Let us not deceive ourselves: hospitality is a business and, therefore, involves risks. Here, the word risk applies in every sense, and when risk management fails, so does your business. The same applies to the hotel business plan. Hospitality exists because of the relationship between a guest and a host, where the host welcomes them with everything they have to offer, including the facilities, reception and guest entertainment, food and beverage services, and countless people ready to provide care and service. This very nature of the hospitality business makes it inherently competitive, volatile and, therefore, liable to decline if it is not properly managed. The hotel industry has reached a point where barely one third of new hospitality businesses survive for more than a decade, meaning that most hotel operators opening today will no longer exist within the next two years. A general decline in revenue and loss of competitiveness make it difficult for many operators to outlast the average lifespan of a business. Running a hotel business involves far more than simply having people check in and check out. Hotels operate 24/7.

Hotel management covers a diverse range of operations and departments, including customer service, staff management, inventory and asset management, recruitment, training, sales, marketing and accounting. Therefore, considerable expertise is needed to sustain the business and remain in the industry for the long term. Many reading this will think their business is operating properly and therefore see no need to pay attention to these lines. My advice in that case would be that prevention is better than cure. It is better to protect your business from a range of events and circumstances that can lead to closure than to try to resolve them when the ship begins to sink.

What do hotel businesses get wrong?

Hotels do not simply fail out of nowhere; sometimes, they just do not reach their full potential. The economy, guest demand, the destination, expenses, payroll and raw material costs, and management can all complicate matters at any given time. Not all of these reasons will cause a hotel business plan to collapse, but they are factors that can erode profits. Below is a compilation of how and why a hotel can fail. You can mitigate the risk of damage by considering these strategies to radically improve business performance.

Poor guest reviews say a great deal about a hotel

Poor reviews are never healthy for any organisation, let alone hotels. Low guest satisfaction generates negative reviews. When a guest is unhappy with the service, they often take it online, which can be dangerous for your business. Unfortunately, one bad review can attract many more. The impact of such feedback can be so severe that it influences many other potential guests. The resulting snowball effect could mean losing existing customers for life. Dissatisfied guests can spread the word about substandard service like nothing else, and there are platforms that allow them to speak openly about their experience with you. The best way to deal with reviews, besides taking careful note of negative ones, is to respond promptly and politely. Acknowledge their pain points and restore their confidence in your business. Bear in mind that your response to a negative review helps other guests decide whether or not to visit you again.

Unfavourable market conditions.

The destination and environment in which your hotel operates change with every passing moment. The market in which you operate is no different and is also constantly changing. When the economy is in recession, asset and business values fluctuate and, consequently, revenues vary, meaning the damage to your business can be significant.

Las fluctuaciones del mercado, la caida en ingresos año tras año, y un RevPAR a la baja, son señales de que su hotel se esta agrietando. Share on X

If you do not have a comprehensive understanding of the hotel business, especially of how the market behaves, you need urgent help in these situations.

Incompetent staff leading to mediocre performance

Hiring cheap and readily available staff can cost your hotel dearly. When a hotel project is managed by inexperienced hands, it will eventually deliver mediocre results and will likely become a complete disaster as well.

Las personas incompetentes en gestion hotelera son un obstaculo para que una organización opere a pleno rendimiento. Share on X

Cuando su personal no está adecuadamente capacitado, la mediocridad de la gestion conlleva una politica de contingencia de costos, y en consecuencia del nivel de servicio y satisfaccion de los clientes. Share on X

However, recruiting the right people can be difficult. The right people, with a strong track record, have the diligence to directly affect the business's bottom-line performance.

Employee dissatisfaction

Properties without a defined “people culture” always face difficult times in business. How can unhappy employees create a pleasant environment for guests? For your hotel to be committed to serving guests in the best possible way, you need a motivated team. You cannot build a winning team if staff members keep coming and going. Train your staff, provide them with growth and advancement opportunities, foster a harmonious mindset among them, and reap the rewards.

