When preparing a hotel investment's feasibility, we usually calculate these figures: land or property cost, construction or renovation cost, architectural and project expenses, furniture and equipment, permits and official expenses, staff, marketing, and opening costs.
Then we add all of this up and say "This hotel's total investment cost is this much." But one very important item is easily overlooked here: the cash needed for the business to keep operating once the hotel opens. This is what we call working capital.
And especially in newly opened hotels, this money can matter as much as the investment cost itself.
1. The hotel may not start earning money the day it opens
Opening a hotel's doors to guests and starting to earn money regularly are not the same thing. In the early days, reservations may not yet be at the desired level, occupancy can be low, staff costs continue, bills start coming in, suppliers expect payment, marketing spend continues, and maintenance or unfinished-work expenses can arise.
In other words, the hotel has started operating, but cash flow may not yet have settled. So instead of thinking "The hotel is open, now we'll earn revenue," it's better to ask "How much cash do we need to balance revenue and expenses after opening?"
2. Investment budget and working capital are not the same thing
Separating these is very important. For example, say the property is 20 million TL, construction/renovation is 15 million TL, furniture and equipment is 5 million TL, project and other expenses are 2 million TL. Total investment could be 42 million TL.
But this doesn't mean the investor only needs 42 million TL. Working capital will also be needed once the hotel opens. If you set aside 3 million TL of working capital, for instance, the investment's real financing need becomes 42 + 3 = 45 million TL.
So total investment cost + post-opening working capital should be considered together in feasibility.
3. Why is working capital necessary?
Because a hotel's expenses can appear before revenue, or faster than revenue. For example, your hotel has costs like salaries, rent, electricity, water, internet, cleaning supplies, laundry, breakfast products, maintenance, software, accounting, and marketing.
Some of these continue even when occupancy is low. Guest numbers may not yet be at a sufficient level. But the business keeps paying these expenses. Working capital acts as a cash buffer during this period.
4. It matters especially in the first months
For a newly opened hotel, the early period can be one of the most fragile times for the business. There aren't yet enough reviews, brand recognition hasn't formed, there are no repeat guests, direct booking channels haven't developed, sales channels are being tested, and pricing strategy hasn't settled.
Occupancy can rise over time. But the business's expenses start from day one. So the investment plan must have an answer to: "How much cash will we need if we run at low occupancy in the first months?"
5. Working capital isn't just for covering losses
There's an important distinction here. Working capital doesn't mean "the hotel will lose money, so let's set aside cash to cover the loss." The better framing is: "Let's hold enough liquidity to manage the timing gap between the business's revenue and expenses."
Because even a profitable business can struggle with cash flow. For example, you might receive payment for today's reservation later. But you may need to pay staff salaries today. That time gap creates a working capital need.
6. Expenses continue while occupancy is low
We discussed the importance of occupancy rate in the previous article. Here we can connect it directly to working capital. Say you have a 15-room hotel. In the first months occupancy stayed at 30%. Your hotel's revenue can be below what you expected.
But a significant portion of expenses like staff, energy, rent, software, maintenance, accounting, and insurance continues. Working capital can cover the gap until occupancy rises.
7. This matters even more in seasonal hotels
Especially in tourism regions, working capital should be considered not just during the opening period, but throughout the season. In high season, high occupancy + high ADR can create strong cash flow. But in low season, low occupancy + ongoing expenses can occur.
So instead of distributing all the cash earned in a good season, you may need to build a cash plan that also finances the low season.
8. Be careful with the "first season will go great" assumption
One of the most dangerous assumptions in feasibility: "The hotel is already in a great location, it'll fill up as soon as it opens." Maybe it really will fill up well. But treating this as guaranteed when making the investment decision isn't right.
The healthier approach: calculate cash needs across an optimistic scenario (high occupancy), a realistic scenario (moderate occupancy), and a pessimistic scenario (lower-than-expected occupancy). If the investment can be managed even in the bad scenario, your financial structure is more solid.
9. Which expenses can go into working capital?
When calculating working capital, you can look at the items that create the hotel's daily or monthly cash need.
All of these can vary depending on the hotel's operating model.
10. Don't forget small expenses during the opening period
Thinking "everything's done" once the hotel opens usually isn't realistic. Many unexpected small needs can come up in the early period — missing equipment, extra textiles, kitchen equipment, technical supplies, room accessories, signage, software, small repairs, staff equipment.
Looking at each one alone they seem small, but added together they can become a meaningful figure. So it's useful to leave some flexibility in the opening budget.
11. Also factor in supplier payment terms
An important side of working capital is the cash conversion cycle. You pay some expenses immediately. Some suppliers may extend you payment terms. Some sales channels may pay you your money later.
