How to start a hotel business and welcome your first guest

Starting a hotel is an exciting venture that blends a passion for hospitality with sharp business savvy. The industry pulls in hundreds of billions of dollars annually, fueled by steady demand from tourists, business travelers, and event attendees.

This guide will take you through the practical steps of validating your concept, selecting the right location, securing funding, and obtaining the necessary permits to help you launch a successful hotel business in the U.S.

Step 1: Develop your business plan and validate the concept

Begin with market research to confirm demand. Contact your local tourism board for visitor statistics and review industry data from sources like STR for local occupancy rates and average daily rates (ADR). This data shows who is visiting your area and what they are willing to pay.

Analyze competitors and costs

Next, study your direct competition. Use sites like Expedia and Booking.com to analyze their pricing, amenities, and guest reviews. For broader industry insights, reports from Skift and Phocuswright offer valuable perspectives on travel trends that could impact your business model.

With this information, you can start to project your startup costs. The initial investment for a hotel is substantial, and your figures will vary widely based on location and scale. A frequent oversight is underestimating the capital needed for the first 6-12 months of operations before you reach profitability.

• Property Acquisition or Lease: $500,000 – $10M+
• Renovation and Design: $200,000 – $5M+
• Furniture, Fixtures, & Equipment (FF&E): $5,000 – $15,000 per room
• Licensing and Permits: $5,000 – $50,000

Here are 3 immediate steps to take:

• Request annual reports and visitor data from your city's tourism bureau.
• Track the nightly rates and occupancy of three potential competitors for one week.
• Create a preliminary budget with estimated costs for property, renovation, and FF&E.

Step 2: Set up your legal structure and get licensed

First, choose a business structure. You might want to consider a Limited Liability Company (LLC). It protects your personal assets if the business is sued and allows profits to pass directly to you without corporate taxes. A C Corporation offers more liability shields but faces double taxation.

Secure your licenses and permits

You will need permits at the federal, state, and local levels. Start with a free Employer Identification Number (EIN) from the IRS. At the state level, you need a business license and a seller’s permit to collect sales tax from guests.

A frequent misstep is to underestimate the timeline for a liquor license. It can take 6-12 months and cost between $12,000 and $400,000, depending on your state's Alcohol Beverage Control (ABC) board. Locally, you will need a Certificate of Occupancy and a health department permit.

Here are 4 immediate steps to take:

• File for an LLC with your Secretary of State.
• Apply for your free EIN on the IRS website.
• Contact your state’s Alcohol Beverage Control board about license timelines.
• Inquire with your local health department about their inspection process.

Step 3: Secure your insurance and manage risk

With your legal structure in place, the next step is to protect your investment. Insurance is a significant operational cost, so it helps to plan for it early. You will need several policies to cover the unique risks of running a hotel, from guest safety to property damage.

Key insurance policies for your hotel

Your insurance package will be multi-layered. Some policies are required by law, while others protect you from financial loss. A specialist broker can bundle these for you, but you should know what to ask for.

• General Liability: This covers guest injuries, like a slip-and-fall. A typical policy provides $1M to $2M in coverage, with annual premiums from $5,000 to $15,000.
• Property Insurance: Protects your building and its contents from fire, storms, or theft. Costs vary widely based on your property's value and location.
• Workers’ Compensation: This is mandatory in most states if you have employees. It covers medical costs and lost wages for staff injured on the job.
• Liquor Liability: If you have a bar or serve alcohol, this is non-negotiable. Many new owners underestimate this risk, but a single incident can be financially devastating.

With these policies in mind, find an agent who specializes in hospitality. General agents often miss industry-specific needs. Consider brokers like Distinguished Programs, USLI, or Philadelphia Insurance Companies who understand hotel risks.

Here are 4 immediate steps to take:

• Request quotes for a $2M General Liability policy.
• Contact a hospitality-focused insurance broker to discuss a package.
• Confirm your state’s Workers’ Compensation requirements for employers.
• Assess your need for Liquor Liability and Commercial Auto insurance.

Step 4: Select your location and equip the property

Your hotel’s location requires specific zoning, usually commercial or a dedicated hospitality classification. Before you get attached to a property, verify its zoning with your local planning department. Many new owners face expensive delays when they find a building that cannot legally operate as a hotel.

When you find a suitable spot, negotiate the lease terms carefully. You might want to secure a longer lease of 10-15 years with renewal options. Also, ask for a Tenant Improvement (TI) allowance. This is a contribution from the landlord to help cover your renovation costs.

