FEASIBILITY STUDY OF A MEDIUM – SIZED FULL SERVICE

HOTEL IN BAUCHI METROPOLIS, BAUCHI NIGERIA

1
DRADEJOHAPEH MATTHEW, 2AKALAZU EVEREST DONATUS

Department of Hospitality Management, Federal Polytechnic, Bauchi

Email: adejoh.am@gmail.com&ever4top@yahoo.com

Abstract: Though there are many hotels operating within and near Bauchi metropolis, they are not enough to carry the
anticipated demand. There exists excess demand not satisfied by the present supply structure. This is occasioned by the fact
that demand for hotel services is influenced by such factors as price, service quality, taste, income, ambience, among other
others. Therefore, this study is aimed at carrying out a feasibility study with a view to establishing full-service hotel to fill
the current gap. The purpose of a feasibility study is to assist in planning a large project by evaluating the chances of the
project’s success before it begins. A potentially viable opportunity for commercial hospitality exists in Bauchi and this
requires technical, market, infrastructure, operational and management analyses to provide a framework for successful
investment. Commercial hospitality, especially the lodging facility plays a significant role in development efforts and
poverty alleviation of goals 1 and 8 of the Sustainable Development Goals of the 21st century. A feasibility study of a 54 –
bedroom full service hotel in Bauchi metropolis was conducted. Operational data obtained from the existing hotels and
demand survey were processed by thematic and ratio analyses. Results show that it is economically and financially feasible
to invest in a 54-bedroom full service hotel with start - up capital of N68, 576, 100. 00, capable of yielding average annual
profit rate at 41% and a cap rate of 106%. It is recommended that Bauchi State government should provide enabling
environment through its empowerment programme to motivate entrepreneurs to invest in commercial hospitality for poverty
alleviation in Bauchi.

Keywords: Feasibility, Commercial hospitality, Poverty alleviation, Sustainable development

I. INTRODUCTION who lack investment portfolios. Any investment

A potentially viable opportunity for commercial
hospitality exists in Bauchi and this requires
technical, market, infrastructure, operational
requirements, and management analyses to provide a
framework for successful investment. Commercial
hospitality, especially the lodging facility plays a
significant role in development efforts and poverty
alleviation and is capable of contributing significantly
to the realization of the Sustainable Development
Goals of the 21st century (World Bank 2000). This is
particularly true of Bauchi state where poverty level
is high and majority of the youth engages in
hooliganism and bike riding. Therefore, a feasibility
study to determine the most effective means of
establishing and operating a viable hotel is essential.
Researches have shown that hospitality businesses
have a significant impact on the social and economic
life of the communities in which they operate
(Melissen (2013, Ayeni, and Ebohon 2012, Banki,
and Ismail, 2015) More so, hotel business relies on
the local labour market for its manpower needs.. For
instance, these businesses provide and procure
products and services to and from the local
community (Ajao 2012, Ifegunni 2015,Mitchell &
Ashley, 2010)
Bauchi state vigorously pursues poverty alleviation
through many youth and women programmes over
the years. Though hotel business can significantly
contributes to poverty alleviation and well- being of
the citizenry in Bauchi, the approach to investment in
this profitable industry has always been based on
trial and error and ‘hit and run’ by rich individuals
decision regarding the future development of hotel
business in Bauchi will require a value-added
approach. Hence, this study shall be based on
excellent operational intelligence suggested by
Scheyvens (2011)
This feasibility study specifically undertakes to:
i. determine the cost of investment in a 54-
bedroom hotel property
ii. evaluate the technical, market and financial
opportunities of hotel business in Bauchi
iii. develop product mix and pricing that yield
optimum results.
Hofstrand and Holz-Clause (2009) identify
components of a feasibility study to include
description of the proposed project, technical
feasibility, market feasibility, managerial feasibility
and financial feasibility. These form the underlying
characteristics for this study.
II. METHODOLOGY
This study takes into consideration the peculiar
characteristics of Bauchi State. A survey design
supported by case study was adopted. A number of
hotel developers and operators in Bauchi were
administered self-answered questionnaire and also
interviewed with a particular focus on Yelwa
development area.
Of the 45 hotels identified in Bauchi metropolis, five
including Zaranda, Awalah, Bauchi Destination,
Hazibal and Jamil hotels were selected as the focus

