the information you have gathered it will be important for you to estimate your properties projected occupancy and average daily rate for year 1, year 2, and year 3.

I can’t stress sufficiently the value of this work. It will be the foundation for all that you do in developing your business venture. Just as in building any structure, no matter how pretty the interiors, it’s the foundation that supports all the pretty. Work to establish your business venture on the solidest of footings.

Once you’re worked through this analysis, it’s important to digest your work so that you can communicate your venture clearly to those around you. You may be talking with lenders, marketing professionals, artists, vendors, potential employees, neighbors, family, and friends. While I think the term is overused, and I avoid its use as much as possible, I’m talking about a Mission Statement.

You want to clearly know and understand the answers to these two questions:
• How will the Inn be different from other guest lodging opportunities?
• Why will the guest prefer your lodging opportunity?

What was once a cloudly “idea” for a potential business in your future, should now begin display itself as a clear vision. With all the information you have gathered, you’re ready to write your business plan.