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Sample EB-5 Direct Business Plan
1. 1
Hillstone Holdings, LLC is a newly established company that has recently acquired an
underperforming hotel franchise in Covington, AL. With the assistance of EB-5 funding, the
company is planning an extensive renovation and improvement project that will update interior
guest accommodation, improve the hotel facilities and create a strong team of employees
dedicated to exceptional levels of customer service and satisfaction. The project will ultimately
help to attract more visitors to the Covington region, generating benefits and creating new
employment opportunities within the local economy.
2. 2
The following dashboard highlights the results of the financial analysis, expected company performance, and
summary of market break down. The reader may use this page as a quick reference visual aid to quickly
understand the expected financial performance of the company.
Hillstone Holdings, LLC Dashboard
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Hillstone Holdings, LLC 5-Year Highlights
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Hillstone Holdings, LLC Balance Sheet Position
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Hillstone Holdings, LLC Market Distribution
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Hillstone Holdings, LLC Scenario Analysis
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Hillstone Holdings, LLC Dashboard
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Hillstone Holdings, LLC 5-Year Sales Forecast
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Yearly Projected Cash Flow of Hillstone Holdings, LLC
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Yearly Net Worth Projection for Hillstone Holdings, LLC
Start-Up Expenses Expected Value @ 7% Cap Rate
3. 3
1. Executive Summary
The Pearl River Resort is an 84-room hotel in rural southeastern Alabama
that specializes in providing comfortable guest accommodation at
competitive prices. Although the hotel has been part of the worldwide
Choice Hotels Inc. brand, it has underperformed in recent years due to
ineffective management by its previous owners. As a result, the hotel has
been poorly maintained, occupancy rates have fallen and guest reviews – an important factor in attracting
customers – have become increasingly negative. The hotel was under foreclosure when Hillstone Holdings,
LLC decided to purchase the property.
Headquartered in Covington, Alabama, Hillstone Holdings is a newly established company founded by Mr.
Varin Joseph, an experienced businessman and hotelier who has been successfully running another Quality Inn
hotel franchise in Covington since 2008. Unfortunately, in January of 2015, Mr. Joseph passed away and left
the company’s management to his wife Mrs. Lynd. Under Mr. Joseph’s guidance, Hillstone Holdings acquired
the Pearl River Resort, with the aim of improving the hotel and enabling it to achieve its full potential. By
implementing a structured renovation and improvement project, including updating the guest accommodation,
improving the overall hotel facilities and creating a strong U.S. team of employees dedicated to exceptional
levels of customer service and satisfaction, the company, now under the management of Mrs. Lynd and with
the help of the EB-5 visa petitioner Mr. Kuffman, Hillstone Holdings expects to attract more visitors to the
Covington region generating benefits and new employment opportunities within the local economy.
To help achieve this goal, Hillstone Holdings is seeking $500,000 in EB-5 financing from prospective visa
petitioner Mr. Alfred Kuffman. Mr. Kuffman currently holds German citizenship and has been acquainted with
Mr. Varin Joseph since 1992. Mr. Kuffman’s investment would form part of a wider renovation project that
has already been commenced by Mr. Joseph, who had already invested $105,000 in initial capital improvements
to the hotel. To take full advantage of the renovation and improvement project, the hotel requires additional
personnel to effectively promote, market, operate and maintain the required levels of customer service
associated with the enhanced facilities and capacities. The owners also envision rejuvenation of its amenities to
further enhance the marketability of the hotel and its meeting room and banqueting facilities, together with the
addition of an onsite restaurant that will generate added revenues by offering a range of dining options for guest
and passing customers.
4. 4
The final EB-5 investment will help the operational restructuring and secure the necessary structural
enhancements, leading to the creation of a total of fourteen (14) new full-time jobs, ten (10) which will be
created by the end of 2016. The investment will also help fund working capital requirements over the first three
years before the stabilization of the enhanced operation occurs towards 2017.
The owners are confident that the EB-5 investment project will allow the hotel to increase its competitiveness
locally, and its enhanced services will hopefully encourage a greater number of visitors to return to the local
region. Covington, Alabama is a popular stopping point for tourists heading to the Florida beaches, and also
benefits from its close proximity to the U.S. Army Aviation Museum and other leading regional tourist
attractions. Prominently positioned on a major transport corridor, the hotel is equally accessible for visitors to
nearby Covington, which is fast developing into a major shopping, dining, cultural and entertainment hub, or
for travelers heading between Montgomery, the State Capital, and surrounding population centers. With a
relative low density of hotels in the vicinity, perhaps numbering less than 500 rooms, the Pearl River Resort
has a great opportunity to establish itself as a preferential venue for local hotel patrons, especially in light of the
broad improvement vision that the EB-5 funding investment will help deliver.