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 Feasibility Study of a Medium – Sized Full Service Hotel in Bauchi Metropolis, Bauchi Nigeria
group and major competitors in the market whose
responses were included in the data analyzed. Data
collected were subjected to content, thematic and
ratio analyses to determine the feasibility of the
project
III. DATA ANALYSES AND RESULTS
The Bauchi market has been reviewed for the future
operation of a hotel in regards to access and other
relevant location-related factors. The surrounding
economic environment has been reviewed to identify
economic and demographic trends that may have an
impact on future demand for hotels. The market for
hotel accommodations was investigated, including
factors such as purpose of visit, average length of
stay, extent of facilities and amenities required,
seasonality, daily demand fluctuations, and price
sensitivity (Rushmore 2011). An analysis of existing
and proposed competition in lodging activity provides
the basis for projected occupancy, market penetration
and the degree of competitiveness. A detailed
projection of income and expense made in
accordance with the Uniform System of Accounts for
the Lodging Industry sets forth the anticipated
economic benefits of the subject property (UNWTO.
2007).The economic value and payback period were
calculated to substantiate the viability of the property.
IV. TECHNICAL FEASIBILITY
The technical feasibility of the subject property
addresses the suitability of the site for its intended
use, as well as the feasibility of achieving the levels
of income projected and the estimated operating
costs. Overall, given the availability of land in
Bauchi, the technical feasibility of the subject
property is reasonable. The proposed location of the
hotel, YelwaBauchi and the physical plant had been
found to be promising. Considering size, topography,
access, visibility, and the availability of utilities, the
area is not known for any specific hazards such as
flood, erosion, site-specific nuisances or toxic ground
contaminants. Electricity and water supply to the
area is fairly constant
In terms of accessibility and visibility, the proposed
site location is readily accessible to a variety of local,
state, and interstate highways. Apart from being a
tourist destination, Bauchi serves as a stopover to
different locations in the North-east, Nigeria,
including Kano, Damaturu, Gombe, Yola, Portiskum,
Maiduguri, Jalingo and Jos, which are all state capital
cities. For resources, the hotel will be able to access
modern technology such as High definition TVs,
guest sensors, high speed internet Access, MP3
Docking station and Alarm, convenient power
sources, mirror TVs, Radio Frequency Identification
Door Lock and Energy Management system.
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V. MARKET FEASIBILITY
Market feasibility is judged by information on the
sales organization and management, nature and extent
of market area, marketing plans for sale of project
output, extent of competition, and commitments from
customers (Zao 2009). The proposed hotel’s
ownership/management would be expected to be well
versed in hotel operations. The absence of
professional managers coupled with poorly motivated
work brigade in the existing hotel properties around
Yelwa would contribute to the feasibility of the
property in this market. The proposed hotel will face
approximately five main competitors assessed on the
basis of location, size of hotel, size of rooms, pricing,
product attributes, strengths, specials, key accounts,
market segmentation as well as average occupancy
rate. However, the proposed property’s new
construction and favorable condition and facilities, as
well as the anticipated brand management, is
expected to appeal to users of demand generators in
this market, particularly the Yankari Resort and
Safari and other tourism centers, the higher
institutions and Police training school, and highway
travelers.
VI. FINANCIAL FEASIBILITY
Financial feasibility is determined by the reliability of
the financial projections made and the ability of the
business to achieve the projected income and cash
flow (Melissen 2013). Based on the evaluation of
costs, the availability of short-term credit for seasonal
business, and the adequacy of raw materials and
supplies, the estimated income and expense
forecasted in this report are considered achievable.
This hotel project represents a profitable operation.
Any incentives from government would highly
increase the profits from this project. The net present
value and the payback analysis contained in this
report show clearly the feasibility of the hotel project.
Hotel Development Costs - After examining the
structural designs and estimates submitted by our
architect and estate valuers, interviewing a local
