Complete Guide to Starting Your Hotel Business in India

If there is one industry that has picked up huge momentum in the past decade, it is the travel and tourism industry. With more and more people travelling, not just within the country, but also internationally for tourism as well as business purpose, the one sector that has seen a massive surge in the travel and tourism industry is the hotel sector. Thanks to globalisation, people have become more aware of the comforts and luxuries they should expect from a good hotel.

Also, India is one of the leading countries whose travel and tourism sector contributes a major chunk to the nation’s GDP. As per the current trend, the demand for hotel accommodation is growing at 6% per annum. However, against that, the growth of supply is at 3% per annum. Thus, there is tremendous potential in the hotel industry for someone looking to start a new business.

Like with any other business, it is vital to first chalk out a detailed road map of your business plan to control and direct a steady growth as well as to obtain funds for from outside investors and lenders.

What is a Hotel Business? 

A hotel business is a commercial establishment that provides temporary lodging and related services to travellers and tourists. It encompasses a wide range of accommodations, from budget-friendly inns to luxurious resorts, catering to diverse customer needs and preferences. In India, the hotel industry plays a crucial role in supporting tourism, business travel, and local economies. Hotels offer not just rooms, but also often include amenities such as restaurants, conference facilities, fitness centres, and recreational facilities. It creates a comprehensive hospitality experience for guests.

A step by step strategy for starting a hotel business is as follows:

Step 1: Prepare a strategy
The very first step in the process is to plan your business strategy which gives a snapshot of the hotel’s growth plan for the next 5 years. This should include the foreseeable goals, obstacles, SWAT analysis of the industry as well as in depth plans for meeting the set goals. In short, it should be a short, yet crisp summary that provides a clear cut outline of the entire business strategy.

When you present your startup business plan to obtain a business loan from lenders, the investors and lenders usually go through the first page and decide if they wish to read more, so it is also vital to lay out all the critical information up front like your market analysis that proves that a new hotel is needed and your unique skills and qualifications for meeting your objectives.

Step 2: Industry analysis
This can initially seem overwhelming, given the sheer number of hotels being opened all across the country these days. But, you will need to focus your attention only on the hotel sector that mirrors your hotel plan. Is it is small motel with just basic amenities? Is it an upscale boutique hotel? Or a luxury resort or 5 star property with modern amenities? You will first need to decide what niche you wish to target and then accordingly analyse the trends and projections that are likely to affect that market niche.
Based on this analysis, carefully select the most suitable legal structure for your hotel business. It can be a private limited company, limited liability partnership (LLP), or sole proprietorship. Each business structure has distinctive implications for taxation, liability and operational flexibility. Consult with legal and financial experts to determine the best fit for your specific circumstances and long-term business goals.

Step 3: Customer analysis
As it is popularly said, ‘Customer is the king of the market’, even in the hotel industry, it is imperative that you understand the requirements of your target customers. You need to get answers to questions like who is likely to choose your hotel? Are they travelling for business or pleasure? Are they travelling with kids? How often are they likely to visit the hotel? What would be their ideal budget? What will be their expectations? Latest amenities ? Luxurious interiors? Outdoor sports? And so on. It is vital for you to figure out the potential customer’s demographics and accordingly draw a plan to meet their expectations.

Step4: Competitor’s analysis
There are two types of competitors you need to analyse: Direct competitors that include hotels that target your market and indirect competitors, which include a broader sector like restaurants and other businesses that are just a part of your market. You will accordingly need to plan a strategy to ensure your hotel has something unique to offer.

Step 5: Planning the marketing
This will consist of four Ps – product, price, place and promotion. 

• Product: Your hotel and its services are at the core of your business. This includes the quality of the rooms, dining options, amenities, and customer services. It also includes any unique offerings that set your hotel apart from the competition. The product should reflect your brand and cater to the needs of your target audience. It can be luxury travellers, business professionals, or budget-conscious tourists. 
• Price: The rates of your hotel rooms and services should align with the value you provide while remaining competitive within your market. Pricing strategies may include seasonal rates, discounts for longer stays or special packages to appeal to different customer segments. It is essential to find a balance that covers operational costs, maximises revenue, and attracts the right guests.
• Place: This refers to the physical location of your hotel as well as its digital presence such as a website or an app. A convenient or desirable location can attract more guests but it is equally important to be visible online through your website and booking platforms. Ensuring ease of access to booking, both physically and digitally, helps guests find and choose your hotel effortlessly. 
• Promotion: This is your way of attracting customers to not just stay with you once, but also keep coming back. Promotion can include online advertising, social media campaigns, loyalty programs, and partnerships with travel agencies. Effective promotion encourages first-time bookings and fosters repeat businesses by creating memorable guest experiences and maintaining a strong brand presence. 