Purchase your furniture and equipment

Next, focus on outfitting your property. It is tempting to save money with residential items, but commercial-grade equipment is built for heavy use. Your initial investment here prevents frequent and costly replacements down the road.

• Property Management System (PMS): Software like Cloudbeds or Mews costs $5-$10 per room monthly.
• Electronic Locks: Key card systems average $200-$400 per door.
• Guest Room Furniture: A full set of casegoods runs $2,000-$5,000 per room.
• Commercial Laundry: A washer and dryer set can cost between $5,000 and $20,000.

Work with hospitality-specific suppliers like American Hotel Register or HD Supply. They can bundle items and offer better pricing. Be aware that custom orders, such as branded linens or amenities, often require a minimum purchase, so plan your initial stock levels accordingly.

Here are 4 immediate steps to take:

• Confirm the zoning classification of two potential properties with your city’s planning office.
• Ask a landlord about their standard Tenant Improvement (TI) allowance.
• Request pricing for a PMS from a provider like Cloudbeds or Mews.
• Get a catalog from a hospitality supplier like American Hotel Register.

Step 5: Set up your payment processing

You need a system to accept credit cards, debit cards, and digital wallets. Hotels also require the ability to place pre-authorization holds on guest cards for security deposits and incidentals. This is a standard practice that protects you from damages or unpaid charges.

When you evaluate payment solutions, look closely at transaction fees. Many providers charge between 2.5% and 3.5% plus monthly fees, and these costs can add up. Also, confirm that the system integrates smoothly with your Property Management System (PMS) to avoid manual entry errors.

For hotels that need to accept payments on-site or on-the-go, JIM offers a streamlined solution. With JIM, you can accept debit, credit and digital wallets directly through your smartphone. Just tap and done. At just 1.99% per transaction with no hidden costs or extra hardware needed, it's particularly useful for your lobby cafe or gift shop.

Getting started is simple:

• Get Started: Download JIM app for iOS
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone
• Access Funds: Your money is available right on your JIM card as soon as the sale is done - no waiting for bank transfers

Here are 3 immediate steps to take:

• Compare transaction fees from two payment processors that integrate with your PMS.
• Download the JIM app to see how it works for in-person sales.
• Draft your policy for handling guest security deposits and incidental holds.

Step 6: Secure funding and manage your finances

To fund your hotel, you might want to explore SBA loans. The SBA 7(a) program offers up to $5 million and is a frequent choice for new hoteliers. Lenders will look for a detailed business plan and a personal credit score above 680 to consider your application.

Conventional bank loans are another path, though they often require a larger down payment, typically 20-30%. For larger projects, private equity firms that specialize in hospitality can be a source of capital, but they will expect a significant stake in the business in return.

Plan your working capital

Many new owners find their cash reserves are too low after opening. Plan to have enough working capital to cover at least 6-12 months of operating expenses. This buffer covers payroll, utilities, and marketing before you reach consistent profitability.

In addition, look for industry-specific grants. Some state economic development agencies offer grants for tourism-related businesses. These are competitive but can provide funds you do not have to repay. Once you have funds, open a dedicated business bank account to keep finances separate.

Here are 4 immediate steps to take:

• Contact an SBA-preferred lender to discuss the 7(a) loan program.
• Calculate your estimated operating expenses for the first six months.
• Research hospitality grants offered by your state’s economic development agency.
• Prepare a loan proposal package with your business plan and financial projections.

Step 7: Hire your team and set up operations

Your staff is the face of your hotel. As a starting point, plan for about 0.5 to 1 employee per available room for a full-service property. This ratio is lower for limited-service models. Your first hires should be key leaders who can help build out the rest of the team.

Key roles and what to pay

Salaries will depend on your market, but you can use national averages to build your initial budget. Many new owners miscalculate labor costs, so it helps to research this early.

• General Manager: Oversees all hotel operations, from staffing to guest satisfaction. Expect to pay between $70,000 and $150,000 annually.
• Front Desk Agents: The first point of contact for guests. Typical pay is $15 to $25 per hour.
• Housekeeping Staff: Responsible for room cleanliness and turnover. Hourly rates usually fall between $14 and $20.

Set up your operational systems

With your team in place, you need systems to manage them. For staff scheduling, you might look at software like 7shifts or When I Work. For payroll and HR, platforms like Gusto or ADP are industry standards. These systems help you stay compliant and organized.

Also, confirm any required training. If you serve food or alcohol, staff will need food handler permits or alcohol service certifications like TIPS. Overlooking these requirements can lead to fines, so it is best to address them during the hiring process.