developer and studying available hotel statistics, we
have determined it would cost N64.5m to develop a
54- room full-service hotel, including land acquisition
cost.
Estimated Start-up Costs
Based on estimated development costs and operating
costs, the startup capital is expected to be distributed
thus:
 Feasibility Study of a Medium – Sized Full Service Hotel in Bauchi Metropolis, Bauchi Nigeria
After consulting a local developer and two
commercial banks in Bauchi, we were able to
determine reasonable terms for financing this project.
The figures are approximations and will likely vary
depending on the future market factors, expansions,
and goals of the developer. Our investigations
revealed that it is realistic in the current market to
obtain an amortizing 20-year permanent loan with an
interest rate of 8.5% and a loan to value ratio of 70%.
If this project is to be financed by 70% loan and 30%
equity, the expected monthly loan repayment with
interest will be N540, 036 and annual payment
would be (2, 400, 160 +4080272) = N6, 480, 432. 00
Hotel Revenue: The projected hotel room revenue
has been derived from the data obtained from
comparable hotels existing in Bauchi metropolis.
Conservatively, a full-service hotel in Bauchi town
could charge an average rate of N15, 500 per night
with an occupancy rate of 65%. For the purpose of
this study, four room types have been delineated
including Executive (12), Royal (12), Double (20)
and Studio (10) at the rate of N15, 000, N12, 000, N8,
000 and N5, 000 respectively, for 65% occupancy
level. At these rates the annual expected revenue of a
54-room hotel for four years would be N126,
344,400, N126, 344, 400, N138, 978, 840,N152, 876,
724 respectively. Food sales have been estimated at
40% of room revenue. Beverage sales and other
revenue were estimated at 40% of food sales. Hall
hire at the rate of N40, 000 per day has been
projected at 40% occupancy.
Hotel Operational Costs: Based on the analysis of
data obtained from hotel operators and managers
from five leading hotels in Bauchi metropolis, the
annual hotel operating costs for a size of our facility
have been estimated. This study provides
approximate operational costs for a 54-room full-
service hotel operating at a 65% occupancy rate.
Estimated annual operating expenses, including
payroll, utilities, marketing, and maintenance costs,
among others have been calculated. In addition to the
day-to-day costs associated with hotel operation,
there would be statutory taxes that contribute to the
net operational costs of the hotel. However, the VAT
on room revenue would be passed on to the guests.
The total projected annual operational costs for the
54-bedroom hotel over four years are as summarized
below
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Pro-forma Hotel Net Operating Income: Based on
the estimated revenues and operating expenses, this
hotel project shows promising net operating income
of N65824156.8, N65946565.2, N74347605 and
N84626508.6 over the four years.[see appendix I]
Pro-forma Balance Sheet: The estimated values of
assets, equity and liabilities for four years are:
N132000096.8, N195546502.2, N267493947 and
N349720295.6 respectively [see appendix II]
Economic Feasibility: Using Steve Rushmore’s
model (2011), the economic feasibility of an hotel
project is determined by comparing the total project
cost, including land, with the hotel’s estimated
economic value on the date it opens for business. A
feasible project is one whose economic value is
greater than the cost. Two rules of thumb are
available: Economic Land Value and Total Economic
Value
The land economic feasibility of a hotel is calculated
as:
Occupancy x ADR (average room rate) x Rooms x
365 x 0.04 / 0.08
While the Total Economic Value (Average Rate
Multiplier) is determined as:
ADR x Rooms x 1000
Therefore,
(i) the Land Economic Value of this project =
0.65 x 10000 x 54 x 365 x 0.04 / 0.08 = N64, 057,
500
Compared with N4, 500, 000 land acquisition cost,
this is very favourable
(ii) Average Rate Multiplier =
10000 x 54 x 1000 = N540, 000, 000
Compared with N68, 576, 100 total cost of
investment, this rate is very favourable.
On the whole, the project is ECONOMICALLY
FEASIBLE
CONCLUSION
Statistical evidences from this study have shown that
hotel business in Bauchi is a profitable undertaking
that can be ventured into. There are apparent indices
of economic and financial feasibility. With a
seasoned team of organization members and adequate
coordination of activities, a medium-sized lodging
property is able to generate sufficient revenue that
repays loan and covers operating expenses and yields
an attractive profit ratio.
Therefore, it is recommended within the context of
this feasibility study that
 Feasibility Study of a Medium – Sized Full Service Hotel in Bauchi Metropolis, Bauchi Nigeria