So the business needs separate answers to "When do I earn the money?" and "When do I pay it out?" The gap between these two dates affects the business's cash need.
12. Being profitable and having cash in the till aren't the same thing
This matters especially. A business can look profitable. But it might not have enough cash on hand. Because profit ≠ cash flow — they're not the same thing.
For example, you might have generated revenue from reservations. But collecting that revenue may happen later. Meanwhile salaries and some bills may be due immediately. So in a hotel investment you need to track not just "How much profit will I make a year?" but also "How much cash comes in and goes out of the till each month?"
13. Prepare a monthly cash-flow table
If I were making a hotel investment, I wouldn't settle for a single annual income-expense table. I'd prepare a month-by-month cash flow: revenue, expenses, and net cash flow for each month.
This table shows a lot especially in seasonal businesses. Because while the annual total may look profitable, some months can have a serious cash shortfall.
14. How much should working capital be?
There's no single figure that fits everyone here. Because the need varies depending on the hotel's room count, location, season length, rent situation, staff structure, debts, sales channels, and expected occupancy at opening.
So instead of sticking to a single formula like "Every hotel should hold 3 months of working capital," it's better to calculate the highest cash shortfall using a monthly cash-flow table.
15. Find the worst cash shortfall
For example, say your monthly cash flow looks like this: January –500,000 TL, February –400,000 TL, March –250,000 TL, April +100,000 TL, May +400,000 TL.
In this case, the business creates a significant cash shortfall in the early months. Working capital's role is exactly to cover this. While waiting for the business to start generating positive cash in April or May, there needs to be enough capital to finance the January–March gap.
16. Working capital should be included in the investment budget from the very start
I think this is the most important point. Thinking "we'll find working capital later if needed" is risky. Because the total financing need of the investment needs to be known from the start.
For example, if property + construction + equipment + other investment expenses are 40 million TL, working capital could be 3 million TL. In that case the real financing need is 43 million TL. Knowing this figure from the start makes the financing plan more realistic too.
17. Even more important in debt-financed investments
If part of the hotel investment is financed with debt, working capital becomes even more critical. Because once the hotel opens, salaries + operating expenses + loan payments can continue at the same time.
If occupancy hasn't yet reached the expected level, cash pressure can build. So the financing plan needs to answer not just "How will I finance construction?" but also "How will I finance the early period after the hotel opens?"
18. Too much working capital can also be a problem
Balance matters here too. Holding more cash than necessary in the business can lead to inefficient use of capital. So the goal isn't the highest possible cash — it's the liquidity needed for the business to operate safely. This figure should be determined by the business's real cash flow.
19. Working capital can be seen as a "safety margin"
It's not possible to predict everything in advance in a hotel investment. Occupancy could be lower than expected. A piece of equipment could break down. The opening could be delayed. An unexpected renovation could come up. Marketing expenses could rise. The season could be weaker than expected.
Working capital doesn't solve all of this uncertainty. But it gives the business room to maneuver. So I see working capital not just as a financial line item, but as the investment's resilience margin.
20. Correctly calculate the hotel's real investment cost
In the end, the figure the investor should look at shouldn't just be "How much am I building this hotel for?" The better question is: "How much total capital do I need until I can open this hotel and start running it healthily?"
These two figures can differ significantly. Because buying the land, building the structure, and furnishing the rooms are only part of the investment. The real goal is making sure the business can stay afloat in cash terms until it can support itself with its own revenue.
Simple calculation table for working capital
You can prepare this table at the start of an investment:
This figure gives a much more meaningful starting point for calculating the working capital need.
Conclusion: Building the hotel and keeping the business alive are different things
When preparing the investment budget for a hotel, our attention is usually on the land, building, architecture, furniture, and equipment. These matter, of course. But once the hotel opens, another stage of the investment begins: operations. And the business needs cash from day one.
So for me the right feasibility doesn't end with "How much does the hotel cost?" The real question should be: "How much capital will the business need until it can support itself with its own revenue after opening?"
Because a successful investment isn't just about building a beautiful hotel. It's also about being able to open it with the right financial structure and get through its first period healthily.
And sometimes what determines an investment's success isn't the few million lira you saved during construction, but having planned ahead enough cash to comfortably get through the first few months after opening.
Hotel Investment Guide — Volume I
This article is a simplified web version of the investment and feasibility approach within the Hotel Investment Guide — Volume I.
The guide states that a hotel investment's total cost should be evaluated together with expenses across the investment's different stages, and that feasibility should also include operating parameters like room count, ADR, occupancy, annual revenue, staff and energy costs, and payback period.
The guide's overall approach also treats the process — from land selection to feasibility, from financing to permits and architecture — as a systematic process from start to finish.
Volume I is complete. Work continues on the rest of the book.