Here are 4 immediate steps to take:

• Draft job descriptions for a General Manager and Front Desk Agent.
• Calculate your initial staffing needs based on a 0.5 employee-per-room ratio.
• Research your state’s requirements for food handler and alcohol service certifications.
• Request a demo from a scheduling software provider like 7shifts.

Step 8: Market your hotel and get bookings

Build your online presence

Your marketing should start about 90 days before you open. First, list your property on Online Travel Agencies (OTAs) like Expedia and Booking.com. They offer immediate visibility, but their commissions can range from 15-25% per booking.

A frequent oversight is relying too heavily on OTAs. To capture more profitable direct bookings, launch your own website with an integrated booking engine. A good target for your site's conversion rate is between 2% and 4%.

Remember that professional photos are non-negotiable. Smartphone pictures will not work. Poor images can quickly undermine all your marketing efforts before you even get started.

Launch a pre-opening campaign

With your website ready, you can build buzz. Use platforms like Instagram and Facebook to run targeted ads to specific demographics, like couples or business travelers. This helps you control your Customer Acquisition Cost (CAC) and build an audience.

You might also consider a soft-opening promotion. Offer a 20% discount for the first 30 days to local residents or your first social media followers. This strategy helps generate early reviews and powerful word-of-mouth marketing.

Here are 4 immediate steps to take:

• List your property on two major OTAs like Expedia and Booking.com.
• Set up a simple website with a direct booking engine.
• Plan a pre-opening social media campaign to run 60 days before launch.
• Calculate your target Customer Acquisition Cost (CAC) for direct bookings.

Step 9: Set your pricing strategy

Your pricing should be dynamic, not static. This means your rates will change based on demand, seasonality, and local events. A baseline Average Daily Rate (ADR) is your starting point, but you will adjust it constantly to maximize Revenue Per Available Room (RevPAR).

Analyze your competitors and set rates

First, define your competitive set, which is 3-5 hotels similar to yours in quality and location. Use a rate shopper tool like RateGain or OTA Insight to monitor their pricing in real-time. This shows you what the market will bear and prevents you from leaving money on the table.

A frequent mistake is to price too low just to fill rooms. This can devalue your brand and attract the wrong clientele. Instead, aim for a healthy Gross Operating Profit Per Available Room (GOPPAR). For example, if a competitor's standard room is $180, pricing yours at $175 might be a good entry point.

With this in mind, you can build a pricing calendar. For a major city conference, you might increase your ADR by 40% or more. During a slow week in January, you could offer a package deal that includes breakfast to maintain occupancy without slashing your base rate.

Here are 4 immediate steps to take:

• Define a competitive set of 3-5 local hotels.
• Request a demo from a rate shopper tool like RateGain or OTA Insight.
• Establish a baseline ADR for your low, shoulder, and high seasons.
• Create a sample pricing strategy for a major local event happening in the next six months.

Step 10: Maintain quality and scale your operations

Once your hotel is running, your focus shifts to consistency and growth. Track your Guest Satisfaction (GSAT) score and Net Promoter Score (NPS). You can use software like TrustYou or ReviewPro to monitor guest feedback from all online channels in one place.

Many new owners get overwhelmed by negative reviews. It helps to have a system. A good practice is to respond to all reviews, positive or negative, within 24 hours. This shows you value guest input and helps protect your online reputation.

Know when to grow

Use data to guide your expansion. If your occupancy rate consistently exceeds 85% outside of peak season, it is a strong signal to consider adding rooms or a second property. This shows demand has outpaced your current supply.

As you grow, your team structure will change. Once you manage 50-75 rooms, you might want to hire a dedicated Revenue Manager. For long-term goals, you can look at the criteria for a AAA Diamond rating to guide your service standards and attract a premium clientele.

Here are 4 immediate steps to take:

• Track your Guest Satisfaction (GSAT) score for the next 30 days.
• Set a policy to respond to all online reviews within 24 hours.
• Define an occupancy rate (e.g., 85%) that will trigger an expansion analysis.
• Research the criteria for a AAA Diamond rating to set long-term quality goals.

This guide lays out the steps, but your hotel's success hinges on the guest experience. That single focus is what turns visitors into regulars. You have the map for the journey. Now it's time to take the first step.

And as you handle the day-to-day, simple solutions help. For payments at your cafe or gift shop, JIM turns your phone into a card reader for a flat 1.99% fee, with no extra hardware needed. Download JIM to get started.