Step 6: Obtain Necessary Licence and Registration

Navigating the regulatory landscape is crucial for hotel businesses. It requires you to secure permits and licences such as trade licence, FSSAI licence for food services, liquid licence (if applicable) and environmental clearance. Engage with local municipal bodies, state tourism departments, and relevant agencies to ensure compliance with legal requirements for your location. 

Plus, register your hotel for Goods and Services Tax (GST) to obtain a GSTIN number. This enables you to collect and remit taxes properly. Depending on your business structure and turnover, you may also need to register for other taxes such as Professional Tax or Income Tax. Implement proper accounting systems to manage tax obligations effectively and ensure timely filings and payments. 

Step 7: Operations
Your short term operations will include the day to day tasks of booking reservations, check-in and check-out clients, luggage handling, housekeeping, accounting and so on, whereas the long term operations will include the ways in which you plan to meet your goals like achieving a certain rate of occupancy, adding more restaurants and other such additional services to attract more visitors.

Do not forget to secure comprehensive insurance coverage for your business as well. This should include property insurance to protect against damage to the building and contents, liability insurance to cover guest injuries or property damage, and business interruption insurance. Consider specialised coverage such as cyber insurance to protect against data breaches. 

Step 8: Management
A strong management team is the backbone of your hotel business as it will not only convince financers to invest money in your venture, but also ensure smooth functioning of the operations. Recruit and hire qualified personnel for various hotel positions, including management, front desk, housekeeping, maintenance, and food service. Develop detailed job descriptions and conduct thorough interviews to find candidates who align with your service standards.
Implement comprehensive training programs covering hotel operations, customer service, and safety procedures. Consider partnering with hospitality schools or institutes for recruitment and ongoing staff development. Regularly assess staff performance and provide opportunities for career growth to reduce turnover.

Step 9: Financing
After completing all the above-mentioned steps, you can apply for a loan if you require it. Do thorough research to get a business loan for your hotel venture. Given the potential for growth in the hotel sector in India, various lenders like banks, NBFCs including digital NBFCs like Lendingkart are willing to invest in this growing market.

Step 10: Open for Business

Once all necessary arrangements, licences, and permits are in place, prepare for your grand opening. Conduct a soft opening with friends, family, or guests to test all systems and procedures. Train staff to handle various scenarios and ensure all departments are coordinating effectively. Prepare a contingency plan for potential issues that may arise during the initial operating period. Consider offering special promotions or events to attract initial guests and generate buzz. Continuously gather feedback from early guests and make adjustments as needed to improve the overall guest experience.

Facilities Provided by Hotels to Guests

A hotel provides other amenities apart from a place to stay. You need to keep these factors in mind when creating a business plan in entrepreneurship. Some of the facilities that a hotel should provide to its guests are:

• Cleanliness: Maintaining impeccable cleanliness standards is paramount in the hospitality industry. Implement rigorous cleaning protocols, train staff thoroughly, and regularly audit cleanliness levels throughout the property. Pay special attention to high-touch areas and ensure that rooms are thoroughly sanitised between guests. Consider investing in modern cleaning technologies and eco-friendly products to enhance overall hygiene standards. 

• Cosy Beds: Invest in high-quality mattresses, pillows, and linens to ensure guest comfort. Consider offering pillow menus or customisable bedding options to cater to individual preferences. Maintain and replace bedding daily to ensure quality standards. Pay attention to room layout and ventilation to create a clean and hygienic environment for restful sleep.

• Security: Prioritise guest safety by implementing comprehensive security measures. This may include 24/7 CCTV surveillance, trained security personnel, secure access systems for rooms and facilities, and proper lighting in all areas. Develop clear protocols for handling emergencies and conduct regular safety drills with staff. Consider offering in-room safes for valuable and implement cybersecurity measures to protect guest data. 
• Internet: Provide high-speed, reliable Wi-Fi coverage throughout the property, including guest rooms, public areas, and conference facilities. Consider offering tiered internet services, with a basic fee option and premium high-speed packages for business travellers or those with higher bandwidth needs. Upgrade your network infrastructure to keep pace with increasing bandwidth demands and emerging technologies. 