The chart to the right demonstrates how
the strategic vision of the new hotel owners,
together with the EB-5 improvement
project might impact on the company, by
highlighting key financial metrics – sales,
gross margin, net profits and personnel
headcount – that the hotel is expecting over
the next five years.
As the graph demonstrates, the company is expecting annual sales to show solid growth over the next five years,
rising from an expected sales in 2015 of about $428,000 to almost $1.2 million by 2017 as a result of improving
occupancy rates, enhanced capacities, improving daily rates and a greater range and quality of facilities and guest
services. Profit growth will remain steady from 2017 onwards as the EB-5 project stabilizes. Net profits will
improve over time, with margins rising to about 24% by 2019, resulting in expected net profits of nearly
$500,000, purely as a result of the EB-5 funded structural and operational improvements. The company
currently operates with five (5) full-time members of staff, sufficient to maintain existing hotel operations and
to oversee the ongoing renovation and improvement projects. However, as part of the overall EB-5 project the
hotel will require an additional fourteen (14) full-time U.S. employees, with ten (10) of these positions being
deemed necessary by the end of 2016 to service its growing operational requirements.
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Hillstone Holdings, LLC 5-Year Highlights
Sales Gross Margin Net Profit Personnel
5. 5
2. Company Summary
Hillstone Holdings, LLC is an established business headquartered in
Covington, Alabama that recently acquired a foreclosed Quality Inn hotel
franchise located in the city of Covington. The hotel lost its franchise at the
time but currently operates with five (5) full-time employees, including
General Manager Mrs. Lynd Joseph, the wife of deceased Varin Joseph, an
experienced businessman and successful hotelier who also operated a Quality Inn Hotel.
Business Start-Up Milestones
Hillstone Holdings, LLC was incorporated in February 2014, and acquired the existing hotel at Covington in
April of 2014. In November 2014 the company entered into a memorandum of understanding with Mr. Alfred
Kuffman, a citizen of Germany, who is proposing to invest $500,000 of his personal funds into Hillstone
Holdings, LLC via an EB-5 foreign investor petition, to improve the hotel’s conditions and upgrade the onsite
amenities. A majority of these funds are to be help until the EB-5 petition has been granted USCIS approval.
The EB-5 funding will enable Hillstone Holdings, LLC to invest in widespread upgrading and renovation of
the hotel, including updating the guest accommodation to a higher quality, and improving the overall facilities
within the hotel. The renovations are necessary to overcome the poorly maintained condition associated with
the previous owners, and to positively influence and improve the profile of the hotel across a range of important
online booking and guest review sites. The renovations have already commenced, and are expected to proceed
throughout the first half of 2015, during which time the hotel will remain open for business but not operating
to its full potential.
6. 6
Operations
Hillstone Holdings, LLC operates the Pearl River Resort. The hotel comprises over 30,000 sq. ft. enclosed
within a 3 acre plot of land adjacent to U.S. Hwy 231, a main transport corridor through the prime dining, retail,
and entertainment districts of the City of Covington. The hotel has 84 guest rooms, an onsite fitness center, an
outdoor swimming pool, banquet facilities for up to 150 guests, and a restaurant. It’s expected that the
renovations to the current restaurant will be completed by mid-2016. The newly upgraded Sports Bar,
Restaurant and Lounge will be a unique to the Covington, AL area and is an important attraction for the hotel.
Day-to-day operation of the hotel comprises four distinct departments: Back Office, Front Desk, Housekeeping,
and Maintenance. The Back Office provides managerial leadership for the entire hotel operation and
coordinates the other departments, as well as carrying out daily administrative and financial functions. The
Front Desk interacts directly with the hotel guests including check-ins and check-outs, taking reservations or
cancellations by telephone or online, contracting of meeting room and banquet spaces, payment processing,
and providing a 24-hour customer service point of reference for guests.
Housekeeping will service guest rooms daily, preparing for new arrivals or replenishing in-room facilities for
longer stay guests, and preparing the hotel linen for laundry collection. The Housekeeping operation will also
ensure hotel spaces are clean and tidy, including the fitness center, swimming pool and other common areas.
The Maintenance department will work to ensure that the hotel, its rooms and all the amenities are functioning
correctly and safely, completing all necessary repairs and appliance testing when appropriate.