i. Government of Bauchi State should create and
ensure enabling environment to motivate
individuals and entrepreneurs who are willing to
invest in lodging and catering business through
reduced payment for the sale of public land.
ii. Government should consider the hospitality
sector as one of its channels through which the
various youth empowerment programmes and
job creation drive can be extended to the people
of Bauchi State. This is very important option
considering the fact that it requires a little
startup capital to engage in some of the aspects
of the catering industry
iii. Commercial banks in Bauchi should extend
loan and credit facilities to entrepreneurs who
want to invest in the hospitality industry in the
state. Such investments have been found to have
high profit and cap rates.
iv. Investors, developers and entrepreneurs who are
contemplating investment options should
consider the lodging subsector of the hospitality
industry a viable option.
REFERENCES
1. Ajao, A. (2012) ‘’Tourism Gets a Thumbs Up’’,
Thisday Live, 20th May, 2012
2. Ayeni, D. and Ebohon, O. J. (2012) ‘’Exploring
sustainable tourism in Nigeria for developmental
growth’’ European Scientific Journal, Vol. 8 No. 20,
pp. 126-140
3. Banki, M. B. and Ismail, H. N. (2015) ‘’Understanding
the characteristics of family owned tourism micro
businesses in mountain destinations in developing
countries: evidence from Nigeria’’, Tourism
Management Perspectives, Vol. 13, pp.18-32 Available
at: http://dx.doi.org/10.1016/j.tmp.2014.11.001
Accessed on 04/02/2015
4. Hofstrand D. and Holz-Clause M. (2009).Feasibility
Study Outline. Ag Decision Maker, File C5-66. Iowa
State University. Available at
www.extension.iastate.edu/agdm
5. IfegunniJ (2015) Top Cultural Activities in Bauchi
State
6. Melissen, F. (2013) ‘’Sustainable hospitality: a
meaningful notion? Journal of Sustainable Tourism,
Vol.21 No. 6, pp. 810-824
7. Melissen, F. and Damen M. (2014) ‘’Addressing
sustainability in hotel management education: designing
a curriculum based on input from key stakeholders’’
Research in Hospitality Management, Vol.4 Nos 1&2,
pp. 71-76
8. Mitchell, J., & Ashley, C. (2010).Tourism and poverty
reduction: Pathways to prosperity. London: Earthscan
9. Rushmore S. (2011). How to test Hotel Feasibility,
HVS Lodging Hospitality Magazine, Canada.
www.hvs.com
10. Scheyvens, R. (2011) Tourism and Poverty. London:
Routledge
11. UNWTO.(2007). International Recommendations on
Tourism Statistics (IRTS). Provisional Draft, Revision
5, September, 2007. Madrid.
12. Zhao,W. (2009). The nature and roles of small tourism
businesses in poverty alleviation: Evidence from
Guangxi, China. Asia Pacific Journal of Tourism
Research, 14(2), 169–182
13. World Bank. (2000). Entering the 21st century—World
development report 1999/2000. NewYork: Oxford
University Press