Permits Required for Starting a Hotel Business in India

To establish a hotel business in India, several permits are necessary to ensure compliance with local regulations and safety standards:

• Building Permit: Compliance with the National Building Code of India is mandatory for all hotel constructions. This permit is obtained from local municipal authorities. It covers aspects like building layout, structural integrity, sanitation facilities, electrical systems, and adherence to zoning regulations. Detailed architectural plans and engineering drawings must be submitted and approved before construction can begin. 

• Fire Safety Permit: This essential permit is issued by the Fire Department after verifying that the hotel premises adhere to fire safety regulations. To obtain this permit, hotel owners must implement proper fire prevention measures, install adequate firefighting equipment, and create clear evacuation routes. They must also train staff in emergency procedures. Regular inspections may be required to maintain this permit. 

• Certificate of Environmental Clearance (CEC): The Ministry of Environment and Forests issues this certificate to ensure that the hotel’s operations do not adversely affect the environment. To obtain a CEC, hotel owners must submit an environmental impact assessment, detailing the project’s potential effects on air, water, and land. Measures to mitigate negative impacts and promote sustainability are typically required. 

• Lift Clearance Permit: For multi-story hotels, this permit is essential to ensure the safe operation of elevators. Issued by the Electrical Inspector from the Labor Commissioner’s office, this permit requires a thorough inspection of life installations, safety mechanisms, and maintenance protocols. Regular safety audits and maintenance records are typically necessary to retain this permit. 
• Police Licence: This licence is crucial for maintaining security and order within the hotel premises. To obtain it, hotel management must showcase proper guest registration procedures, implement security measures, and cooperate with local law enforcement. Regular reporting of guest information to the police department may be required, especially for foreign visitors. 

Licences Required to Start a Hotel Business in India

In addition to permits, several licences are necessary to legally operate a hotel business in the country:

• FSSAI Licence: The Food Safety and Standards Authority of India (FSSAI) issues this licence. It is to ensure that all food-related operations within the hotel meet strict hygiene and safety standards. To obtain this licence, hotels must showcase compliance with food handling, storage and preparation regulations. Inspection daily and staff training in food safety practices are typically required to maintain this licence. 

• Business Registration: Registering the hotel as a legal entity, such as a company or Limited Liability Partnership (LLP), is crucial for business operations. This process involves selecting a unique business name and filing necessary documents with the Registrar of Companies (RoC). It also includes obtaining a certificate of incorporation and completing other formalities. This registration provides a legal framework for the business. It offers benefits like limited liability protection for owners and easier transferability of ownership.

• Provident Fund Registration: Hotels employing more than 20 people must register with the Employee Provident Fund Organisation. This registration ensures that employees receive social security benefits. It includes provident fund, pension, and insurance schemes. Employers are required to make regular contributions to these funds based on employee salaries and maintain detailed records of these contributions. 

• Licence for a Bar: If the hotel plans to serve alcoholic beverages, a separate bar licence is required. This licence is typically issued by state excise departments and may involve a complex application process. Requirements can vary significantly between states. Plus, it may include restrictions on operating hours, alcohol storage limits, and strict record-keeping of alcohol purchases and sales. 

• GST Registration: Under the Goods and Services Tax (GST) regime, hotels must register for GST if their annual turnover exceeds the specified threshold. The applicable GST rate varies based on room tariffs and services offered. Hotels must maintain detailed records of all transactions, file regular GST returns, and ensure proper invoicing to comply with GST regulations. Input Tax Credit (ITC) availability also depends on the hotel’s pricing structure. 

• ESI Registration: The Employee State Insurance (ESI) scheme is mandatory for hotels with hotels with ten or more employees. This registration provides health insurance and other benefits to employees. Hotel owners must contribute a percentage of each eligible employee’s wages to the ESI fund and facilitate employee contributions. Regular reporting of employee details and wage information to the ESI Corporation is required to maintain compliance. 

Benefits of obtaining a loan from Fintech companies like Lendingkart, which have seen a consistent surge of late, are:

1. Tailored credit solutions
2. Quick loan processing
3. No collateral needed
4. Zero hidden charges
5. Flexible repayment options
6. Provides good flow of liquidity
7. Enhances credit score integrity
8. Quick application process:
   1. Submission of application on the website by filling up personal, business and loan details.
   2. Upload the required documents that include address proof, business registration proof, GST filling, Trade licence, VAT registration, Aadhar card, bank statements, PAN card and TIN.
   3. Evaluation – after evaluating the application, if found to be in accordance, the loan in sanctioned.
   4. Disbursal – the loan amount is credited.

