Guest House [Rs. 14.19 million, Apr-2021]

Guest House [Rs. 14.19 million, Apr-2021]
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1.02 MB
Date:
22 November 2021
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A Guest House is aimed at providing accommodation facilities to tourists and outstation corporate visitors at affordable prices. The boom of tourism industry in Pakistan has led to a rapid increase in number of guest houses in several cities/towns in the country. The competitive edge of this proposed business is providing clients the required services at lowest possible rates. Satisfactory provision of services as per the customers’ expectations is a key success factor to generate repeat business for the guest house. The guest house business model proposed in this study offers to its clients’ multiple categories of rooms; including simple single bed and double bed rooms as well as high-priced executive rooms.

This “Pre-feasibility Document” provides details for establishing “Guest House” to offer decent accommodation facilities to its customers at affordable prices. The proposed facility will have 19 rooms which translate into 6,840 room-days capacity on the basis of 360 operative days per year. The facility is assumed to operate with service capacity utilization of 60% during the first year of its operations. The service capacity is assumed to increase at a rate of 10% per annum with a cap at 95% of total capacity.

This proposed venture is to be ideally located in large cities like Lahore, Karachi and Islamabad. This enables the corporate visitors to get services of the guest houses during their official visits, meetings and conferences. A large city like Lahore, Karachi, Islamabad, Multan, and Faisalabad attracts a large share of visitors because of vocational, employment, business and other opportunities. Currently there are limited accommodation facilities to cater to the influx of businessmen, tourists and others looking for a better accommodation.

The proposed project will be set up in a rented building having an area of 4,950 sq. ft. (22 Marla). The project requires a total investment of PKR 14.19 million. This includes capital investment of PKR 13.46 million and working capital of PKR 0.73 million. The project will be established using 100% equity financing. The Net Present Value (NPV) of project is PKR 26.59 million with an Internal Rate of Return (IRR) of 41% and a Payback period of 3.34 years. Further, the proposed project is expected to generate Gross Annual Revenues of PKR 28.30 million in 1st year of operations, Gross Profit (GP) ratio ranging from 41% to 51% and Net Profit (NP) ratio ranging from 5% to 23% during the projection period of ten years. The proposed project will achieve its estimated breakeven point at capacity of 47% (3,187 room-days) with gross revenue of PKR 21.97 million in a year.

The proposed project may also be established using leveraged financing. At 50% debt financing at a cost of KIBOR+3%, the proposed project provides Net Present Value (NPV) of PKR 31.14 million, Internal Rate of Return (IRR) of 41% and Payback Period of 3.32 years. Further, this project is expected to generate Net Profit (NP) Ratio ranging from 5% to 20% estimated breakeven point at capacity of 51% (3,490 room days) with annual revenue of PKR 24.06 million.

The proposed project will provide employment opportunities to 17 persons including the owner. High return on investment and steady growth of business is expected with the entrepreneur having some prior experience in or education in hospitality industry. The legal business status of this project is proposed as “Sole proprietorship”.

Business for guest houses might be competitive as there are multiple numbers of local and multinational organizations, which have started this business. The low cost would be the determining factor to make this business, a long-lasting success.

 
 
 
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