Rachel and John Pike, both gave up their jobs at the age of 40 to live out their dream. Using their savings, they invested in a 12 – bedroom country house hotel, with the intention of turning it into a successful business venture.
The hotel is very dated, but it is in a lovely countryside location and only three miles from Lyme Regis. They were very ambitious from the start, allocating only six weeks to renovate, decorate, find staff and open the hotel to the public – all this and neither of them possessed any previous hotelier experience or training!
They spent £200,000 buying the building, £100,000 was paid up front and £100,000 was mortgaged. £25,000 was also used for refurbishment.
They estimated that in order to break even in their first year; each guest would pay £33 per night B ; B, and that 2,000 bed nights would have to be sold by the end of the year. When the hotel opened, they had sold 500 rooms for the year – only 25% of their expected income! Six weeks after opening in the summer season and booking were still a major problem. Five months after opening, they were still very short of their financial target, with only 1,350 bed nights sold.
John believed they had underestimated the businesses out goings and that they had over estimated their bed night sales. Unwisely, they had spent scant money on advertising, and no advice from a marketing expert – if she had spent wisely they wouldn’t have had this dilemma.
Risk analysis should have been done to prepare them for any pit falls. The problems were not merely financial; there were other issues too. Rachael wanted to keep fewer staff and do most of the work herself (she also had two children to look after). Also delegation was definitely not her strong point, along with her apparent tunnel vision! Another problem was that, the hotel was not managed 24/7 as a hotel should be.
Rachael needs to sort out her priorities, she wants to renovate the hotel, but she should do this in the winter months when there is less custom, she should also consider her cash flow.