The importance of planning in hotels: the business plan

What is a “business plan”, when is it written and what is it for?

The first fundamental step, during the creation of a new company, of a start –up, of a new hotel, as well as in the case we want to “relaunch” (reposition) a hotel, is the preparation of the “business plan”. Entrepreneurs in hotellerie often underestimate this step.

The “business plan” helps the entrepreneur finalize “his idea” by understanding its realizability: it helps him schematize what are the chances of success of the new business and what are the weaknesses to be strengthened.

In hospitality, the “business plan” is a useful business-planning tool, essential for various tasks. For example, it is useful for identifying the best locations to acquire hotels (the choice of a certain location rather than another one), for understanding the market positioning (number of stars), which “product” (USP or unique selling proposition) to offer in order to differentiate from competitors and for understanding the return on investment (ROI).

Let’s see together the main benefits of a good “business plan” management policy for the hotel entrepreneur.

The business plan is a tool that serves, on the one hand, to communicate and, on the other hand, to better understand the entrepreneur’s motivations for starting his business or hotel. It is a valuable document because it describes the business idea and the project in detail.

Firstly, the “business plan” is a strategic tool (useful in financial negotiations with lending institutions) that aims to identify CAPEX (capital expenditure e.g. the purchase of a hotel) and OPEX (current management e.g. current expenses during the opening-start up phase. The business plan is also a key element that guides the entrepreneur to deepen his business model, allowing him to change it and re-evaluate his market positioning. It is also an iterative analysis tool since it supports the entrepreneur to simulate potential critical issues (errors) and learn effective techniques to solve or prevent them (antibodies) by adopting ad hoc strategies and planning actions, often different unexpected.

Lastly, the business plan is a constantly evolving and flexible tool, which is why it should be subject to constant “maintenance” throughout the year.

During experience as “sales & marketing director” (DOSM) of international group’s hotels, I would often review (especially during annual budget presentations) the business plan and update all the information regarding the market and its offer, the competitors and the product. I would also do new SWOT analysis and, if needed, develop a new strategy to increase revenues and sales profitability. This way of working helped me achieve strong performance even in hotels positioned in locations that, to most, seemed unprofitable: “it is the market that rewards an idea and those who can implement it with the correct strategies that bring good numbers.”

A business plan contains both an economic-financial analysis and a study of the market and product; otherwise, it will be superficial, useless and often misleading.

How is a business plan structured?

Firstly, there is a descriptive part. That describes in detail the project, the drivers that pushed the entrepreneur to give birth to “his idea”, the goals to be achieved and the strategy(s) to adopt.

Following, the business plan present the development and in-depth study of several technical aspects, defined as the “core“, such as the market study (competitors’ analysis and segmentation) and the study of which “business model” to adopt.

Last but not least, it is essential to study of “one’s offer” i.e., the set of services (as homogeneous as possible) that one’s hotel will intend to offer to the clientele “to be attracted.”

Based on my experience, what characterizes the “business plan” is the “business model”, i.e. the set of coordinated procedures to make its services available with the aim of generating value, i.e. revenue (turnover), profit (profit) and, above all, cash (liquidity).

The “business model” consists of a series of interrelated arguments, studies, research and planning about the distribution and the organizational process of the hotel structure, the value proposition, the marketing plan, the action plan and the economic-financial projections, including the budget.

In summary, since the business plan is a dossier of multiple studies and analyses – crucial for hotel planning and management – , it is desirable to adopt the correct approach to write it and, once implemented, it is necessary to verify its performance.

In my day-to-day experience, I have realized that often hoteliers do not have the know-how, the experience and the preparation to write a business plan and, as a result, they do not implement it or they just approximately and superficially draft it. By doing so, they lose the focus of the whole project.

Because of the high strategic value of the business plan, it is advisable to rely on professionals of the field to overcome these problems. In this way, the entrepreneur and the consultants synergistically write a detailed and analytical business plan. And, as times goes by and as the procedures are implemented, the entrepreneur will learn how to write the business plan on his own.

In hospitality, planning, organization, and management are essential for the success and the business plan represents the key for the pursuit of the hotel’s goals.