7. 7
3. Hotel Services
Hillstone Holdings, LLC has recently overtaken the operation of the 84
room Pearl River Resort, conveniently located on U.S. Highway 250, a major
transport corridor linking the Cities of Covington and Covington, and in
close proximity to local dining, tourist and entertainment attractions. The
hotel offers comfortable guest rooms, cable television, a deluxe continental
breakfast and larger two-room suites with self-contained kitchen facilities.
Business travelers are catered to with a range of complimentary services including free high-speed Internet,
photocopying, and a facsimile service. Other hotel amenities include on-site parking, laundry, a seasonal
outdoor swimming pool and a fully equipped fitness center. An onsite restaurant is also being renovated in
order to generate revenue from offering a range of dining options for patrons or passing customers.
In addition to offering a range of overnight accommodation options, the hotel has extensive meeting and
banquet space for meetings, conferences, wedding receptions or other special events; these facilities can cater
up to 150 people.
The table below provides a summary of the key services offered by the hotel, highlighting some of the key
characteristics – expected monthly sales, sales and cost price, and expected margins – associated with each.
Unsurprisingly, the sale of accommodation is the greatest contributor to the expected monthly margins,
The sale of accommodation is the greatest contributor to the expected monthly margins, generating over
$20,000 per month on anticipated occupancies of 548 rooms per month during the first year. This value is
based on an average daily rate (ADR) of $50, which will fluctuate based on seasonality and type of room. The
fully renovated Sports Bar, Restaurant and Lounge is expected to contribute over $5,500 to the average monthly
margin, generating a modest income based on the quantity of diners. The hire of venue spaces – including both
meeting and banquet rooms – is another important service that can attract more room-paying guests, as well as
Services
Average Unit Sales
per Month in Year 1
Price
Direct
Unit Cost
Contrib.
Margin %
Average Monthly
Margins in Year 1
Rooms 548 $50.00 $9.75 81% $22,067
Banquet room 1 $300.00 $85.00 72% $287
Meeting room 1 $100.00 $25.00 75% $100
Restaurant Income 26 $300.00 $85.00 72% $5,536
8. 8
contributing rental income for the hire of the rooms. These services are expected to contribute a modest $825
- $878 to the average monthly margins. While these revenue streams currently offers the lowest contribution,
they could represent a potential growth area for the hotel if marketed effectively, and offered in conjunction
with overnight accommodation, in the case of weddings, etc.
Rooms and Ancillary Services Description
A brief summary of the services offered by the hotel, many of which are common to the Quality Inn chain of
hotels:
Rooms
The Pearl River Resort offers a range of clean, comfortable rooms fully equipped with facilities such
as comfortable beds in a variety of sizes; cable and satellite television; free local calls; coffee making
facilities; air conditioning; refrigerator; ironing board; hair dryer; and wake-up services. Rooms cater
for a variety of budgets, with additional options available for non-smoking rooms, or accessible rooms
to help low mobility guests. Other amenities include an outdoor swimming pool and a fitness center.
Banqueting and Meeting Space
The hotel has meeting and banqueting space that can cater up to 150 guests. These flexible spaces
provide an excellent venue for hosting corporate meetings and conferences, as well as other special
events such as weddings, reunions or receptions.
Sports Bar, Restaurant and Lounge
In addition to its rooms, meeting and banqueting space, the hotel will also generate revenue from its
onsite restaurant. It’s planned that the current restaurant facility will be renovated and upgraded into a
full service Sport Bar, Restaurant and Lounge. Once renovations are complete, the space could
potentially be outsourced to a third party provider.
9. 9
4. Marketing Analysis
This section will examine the key market characteristics that the leadership
of Hillstone Holdings, LLC consider essential to the ongoing strategic
planning and decision-making processes of the company.
Market Segmentation
The accompanying chart shows a breakdown of the key customer market for the U.S. Hotel and Motel industry
as it would apply to the Pearl River Resort operated by Hillstone Holdings, LLC. As illustrated, the market may
be broken down into four key customers: domestic travelers, business travelers, international travelers, and
conference, meetings and special events customers.
Domestic leisure travelers are the primary market, accounting for almost 49% of annual revenue for the industry,
which would equate to approximately $350,000 for Hillstone Holdings during 2015. The second largest market
is comprised of business travelers, who make up 24% of typical annual revenues. The United States is a popular
destination for international visitors, and this is evidenced by the significant contribution (14%) they make to
annual U.S. Hotel revenues. Revenues earned through meetings, events or conferences held within hotels
typically represent the smallest market share, accounting for 13.5% of annual revenues. The Pearl River Resort
will invest resources in developing its meeting spaces in order to enhance the earning potential of this revenue
stream, which can help hotel businesses absorb periods of low occupancy.
