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Ideas for minimising start up costs (rent payments before opening of business)?

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Benjamin-Law started this discussion 9 years 7 months ago

Hi everyone,

Start up costs are a frequent topic, so I wont waste time asking the same old questions, especially without very specific details.

My question relates more to finding ideas for reducing the impact of the first 3 months of expenses when there will be no income.
Reason for no income - Bureaucracy, waiting for the approval from the city hall to begin operating as a business. This hostel will be located in Eastern Europe.
My estimate would be 3 months (very optimistic) from when I secure a property to when I have the first customers. This process includes:
Finding property, Acquiring and installing facilities (beds, reception etc) and once the outfitting of the hostel is complete then getting Fire, Electrical and other certificates required to open a business. Once all local laws are met and relevant certificates acquired then local council officials need to visit and give their 'tick of approval', which can take up to 3 months to receive.

Therefore, my biggest concern is waiting three months with no income but still having to pay rent, contractors, business license fees, all the set up capital (beds, plumbing electrical etc). The rent itself could easily cost $4000/month. Thats $12000 just to cover first three months of rent with no income, not taking into account all the unexpected costs.

Do I have to just grit my teeth and accept this as inevitable or do I have options such as - loans with interest payable after 6 months of operating, subletting rooms to students whilst waiting for business approval etc.

Any ideas or past experiences you can share would be amazing,

Thankyou

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Fez Miester

9 years

Hi Ben,
Where is your Hostel located?
As i gather more info about starting my own hostel, i really realize how important 'local authority' is over the hostel, it's not like other industries, where you can plan for and calculate expenses over different towns even in the same country. Because each place will have their own 'local approval system'.. (or at least state wide in say the USA)

You could rent out the common rooms for events... meetings... which would also bring awareness of the hostel to the community...
i dunno if subletting to college students or such would be a breach of the 'getting approved for human residence' process in your area.
however i would think people's right to gather' temporarily, would be pretty understandable.. (assuming you passed Fire/safety already)

Hold auctions there for local charities...
I dunno i'm just thinking out loud.
but I like the question because it makes me think ahead some more on my own path.

Ciao,
Fez

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Rucksack Brian

9 years

Hi Benji,

Buying an existing hostel that has all of the licenses and future reservations on the books would be one way to avoid the initial dry period.

If you’re very lucky you can convince your landlord to waive the rent for the first 3-6 months while you get a new hostel set up. This is most likely to happen if you are going to spend your own money improving the value of their property through renovations, etc. Completing the renovations and THEN waiting for approvals can easily take longer than three months, depending on how extensive the changes are.

…loans with interest payable after 6 months of operating

I don’t know how many banks offer a deferment period at the beginning of the loan, but it would definitely be worth asking about the possibility.

…subletting rooms to students whilst waiting for business approval

Students or AirBnB guests might be temporary housing options to make some income. They would have to deal with the mess and noise from the renovation though. For a low price, some might not care. But for that price you might not make enough to even bother.

You could also rent out the property as exhibition space for artists, meeting space for companies or organizations, multifunction space for student organizations, concert space for musicians, etc. until you can legally host travelers. Depending on your set-up, you might even continue with some of this after the hostel opens.

You could simply operate without the license until you get the approvals. Of course, that is not legal, and you would risk losing all of your investment if you get shut down before you’re even officially open for business.

An unlikely approach might be to start selling beds for a period when you expect to be open and ask for the payment in advance. This could work for groups, for example, where it’s not uncommon to ask for pre-payments. It would be quite risky for you (in case you don’t get everything finished in time) but also incredibly risky for the group who would be paying to stay in a hostel that doesn’t exist yet and that could just as easily disappear with their money without a trace. Still, it’s an option…

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Benjamin-Law

9 years

Ok thanks guys,

I didn't think of renting out space for exhibitions, business organisations etc. That's definitely something to look into.

Fez Miester - Im am not quite comfortable posting where my hostel will be opening just yet. I would love to talk more via private message if you have ideas you want to share or discuss more specifically. It sounds like we are in similar stages of planning.

Students or AirBnB guests might be temporary housing options to make some income. They would have to deal with the mess and noise from the renovation though. For a low price, some might not care. But for that price you might not make enough to even bother.

Rucksack Brian - I tend to agree with you about the students bringing in such a small amount of income when renovating that it may be more of a hassle than benefit.

Thanks for sharing some great ideas!

Benji

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