Annual business plan helps hotel companies reach their goals - On Finance/At Your Risk - Column

Hotel & Motel Management, Dec 8, 2003 by Jeff Wilder

Whether you're seeking to raise debt or equity, or projecting next year's goals and the ways to achieve them for your hotel, it's wise and beneficial to write an annual business plan.

Going through such an exercise helps crystallize your thinking, plan marketing strategies, design and implement ways to accomplish your goals, assess risks, develop operational and capital-expenditure financial projections, and reach salient financial and operational conclusions. Each of these elements is useful to guide a business to a more successful tomorrow.

So how many entrepreneurs have the discipline to organize an annual business plan, much less follow it? Sadly, far fewer than many would care to admit. But from numerous conversations I've had with hotel lenders and equity investors, operators who have cogent business plans available for review often have a leg up in raising funds on better terms than those who don't. Why? It's the trust factor.

Lenders or investors usually will take comfort in a well-thought-through business plan provided for their deeper insight into the business. It leads to a greater respect for the team that's guiding the operation. A business plan shouldn't just be written for the purpose of raising cash. That's a secondary reason to develop a plan, which should be done annually by the owner or managing agent and periodically reviewed to see whether adequate progress toward the year's business goals is being met.

Elements of a plan

What goes into a good business plan? In the article, "Ten elements of a good business plan," author Paul Larson provides a good summary to build from:

* Executive summary--a concise summary of the basics, including the market opportunities, management team, financial returns and, if asking for fresh capital, the terms you're seeking.

* Description of the company or management team.

* Facilities description.

* Market and competitors--an analysis of where your business is coming from, new markets that could be tapped, characteristics of target customer groups, listing of your existing and potential competitors, and the rates they are likely to charge.

* Marketing strategy--describe every marketing method you will employ to attract your customer, including advertising, distribution channels and using specific resources from your franchisor.

* Design and development plans--either enhancements to existing facilities or the addition of new space would fit into this section.

* Management team.

* Overall schedule--Project the order and timing of major goals you intend to achieve during the next year. This would include modernization schedules, implementation and carrying out new sales procedures and/or campaigns. Include a projection of their impact on business.

* Critical risks and problems--Describe the three or four most critical risks you see in the near--and interim-term. Typical problems in the lodging business might be competitors lowering their rates, unmet sales projections, unanticipated higher costs and getting good staff. Describe your plan for addressing these challenges.

* Financial plan--Describe the main conclusions of the four areas you will be backstopping with financial statements, and include those statements. The areas are a break-even analysis, cash flow and income statements, and balance sheets.

Most business text books offer similar listings of the generally accepted elements of a business plan, so why not go to the nearest bookstore or library and pick up one? You will be able to use this column as a guide and get much more back-up material about what goes into each section.

It takes a lot of time and energy to develop a useful action plan for the future. Larson suggests as many as 200 hours might be required. But, if you do it correctly, you and your investors (debt or equity), as well as hotel management, will know your hotel inside out.

And remember to refer to the plan periodically and update it during the year. It would be foolish to invest a lot of hours and thought in developing a plan, then not refer to it for guidance or adjustment during the year.

hmm@advanstar.com

Jeff Wilder is president of Wilder Ventures LLP, a New York City-based asset management company, and an adjunct professor at New York University. He can be reached at jswilder1@aol.com.