High debt, loan defaults, excessive spending, lack of financing

When cash reserves run dry, your last resort will be the reserve fund or the liquidation of assets. But when even that fails, you default and simply lose the property. Moreover, higher leverage generally results in a considerable interest rate. In short, as financing costs and debts increase, so does the risk. When you borrow money and accumulate debt, you put your hotel's business plan at risk. If you fail to pay, you have no choice but to close. Do not forget that by failing to meet loan agreements, lenders can legally recover the loan amount through the liquidation of hotel assets. When your capital reserves are insufficient, this translates into reduced profit and, therefore, lower quality; brand erosion and, ultimately, a shorter business lifespan—something that took years to build. The remedy is a disciplined approach to managing cash flow and CapEx. You must stress-test the entire business plan to protect yourself against potential downturns, seasonal impacts and industry cycles.

Old-school business model: failure to adapt to market changes.

Some hotels still operate as though they were in the Stone Age. There is no alternative but to implement new dynamics to take the business to the next level, including:

Keeping up to date with new industry trends and tools.
Technology: implementing a hotel management system.
A booking engine and channel manager to facilitate distribution.
Adopting practices and systems that deliver greater productivity and effective returns.
Managing marketing and online presence well. If you still cannot let go of those outdated marketing methods, the death knell will sound.

Hubo un momento en el que simplemente colocando un letrero de neón fuera de la entrada del hotel, podría traer a los huéspedes en busca de alojamiento. Share on X

But times have changed! A neon sign no longer works. Today, marketing has evolved into something highly sophisticated and systematic. Perspective matters. Take the time to analyse what your customers are looking for from you. Then direct your efforts and resources accordingly to deliver what is expected.

Poor location

Your location may be too weak to expect a reasonable flow of guests, or it may deteriorate over time due to changes in the environment or infrastructure around it. Sometimes, the property is in the wrong or a marginal location, so miscalculating potential business variables could lead to a drop in sales. Once the infrastructure is built, it becomes your hotel's permanent address; it cannot be moved. However, market conditions will always change, either in your favour or against you.

Management shortcomings

When management believes the business is in free fall, that is when the decline begins. You should be concerned when:

There are differing views within the management team,
Investment is discontinued,
There are underwriting and liability risks,
Unfounded assumptions are identified in the hotel's business plan,
There are disputes with the owner,
Occupancy levels are low

Increased competition in the destination

This is especially concerning when your prices are higher than those of new competitors, which can lead to a lower occupancy rate. This is when Revenue Management becomes particularly important. Ultimately, finding the right balance is better than operating at a loss. If your competitors are doing better than you, then they undoubtedly have a better opportunity to do business than you do. A strongly positioned competitor, whether new or refurbished, can push you out of the market. Competition is inevitable and you cannot escape it. The only way forward is to develop a fighting mindset.

Missing or poorly structured business plan.

Your hotel's business plan must be structured to define marketing, sales and development strategies, budget projections, expenses and more. You need a plan to know your objective. Wondering why you have no control over your business? Simply because you do not have a plan.

Little or no understanding of business metrics

As a business owner, it is imperative that you understand the key elements and performance indicators that determine and govern the course of the hotel business. Identify break-even points, contingencies, known and unknown variable and fixed costs, contribution margins, wages, asset values, gross profits and similar metrics to determine how your hotel is performing at any given time. Create systems and procedures, along with KPIs, to measure business performance without having to be present at the property. Other reasons may include:

Poor property maintenance.
The wrong business model
A business disconnected from the local community.
Lack of control over theft and nuisance activities around the property
Local government tax policies and business regulations.
etc...

In conclusion, we can see that the success and failure of hotel businesses are due to various factors. Problems arising from both internal and external sources make the industry challenging. Moreover, modern travellers, armed with all the information at their fingertips, will be no less demanding. Only the tactical handling of these issues helps a business stay afloat. Hospitality is a service industry, unlike other businesses. It needs to be actively and consistently managed day after day. You must have systems, processes, policies, plans and a purely analytical mindset to survive and succeed. However, when you notice your business is falling apart, take swift and sensible action. Do not simply sit back and wait for it to improve over time.

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