Target Market Strategy
The Hotel is conveniently situated on U.S. Highway 250, a main regional transport corridor that bisects
Covington and links the State capital Montgomery
with the City of Covington, before running south
towards Panama City and other key Florida tourist
destinations. This prominent and accessible aspect
will help attract potential customers who are passing
through Covington, especially those traveling south
toward the Florida beaches. In addition to this, the
hotel will be marketing itself and its facilities through
a broad-ranging strategy that will primarily target the
following groups:
48.5%
24.0%
14.0%
13.5%
Hillstone Holdings, LLC Market Distribution
Domestic Leisure Travelers Business Travelers
International Leisure Travelers Meetings, Events etc.
Courtesy of IBISWorld
10. 10
Business travelers to the Covington region who are looking for conveniently located overnight
accommodation that offers comfortable facilities and hot food, plus a range of useful business services
including free Internet access, car rental services, and other business amenities.
Vacationing families or individuals who are visiting or travelling through Covington to experience local
attractions, and are seeking a family friendly hotel to accommodate overnight stays.
Domestic regional travelers who are looking for competitively priced accommodations located in close
proximity to the famous retail hubs of nearby Covington or nearby attractions such as Fort Rucker and the U.S.
Army Aviation Museum.
Local businesses, organizations or residents who are looking for a competitively priced venue to stage
their meeting, conference, wedding reception or other hosted event.
Other travelers seeking affordable, comfortable accommodation as they pass through the Covington region
en-route to the popular beach and tourist destinations of the Florida Panhandle.
Competitor Analysis
The stretch of the U.S. Highway 250 that bisects the center of Covington has over 10 hotels, motels and inns
along its route, providing a range of accommodation options for visitors to the local region. The following
establishments may be classified as main competitors to the Pearl River Resort establishment operated by
Hillstone Holdings, LLC based on the following factors:
1. The price of accommodation is comparable to the Quality Inn, Covington.
2. They offer comparable levels of facilities, accommodation and services.
3. They are within 3 miles of the Pearl River Resort and benefit from comparable access to key transport
links and nearby Covington attractions.
Microtel Inn & Suites, Covington
The Microtel Inn & Suites located in Covington is part of the Wyndham Hotel Group, one of the world’s
largest and most diverse hotel chains with over 7,500 hotels worldwide. The Microtel subsidiary comprises
mostly budget-hotels, and the chain scores consistently high within the economy hotel range for guest service
and satisfaction.
11. 11
5. Sales Strategy
Under the guidance of its experienced General Manager, and with a strategic
improvement and enhancement plan funded by EB-5 investment, the Pearl
River Resort will be well equipped to build on the positive outlook for the
hotel industry and a prominent location on one of the major transport
corridors in Southeast U.S. The enlarged team will be able to meet rising
demand for accommodation, and a rejuvenation of the facilities, including restaurant, and onsite meeting spaces
to attract a greater number of conference and special events customers will help the hotel fulfil its full growth
potential. As a consequence of this strategic vision, the company is expected to generate sales revenues of over
$900,000 during 2016 after recovering from a still slow 2015 mainly due to the changes taking place. Future
revenue growth will be driven by an ongoing commitment to the following:
1. Effective marketing. The company will invest considerable resources in an ongoing marketing
campaign to support. This investment will include the appointment of an experienced sales and
marketing manager who will focus exclusively on promoting the hotel, and developing relationships
with potential corporate clients such as local businesses or municipal bodies.
2. Strong focus on guest satisfaction and customer service. The improved facilities and enlarged
workforce will be able to afford guests exceptional levels of service, amenities and overall satisfaction.
This is important for generating positive reviews from guests, which in turn raises the profile of the
hotel and encourages new guests.
3. Maximizing ancillary revenue from meeting spaces, venue hire and other special events. The
EB-5 funding will allow Hillstone Holdings to modernize and upgrade its meetings spaces, making
them more attractive venues for business meetings, conferences or other special events. The hotel has
the capacity to cater for gatherings of up to 150 persons, and the improvements will enable the
company to take full advantage of this capacity. Similarly, renovation and upgrading of the onsite
dinning site will eventually lead to a significant additional revenue stream for the company.
