BUSINESS PLAN OR FEASIBILITY PLAN....WHAT'S THE DIFFERENCE

HAVE THE OWNERS DECIDED THEY ARE GOING TO BUILD IT ANYWAY.....OR DO THEY NEED FINANCIAL ASSISTANCE?

More often than not, a new developer is unsure of whether he needs a Business Plan to "get the hotel or Resort built"....... or a Feasibility/Market Study to "get the Hotel or Resort financed". The only difference is ........the Financing!  Or is it?

Does the operator want to tell the owner the truth or paint a pretty picture for another year of management fees......or just prove he is a tiger?

Or, perhaps the owner needs a pretty picture to show the banker who originally asked for a pretty picture to be shown to finance the project in the first place!!

Having prepared Business Plans for the last 35 years, I thought that it would be an interesting excercise to summarise the motivations behind some of the more interesting plans that I have had the pleasure of doing, reviewing, critiquing, revising or shredding.

New Development Projects. Most Feasibility Studies for projects in development would fall under the following categories.

1. Landowner Template. "Build it and they will come".  Strong growth in the past proves continued growth in the future. Three year build up to 75% occupancy. (50% NOCF overstated in first 2 years)
2. Dreamweavers' Template. Ten year ideal scenario that is created to obtain debt financing and has not one good hope in hell of coming close.(40% overstated)
3. Borrower's Template.  "Just need a standard study so that the banks will finance this thing".
4. Realistic Template. Let's see what we should build, if there's a market. Why build a widget factory if no-one will buy widgets. This rationale should also apply to hotels!

First Year of Operation. Most Business Plans for Year One would fall into the following categories.

1. Shoehorn Template. Whatever the GM does or says, the results must match the Feasibility Study, otherwise heads will roll.
2. Pass the Dagger Template. Whatever the GM does or says, the VP ups it 15%-20% (15%-20% overstated)
3. Pass the Shotgun Template.  Whatever the VP approves, the owner ups it another 20%. (40% overstated)

The Annual Plan. Most Business Plans for Operating Units would fall under one of the following categories.

1. Achievable with Effort Template! Only can be achieved if it's sunny every day and there are no catastrophies..... and all departments go 115%. (15% overstated).
2. Realistic Template. This is usually the first edition presented to the Boss who promptly bumps it up 10% to avoid all possibilities of Bonuses. (original 5% understated bumped up to 10% overstated)
3. Maximum Bonus Template! Understated revenues, overstated expenses in order to obtain a maximum bonus for the General Manager & his team. (understated 15%)

Really great Business Plans for operating hotels & resorts are those that are built from the ground up, crafted by the sales team by each market segment, by each profit centre by product and by housekeeping and other cost centres on a line-by-line basis. Only then do you get a plan that has any chance of real bottom-up effort. Each Profit Centre working on their own business as a business, each cost centre responsible for their plans, both long and short term.

Unfortunately, annual business planning has become Budget Time with very little consideration given to action and all effort made only on the numbers by 'crunchers'. Also, at the end of the year, a budget that has had its revenue pushed up to unreasonable levels will have un-necessary high levels of expenses budgeted. A natural recipe for profit erosion.

For Feasibility Studies, Business Plans or Turnarounds, contact [email protected]