BUSINESS PLAN FOR
Local Motel, Inc.
P.O. Box 100
My Town, AZ. 85900
Joe Smith, Developer & Owner
Phone (520) 223-2342
TABLE OF CONTENTS
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . 3
Statement of Purpose . . . . . . . . . . . . . . . . . . 3
Description of the Business . . . . . . . . . . . . . . . 3
Overall Purpose of the Business . . . . . . . . . . . 3
Specific purpose of the business . . . . . . . . . . 3
Marketing Strategy . . . . . . . . . . . . . . . . . . . 3
Production Process . . . . . . . . . . . . . . . . . . . 4
Management Team . . . . . . . . . . . . . . . . . . . . 4
Objectives of the Management Team . . . . . . . . . . . . 4
Financial Considerations . . . . . . . . . . . . . . . . 5
PRODUCTS AND SERVICES . . . . . . . . . . . . . . . . . . . . . 6
Initial Products and Services . . . . . . . . . . . . . . 6
Motel 5 Features . . . . . . . . . . . . . . . . . . , 6
Future Products and Services . . . . . . . . . . . . . . 7
INDUSTRY . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
What is the Industry-Definition . . . . . . . . . . . . . 8
Market Definition . . . . . . . . . . . . . . . . . . . . 9
Competition . . . . . . . . . . . . . . . . . . . . . . . 9
Major Influences on the Business and the Industry . . . . 9
MARKETING PLAN . . . . . . . . . . . . . . . . . . . . . . . . 11
THE PRODUCTION PLAN . . . . . . . . . . . . . . . . . . . . . . 12
COMPANY STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . 13
THE FINANCIAL PLAN . . . . . . . . . . . . . . . . . . . . . . 14
OTHER ATTACHMENTS
PERSONAL FINANCIAL STATEMENT TRAFFIC STUDIES
BIOGRAPHY OF THE PRINCIPAL VISITATION STATISTICS
FRANCHISE APPLICATION COST ESTIMATES
PROJECT ELEVATIONS & DRAWINGS FRANCHISE AGREEMENT
FIXTURES, FURNITURE SITE MAP
& EQUIPMENT ESTIMATES ARIZONA MAPS
FINANCIAL PROJECTIONS
I. EXECUTIVE SUMMARY
A. Statement of Purpose
1. The purpose of the business is to provide a quality lodging experience to
visitors to the reservation area, Your Town area.
2. Mission statement: To provide a lodging experience that will leave the
customer with a good impression of the business and the community in general.
3. Specific request of the plan: To solicit financial support for a $2 million loan
to construct and develop a 75-unit Motel 5 Hotel on a 3-acre site in My Town,
AZ., (which borders Your Town, AZ).
B. Description of the Business
1. Overall Purpose of the Business: To provide a return to investors and lenders,
while serving the general region by job creation and revenues. My Town
Motel 5 will be a high quality, lodging establishment, providing lodging and
meeting rooms, which will be an asset to the region.
2. Specific purpose of the business: My Town Motel 5 is a service
business in the hospitality industry. It will be a mid-market lodging
establishment with 75 rooms on a 3 acre site in My Town, a beautiful
wooded area overlooking the Your Town area. The standard size room
will be 11’4” x 25’6”. The project is designed to attract the mid-to-higher-
priced hotel patron by providing comparable quality accommodations and
amenities at competitive prices. The premises will include an indoor
swimming pool, meeting facilities, and food and beverage service. Plans
include the addition of an adjacent restaurant, with adjoining meeting room,
which will attract business clients as well as budget leisure travelers.
C. Marketing Strategy
1. As a retail business, in a free standing location, sales and advertising will be
directed to the business traveler, tourist, and others traveling along Highway 77,
a major U.S. Interstate highway. Service and quality will be important
factors, along with the Motel 5 franchise systems, which contribute to
promotion, advertising and reservations.