Appendix I : PRO-FORMA INCOME STATEMENT OF THE PROPOSED HOTEL

PROJECTED INCOME STATEMENT FOR THE FIRST FOUT YEARS

Year 1 Year 2 Year 3 Year 4

65% 65% 71.50% 78.65%
N N N N
Room Sals: Executive - 15000 * 12 *7 *52 *0.65 42588000 42588000 46846800 51531480
Royal 12000 * 12 *7 *52 * 0.65 34070400 34070400 37477440 41225184
Doubl e 8000 * 20 * 7 *52 * 0.65 37856000 37856000 41641600 45805760
Studio 5000 * 10 * 7 *52 * 0.65 11830000 11830000 13013000 14314300

126344400 126344400 138978840 152876724

Food Sales:B/fast 40 *500 * 7 *50 * 0.65 4550000 4550000 5005000 5505500
Lunch 40 *600 * 7 *50 * 0.65 5460000 5460000 6006000 6606600
Dinner 40 * 600 * 7 *50 * 0.65 5460000 5460000 6006000 6606600
15470000 15470000 17017000 18718700
Bev Sales 40% of food sal es 6188000 6188000 6806800 7487480
Hall hi re 40000 * 7 * 50 * 40% 5600000 5600000 6160000 6776000
Other income - laundries, shops, café @ 40% of food 6188000 6188000 6806800 7487480
TOTAL SALES 159790400 159790400 175769440 193346384

Food Costs @ 40%: Food - 0.40 * g15 6188000

Bev - 0.40 * g16 2475200 8663200 8663200 9529520 10482472
Gross Profit 151127200 151127200 166239920 182863912

Expenses:
Salaries and wages 8640000 8640000 9504000 10454400
Adminstration expenses 360000 360000 360000 360000
Insurance and legal fees 5000000 5000000 5000000 5000000
Loan interest - 8.5%pa 4080272 3876258 3672245 3468231
Gas and electrici ty 2440000 2440000 2684000 2952400
Rates 120000 120000 120000 120000
Postage and telephone 120000 120000 120000 120000
Transport and logistics 180000 180000 180000 180000
Cleani ng 120000 120000 120000 120000
Directors' remuneration 2520000 2520000 2520000 2520000
Maintenance 250000 250000 275000 302500
Suppli es 1820000 1820000 2002000 2202200
Stati onery & printing 240000 240000 240000 240000
Staff meals 3990000 3990000 3990000 3990000
Charity and publ ic relations 300000 300000 300000 300000
Medical expenses 240000 240000 240000 240000
Staff training 3500000 3500000 3500000 1750000
Advert and promotion 1500000 1500000 1500000 1500000
Depreciation on fixed assets (- land) - 10% N40000000
40000000 4000000 4000000 4000000 4000000
Sundry expenses 2000000 2000000 2000000 2000000
41420272 41216258 42327245 41819731
Profit before tax 109706928 109910942 123912675 141044181
Less 40% Corporation tax 43882771.2 43964376.8 49565070 56417672.4
Profit after tax 65824156.8 65946565.2 74347605 84626508.6
NP/ Sales (%) 41.19 41.27 42.30 43.77

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 Feasibility Study of a Medium – Sized Full Service Hotel in Bauchi Metropolis, Bauchi Nigeria

Appendix II: PRO-FORMA BALANCE SHEET

PROJECTED BALANCE SHEET YEARS 1 - 4
Year 1 Year 2 Year 3 Year 4
Current Assets N N N N N
Cash 71500096.8 139046502.2 214993947 301220295.6
Other current assets
Total 0 71500096.8 139046502.2 214993947 301220295.6

Fixed Asset
Land & building 24500000 24500000 24500000 24500000
Plant & machinery 11100000 9990000 8880000 7770000
Equipment 13500000 12150000 10800000 9450000
Furniture, fixtures & fittings 7400000 6660000 5920000 5180000
Glass, china & cutleries 8000000 7200000 6400000 5600000
40000000 36000000 32000000 28000000
Less aggregate depreciation 4000000 36000000 4000000 32000000 4000000 28000000 4000000 24000000
Total fixed assets 60500000 56500000 52500000 48500000
TOTAL ASSETS 132000096.8 195546502.2 267493947 349720295.6

Liabilitiesand Equity
Current liabilities
Accounts Payable 0 0 0 0
Current Borrowing 45603040 43202880 40802720 38402560
Subtotal
Capital 20572900 86397056.8 152343622 226691227
P & L A/c 65824156.8 65946565.2 74347605 84626508.6
Equity 86397056.8 152343622 226691227 311317735.6
Total Liabilities &Equity 132000096.8 195546502 267493947 349720295.6

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