Conclusion

Starting and running a successful hotel business in India requires strategic planning, substantial investment, and a commitment to guest satisfaction. Partnering with financial institutions like Lendingkart can offer tailored financing for setup expansions, or managing cash flow challenges. Success in the hotel industry comes from a blend of vision, operational efficiency, and adaptability to market shifts. It is important to stay informed about trends, invest in staff development, and continually enhance the guest experience. With perseverance, innovation and the right financial support, your hotel business can thrive in India’s competitive hospitality landscape.

Hotel Business Plan FAQs:

1. What are the different types of hotel loans provided?

Term loan, line of credit, invoice discounting and merchant advance against POS sales

2. For what purpose can we avail a hotel business loan?

Building new hotel, renovation of existing hotel, capacity enhancement and related activities.

3. What is the interest rate for Hotel Loan

Interest rates Starting from 1.25% per month.

4. Which is best place to start a hotel business in India?

The best place to start a small hotel business in India depends on various factors. It’s essential to conduct thorough research and create a comprehensive hotel business plan. Consider popular tourist destinations, urban areas, or emerging tourist hotspots. Focus on providing unique experiences and excellent service to stand out. Seek advice from experts and explore hotel business ideas that cater to local demand and preferences.

5. What are the advantages of using a hotel management system?

A hotel management system offers several advantages for those looking to start a small hotel business. It streamlines operations, simplifies reservations, manages inventory, and enhances the guest experience. It helps in implementing hotel business ideas and executing a well-structured hotel business plan. Moreover, it offers data insights and eases the management of staff, resulting in improved efficiency and customer satisfaction, making it a valuable tool wherever your hotel is located.

6. What are the processing fees of lending kart?

We charge a processing fee of 2% to 5% upfront.

7. Does Lendingkart charge any pre closure fees?

No, we do not charge any pre closure fees, as long as you have paid your first EMI in full.

8. What is the loan tenure?

We offer business loans for up to three years period

9. What are the repayment instalments options

At Lendingkart, we have flexible repayment options of EMIs or fortnight instalments.

10. Why is it advisable to pay loan instalments bi weekly?

As a rule of thumb, the faster you repay your loans, the faster you can renew your loans, thus ensuring revolving credit. This is especially beneficial if you are using a loan for working capital optimisation.

11. Does Lendingkart charge any hidden fees?

As discussed above, at Lendingkart, we do charge any hidden fees. The only fees we do charge is the one time processing fee of 2% to 5% depending on the amount and type of your loan.

12. Is there any collateral required for business loans?

Since all business loans at Lendingkart are unsecured, we do not demand any collateral against our loans.

13. What are the key areas to consider before one thinks of opening a Hotel
Business?

The Key points to take into consideration are:

• The best location for opening a hotel
• Capital requirements
• Stupendous and lavish business plan
• Exceptional hospitality and customer service techniques
• Smart e-commerce strategy to be followed like website and social media
  marketing and focus
• Smart pricing strategy to be followed like staffing, categories of rooms and
  suites, maintenance costs, competitors pricing, time and length of the
  considerable stay etc.
• Flexibility
• Quality Management
• Investment in a strategic marketing plan
• Understanding the competitors

14. What are the basic costs that one needs to incur before investing in a
Hotel Business?

Before investing in a Hotel Business, one needs to understand the following
expenses:

• Building, Renovating Refurbishing or Buying Hotel Property and raising it
• Working Capital for Staffing and other Fixed expenses
• Marketing costs
• Operational costs
• Luxury Costs
• Licenses and Legal considerations

15. What kind of housekeeping staff is required for a basic Hotel?

Some of the key positions of housekeeping considered and filled before
starting a hotel should be:

• Customer care executives
• Cleaners, Sweepers and Housekeepers
• Managers
• Washers
• Waiters

16. What are the kind of Licenses that are required by the Hotel Business
owner?

He must apply for the following mandatory licenses before investing in a hotel
business:

• Food Safety License from FSSAI (Food Safety and Standard Authority Of
  India)
• Health and Trade License from Local Civil Authority in your area.
• Eating House License from Licensing Police Commissioner.
• Liquor License from local Excise Commissioner
• Fire Department License from fire department

17. How can one determine the Hotel area which can be built?

It depends on the kind and style of hotel, the vendor wants to open. If it is a
luxurious 5-star hotel with 100 plus rooms, then the minimum space required
would be around 100,000 square feet. For a mid-sized hotel with 60-80 rooms,
the area could be between 10000-50000 square feet.