2. The primary marketing tools include:
a. Motel 5 advertising & reservation systems for business and individual clients
b. Billboards on reservation and surrounding areas to attract tourists
c. Direct marketing of local, business and corporate businesses for meetings,
food service and lodging requirements.
d. Classified advertising
e. Display advertising
f. Yellow page advertising
g. Direct Mail
h. Client referrals
r. Word of mouth and referral
D. Production Process
1. Management and Operations will be provided by hiring qualified hospitality
industry managers to get started, and hiring and training service-oriented
employees. Motel 5 provides intensive hospitality management training
programs for franchises, which includes classes on more than 45 subjects,
including guest relations, sales presentation strategies, team building,
supervisory skills, cash flow analysis, rate management, and room inventory pooling.
E. Management Team
1. My Town Motel 5 is a Corporation owned and operated by
Joe Smith, a successful My Town businessman who has owned and
operated a retail business in My Town for approx. 10 years. He has
considerable experience, education and background in business management
and business operations. Conventional organizational structure for a Motel 5
will be utilized, with a General Manager reporting directly to Mr. Smith.
The General Manager typically will organize operations where employees
report directly for Front Desk, Housecleaning and Audit. These key
employees will be responsible for supervision of staff in performing the
day-to-day operations.
F. Objectives of the Management Team
1. The objective of the Motel 5 management team is to implement the overall
goals of the franchise; to create a lodging experience that will leave the
customer wanting to return to relive the experience. The hired manager will
report directly to owner/operator Joe Smith. Joe will oversee the
operation, but the day-to-day management of operations will be left up to the
qualified management team.
G. Financial Considerations
1. Anticipated profits for the first three years of operations are as follows:
a. Year 1 $72,500
b. Year 2 $81,800
c. Year 3 $95,100
2. Sources of funds for financing are as follows for:
a. Equity by owner $ 300,000
b. Loan secured by property & FF&E 2,000,000
TOTAL SOURCES $ 2,300,000
3. Uses of funds are as follows:
a. Purchase Land* $ 45,000
b. Construction Costs** 2,000,000
c. Fixtures, Furnishings & Equipment+ 150,000
d. Startup Expenses 105,000
TOTAL USES $ 2,300,000
Notes to above
*Land purchase is for 3 acres of Highway 77 property (see maps
attached).
**Construction Costs are an estimate only.
+FF&E estimated conservatively at $2,000 per room. See
FF&E estimates attached.
4. The Projected Key Balance Sheet Ratios for the next three years will be as follows:
Year 1 Current ratio: 2.9
Debt to Equity ratio: 5.8
Return on Equity ratio: 20.9%
Year 2 Current ratio: 2.8
Debt to Equity ratio: 4.9
Return on Equity ratio: 20.4%
Year 3 Current ratio: 2.7
Debt to Equity ratio: 4.1
Return on Equity ratio: 20.6%
II. PRODUCTS AND SERVICES
A. My Town Motel 5 will offer the following amenities:
1. 75 rooms, approx. 12’ x 25’, configured with a mix of bed configurations,
including allowances for disabled and non-smoking rooms. The majority
of the rooms will be configured as double/doubles, with two beds, to offer
maximum flexibility to patrons.
2. Meeting rooms in-house for use of organizations, meetings and business
and civic groups in the area.
3. Indoor swimming pool
4. Food and beverage service or adjacent restaurant to be developed.
B. Motel 5 Features
1. Motel 5 was founded in 1970 by Atlanta real estate developer John Five, who
started out with a group of six no-frills motels. They were
acquired by Hospitality Franchise Systems, Inc. in 1994, which makes
them a part of the largest motel system in the world. With approx. 1,500
properties in 49 states, Motel 5 is presently the fastest mid-market
lodging chain, and the third largest hotel organization. Motel 5 has
consistently achieved high occupancy rates chain-wide. At one point,
the average occupancy for properties less than five years old was over
80 percent.
2. To boost franchisee’s occupancy rates, the chain currently promotes
five corporate membership programs, each aimed at a different
demographic group. For example, one club targets senior citizens,
and another caters to budget-minded business travelers.
Another is aimed at government employees.
3. Franchisee’s properties are linked via a satellite-communication
reservation network, which supplies nearly 40 percent of chain-wide
reservations. Franchisees also receive national and regional media
exposure listings in major hotel directories and travel references, and
representation in airline reservation systems.
