Thinking of combining your management and people skills by starting a motel or hotel? Be aware that it is a time-intensive and costly long-term investment. It may be easier and cheaper to purchase an existing hotel franchise. You can take advantage of an existing brand and operations, particularly if this is your first time running an accommodation service. But, if you are not afraid of hard work and you instead want to open your own motel or hotel, this article will guide you through some vital legal considerations.
1. Planning and Research
Thorough research and planning will give you the best chance at success when starting a motel or hotel. Familiarise yourself with the responsibilities and operations involved in running a hotel, like electronic booking systems and housekeeping tasks. It is also useful to consider what type of market you will target. For example, do you plan on targeting luxury travelers, families or backpackers? A lot of your planning and research will hinge on your desired target market.
It is also vital to conduct market research on potential locations to set up your premises and your target market. This research should include information on:
- any direct or indirect competitors (e.g. existing hotels or AirBnBs in the area);
- the number and demographic of residents and travelers in the area (e.g. their socioeconomic circumstances);
- the level of demand for a new accommodation service in the area (e.g. a new local attraction in the vicinity could attract more visitors); and
- the proximity of your hotel to tourist sites, local shops, restaurants, amenities and public transport.
The research will help you to understand the breadth of your venture, and give you insight into the funds, target market, and marketing strategies you will need to increase your chance of success.
Your research will also help you understand how your hotel is different to others in your area and how to target your key customers. Will you kit out your hotel located in a funky artistic suburb with art deco furniture? Or perhaps provide a handwritten welcome message for each new customer? This will be key in attracting and keeping customers within your target market and gaining a competitive edge.
2. Business Structure
Your business structure is the foundation when starting a motel or hotel. Common business structures you can choose from include:
- Partnership:If you want to go into business with a fellow people-person, you may want to set up a partnership structure. It is relatively cheap to set up and simple to run. However, while you share any profits with the other co-owners, you are also jointly responsible with the other partners for the liabilities of the business co-owners.
- Company:While a company structure can be slightly more costly to maintain, it limits the liability of shareholders. A company structure can also be useful if you want to separate your personal assets from your business assets, attract third party investment in your hotel, or expand into more locations in the future.
There are many advantages and disadvantages of partnerships and companies. It is best to choose whichever structure can best provide for your future goals and needs. Tax and accounting factors also influence which structuring decision will be best. You should, therefore, seek legal and accounting advice before deciding on a business structure for your new motel or hotel.
Opening your hotel will require significant capital. Think about how you will obtain adequate funding to pay for everything, from the premises, to staff and even the fluffy towels.
If you are thinking about getting a business loan, compare offers and associated terms from several banks to find one which suits you. Getting a loan for your business can be confusing and tricky, so it is best to speak to a lawyer about your loan options before you sign anything. A lawyer can help explain your rights and responsibilities clearly to prevent nasty surprises later on. A lawyer can also ensure your contracts are fair while helping you get the best deal possible.
Alternatively, if you set up a company for your hotel, you may want to consider obtaining capital from third-party investors in exchange for equity (shares) in the company.
Once you have decided where you want to set up your business, you will need to find the right premises at which to base your operations. Doing so may involve buying or leasing an existing building and conducting any work to fashion it into your hotel or motel.
When choosing a property, look at the street appeal. Does it seem inviting to you and therefore inviting to potential customers? Check to see whether there are parking spaces available, especially if you need to park your vehicles (like a company car or courtesy van).
Buying or leasing premises is a significant financial investment, so familiarise yourself with the laws and obligations applicable, depending on whether you decide to lease or buy a property. Again, discussing your options and any contracts with a lawyer can be helpful to ensure you are getting the best deal.
5. Permits and Licences
Once you find the perfect place to open your hotel, you will need to apply for various approvals from the local council if you plan on doing any building work. These may include approvals to:
- conduct commercial business on those premises; or
- carry out any development work.
You may also need a variety of additional licences, depending on the services you are providing in your hotel or motel. These include:
- a food business licence, if you will serve food or open a restaurant on site;
- a liquor licence, if you will sell or offer alcohol to customers;
- permits to provide transportation to customers (e.g. a minibus);
- licences to play music in your hotel or bar; or
- a swimming pool compliance certificate and registration.
Some states, like Victoria, also require you to register any accommodation business with the local council. Check the Australian Business Licence and Information Service website, or contact your local council, to identify precisely what business licences you may need and how to apply.
A lawyer can help you with your licence applications to ensure you have the best chance of approval. The application process can be time-consuming and costly, so conduct research carefully and allow plenty of time to acquire any consent.
Obtaining insurance is essential to your business. The level and type of insurance you need depends on various factors, including the size of your hotel and the services you offer. As well as insuring your premises and assets, you may need:
- public liability insurance, which covers you for property damage or personal injury to guests and visitors on your premises;
- product liability insurance, which covers you for damage or illness caused by your food or drink; or
- motor vehicle insurance, if you are using a vehicle for business purposes.
Some insurance companies provide insurance packages specifically for hospitality businesses, so shop around and find the cover appropriate for you.
When starting a motel or hotel, your goal should be to operate as close to full capacity as possible. Conducting careful research, planning and finding the right premises can make your hotel an attractive stop. Ensuring you have the adequate funds, insurance, and permits from the start will save you from expensive liabilities in the future. Remember that starting your own accommodation service is a long-term investment, so do not expect to get rich quickly.
If you need assistance setting up a motel or hotel and want to ensure it is off to the best possible start, get in touch with LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.
Was this article helpful?
We appreciate your feedback – your submission has been successfully received.