C. Future Products and Services
1. Expansion possibilities exist for the marketplace, with a 75-unit project
actually being on the small side for new Motel 5 properties. Their
typical new project consists of 115 rooms. This project was chosen at
its smaller size due to capital limitations of the developer and not lack
of support for larger facilities.
2. A restaurant addition is planned for the first year, with an outside
developer or owner/operator being sought. A Denny’s or other
franchise would be optimal, with a high success ratio present
nationally in locating with Motel 5 projects.
III. INDUSTRY ANALYSIS
A. Lodging Industry Profile
1. The Lodging Industry is the largest segment of the Hospitality Industry,
it is the fastest growing major industry in the U.S. today, and the
largest industry worldwide. By the year 2000 the Hospitality Industry is
expected to be the largest employer in the U.S. and World. The Lodging
Industry for the U.S. consists of approx. 45,000 properties, 3.3 million rooms,
$61.7 billion in sales, with an average occupancy rate of 63.6% (source:
Amer. Hotel & Motel Assoc., 1993).
2. The Economy Market segment of the Lodging Industry is the fastest
growing, most profitable segment of the industry, representing approx.
34% of the total Lodging Industry. Motel 5 falls within the economy
segment, and has been the best performing of all major competitors,
including Travelodge, Super 8, Quality Inns, Motel 6, Fairfield Inn, Econo-
Lodge, Comfort Inns, and Budgetel. They control 14% of the market,
with the 2nd largest competitor representing 10%, and #3 7%. Their
reservations system is the largest in the U.S., with six centers throughout
the country, almost twice the size of their closest competitor.
3. The Lodging Industry has proven to be cyclical, and the industry is just
pulling out of a period of overbuilding in the 1980’s. The Economy
Market has not been subject to this trend however, and has steadily
exhibited grown and acquired market share from the high-end hotels.
Industry analysts are predicting steady improvement in occupancy rates
during the 1990’s, with much improvement noted since 1992. The
biggest challenge facing the industry, according to Arthur Andersen & Co,
is maintaining rates at a higher level. Motel 5 has benefited from what
might be considered this long term trend toward more economy minded-
ness.
4. The Hospitality and Lodging Segment in Arizona have grown faster than
the National averages. According to a 1995 Business Journal article, the
average occupancy rates in the state have been running over 75%, with
larger gains noted for the economy segment of the market. The Arizona
Department of Tourism, local Chambers of Commerce and Visitors
& Convention Bureaus have been effective at promoting the state as both
a desirable product and good value.
5. The Navajo County includes a large section of Highway 77, which is a
major U.S. highway, and boasts the largest traffic patterns through the
state. Interstate commerce, tourism and statewide travelers all represent
large users of this corridor. The Grand Canyon reports over 4 million
visitors per year annually, most of which use this section of Highway 77
for thoroughfare. Copies of traffic surveys through this area are shown as an
exhibit to demonstrate demand via traffic, and a copy of the latest Tourism
Site Visitation list is also shown as an attached schedule.
B. Market Definition
1. Who is the customer? The major customer of My Town Motel 5 will
be a tourist traveling the region. Secondary customer groups would be
the regional business traveler and local populations using facilities and
meeting rooms.
2. Travel and tourism is the world’s largest industry and the worlds largest
generator of jobs. Tourism ranks as the number one industry and
employer in Arizona, and is the fastest growing industry statewide.
C. Competition
1. The only local competitor for this project is the No Tell Motel,
located in downtown Your Town. It is a 56-unit project, owned and
operated by corporation. Other lodging facilities falling within a 60
mile radius include other cities, which has over 20 motel
properties.
2. Strengths and weaknesses. The No Tell Motel is an older project,
approx. 30 years old, and their rooms are smaller than that planned for
this project. Well furnished with Southwest design, they have demonstrated
occupancy rates in excess of 65%, despite a high rate structure, with rooms
starting at $65. Their location is approx. 3 miles east of this project,
along Highway 77 with good visibility and appearance. Their rooms are
located in a separate wing from a main restaurant/dining facility, and have
an older-style outside entrance with a dark parking lot for access. Service
is minimal, with few amenities typically found in higher priced projects.
D. Major Influences on the Business and the Industry
1. Government Regulation is minimal for the industry, with consideration
required for American With Disabilities Act considerations, Health and
Safety, and local taxation.
2. Business cycle. With tourism being the primary customer, the business
should be somewhat seasonal, with larger revenue months during the
Spring and Summer months. Consideration in the plan was given to
lower occupancy and rates for off-season months. Generally, with a
Motel 5 franchise, separate rate structures for off-season months are
only required in the more highly competitive markets.
IV. MARKETING PLAN
A. Marketing Overview
I. As a retail business, in a free standing location, sales and advertising will be
directed to the business traveler, tourist, and others traveling along Highway
77, a major U.S. Interstate highway. Service and quality will be important
factors, along with the Motel 5 franchise systems, which contribute to
promotion, advertising and reservations.
2. The primary marketing tools include:
a. Motel 5 advertising & reservation systems for business and individual clients
b. Billboards on reservation and surrounding areas to attract tourists
c. Direct marketing of local, business and corporate businesses for meetings,
food service and lodging requirements.
d. Classified advertising
e. Display advertising
f. Yellow page advertising
g. Direct Mail
h. Client referrals
r. Word of mouth and referral
V. THE PRODUCTION PLAN
A. Facility Requirements
1. The basic design and schematics are shown in attached schematics. These
are preliminary and subject to change, but demonstrate the general quality
and appearance for the project. Construction cost estimates are also shown
as an attachment.
2. Furnishings, Fixtures and Equipment are shown as a separate schedule.
We have allowed $2,000 per room, which is higher than the preliminary
estimates attached.
3. Labor. Management staff will probably be hired from the
Hospitality Industry, probably from out of the area initially. It is our
intent to train and promote from within over time, and to utilize local
citizens whenever possible for employees.
4. Training. Hospitality Franchise Systems provides training and classes for
management and other employees. They provide a comprehensive training
program for new franchisees. The curriculum covers property management
supervisory and sales skills, financial analysis, and related legal and
industrial topics. Outlet managers receive a two-week orientation at the
Day Learning Center in Atlanta. An operating team is assigned to every
new property to oversee hotel development and staff training.
VI. COMPANY STRUCTURE
A. How Company Will be Structured
1. My Town Motel 5 is owned by Joe Smith, Inc., a corporation
wholly owned by Joe Smith.
B. Business Advisors
1. Accountant: Brian Adams
c/o Epic Records
100 W. Buffalo St., Holbrook, AZ 86025
Phone (520) 524-1000
2. Business Consultant: Mark Engle
Small Business Development Center
P.O. Box 610, Holbrook, AZ 86025
Phone (800) 266-7232
3. Lawyer: Larry Landers
P.O. Box 650
Your Town, AZ 85900
Phone (520) 223-7000
4. Banker: Dan Manning
Yourtown State Bank
P.O. Box 101, Your Town, AZ 85900
Phone: (520) 223-5567
VII. THE FINANCIAL PLAN
A. Summary: We used Robert Morris Associates figures to estimate costs for the project.
On the income side, the estimates were based on actual results
Motel 5 has compiled for their other state operations, which would be
very comparable for this operation. We were conservative on occupancy
rates and average daily room rates used. Refer to the state
statistics in a letter attached, and specific assumptions shown below in
section C.
B. Projected Financial Proformas - see attached
1. Profit and loss
2. Break-even analysis
3. Balance sheet
4. Cash Flow
5. Operating Budgets
6. Ratio Analysis
C. Financial Assumptions
----Years -------
_ 1 2 3 4 5
1. Income assumptions were based on:
Average Daily Rate $45 $48 $53 $55 $55
Occupancy % 60% 65% 70% 70% 70%
Other Income (mtg facilities, etc.) $12 $12 $12 $12 $12
2. Expense Assumptions:
Operating Expenses (RMA%) 83% 83% 83% 83% 83%
Other Overhead (Dep, int., etc) 8.7% 8.7% 8.7% 8.7% 8.7%
Income Tax 35% 35% 35% 35% 35%
3. Balance Sheet: ----All Years -----
Cash 13.7% of sales
Inventory 6,9% “ “
Subject Loan $2MM $240Mpmts, CPLTD $60M, Interest $180M
A/P 2% of COGS