Sales Forecast
EB-5 funding and a carefully structured sales strategy is expected to lead to a gradual increase in room
occupancy through enhanced accommodation, guest and hotel facilities. This overall strategy is expected to
lead to annual revenues rising from $428,000 in 2015 to about $1.5 million by the end of 2019. Over this period,
the occupancy is forecast to slowly rise to 72%, with average daily rates (ADR) also increasing in line with the
12. 12
improved room facilities; the restaurant will also benefit from the EB-5 capital injection, with its rejuvenation
potentially contributing almost 16% of annual revenues within five years. The full breakdown of the five-year
sales forecast is shown below:
Sales Forecast
Availability 2015 2016 2017 2018 2019
Available rooms per day 65 84 84 84 84
Available rooms per quarter/year 19,255 29,930 30,660 30,660 30,660
Target Occupancy 2015 2016 2017 2018 2019
Occupancy Rate 45% 52% 60% 65% 72%
Unit Sales 2015 2016 2017 2018 2019
Rooms 6,579 15,486 18,247 20,071 22,078
Banquet room 16 63 72 83 95
Meeting room 16 36 41 47 54
Restaurant Income 309 498 573 659 758
Total Units 6,920 16,083 18,933 20,860 22,985
Unit Prices 2015 2016 2017 2018 2019
Rooms 50.00 51.50 53.05 54.64 56.28
Banquet room 300.00 309.00 318.27 327.82 337.65
Meeting room 100.00 103.00 106.09 109.27 112.55
Restaurant Income 300.00 309.00 318.27 327.82 337.65
Sales 2015 2016 2017 2018 2019
Rooms 328,950 797,529 968,003 1,096,679 1,242,550
Banquet room 4,800 19,467 22,915 27,209 32,077
Meeting room 1,600 3,708 4,350 5,136 6,078
Restaurant Income 92,700 153,882 182,369 216,033 255,939
Total Sales $428,050 $974,586 $1,177,637 $1,345,057 $1,536,644
128% 21% 14% 14%
Direct Unit Costs 2015 2016 2017 2018 2019
Rooms 9.75 10.04 10.34 10.65 10.97
Banquet room 85.00 87.55 90.18 92.89 95.68
Meeting room 25.00 25.75 26.52 27.32 28.14
Restaurant Income 85.00 87.55 90.18 92.89 95.68
Direct Cost of Sales 2015 2016 2017 2018 2019
Rooms 64,146 155,481 188,674 213,756 242,196
Banquet room 1,360 5,514 6,493 7,710 9,090
Meeting room 400 924 1,087 1,284 1,520
Restaurant Income 26,265 43,600 51,673 61,215 72,525
Subtotal Direct Cost of Sales 92,171 205,519 247,927 283,965 325,331
13. 13
6. Personnel Hiring Plan
This section examines the internal staffing structure of the company,
providing details regarding individual job descriptions, as well as
highlighting the relevant skills and experiences of the executive leadership
role. It will also provide an insight into the expected progression of the
company’s staffing requirements over the next five years, summarizing the anticipated timetable and salary costs
of any future appointments, as well as detailing the new employment opportunities created as a direct result of
the EB-5 funding program.
Company Structure
The company has been incorporated as a Limited Liability Company (LLC), and operates within a strict
hierarchical structure as illustrated by the chart below. This personnel structure provides clearly defined lines
of responsibility and accountability. Proposed EB-5 investor and co-owner, Mr. Alfred Kuffman, will assume
the advisory role of President, while Mrs. Lynd Joseph, the existing owner and ex-wife of an experienced
hotelier, will exert complete operational, personnel and financial control over the day to day running of the
Hotel in his capacity as General Manager of Hillstone Holdings, LLC. High-level strategic decisions will be
jointly made by the two co-owners, Mr. Kuffman and Mrs. Joseph:
President
Alfred Kuffman
General
Manager
Lynd Varin
Housekeeping
Manager
Jennifer Langford
Housekeepers
TBH (5)
Room
Attendants
TBH (2)
Maintenance
Manager
Wiley Morse
Sales Manager
TBH
Front Desk
Manager
TBH
Front Desk
Clerks
TBH (5)
Planning &
Development
Manager
Tony Camp
14. 14
Job Descriptions
The following definitions provide brief descriptions of the roles and responsibilities to be filled as part of the
overall team that will be appointed by Hillstone Holdings, LLC.
President
As President of Hillstone Holdings, LLC Mr. Alfred Kuffman will oversee hotel operations and co-manage the
hotel with Mrs. Joseph. His core duties and responsibilities will include: policy development and management
for both Accounts and Marketing; create budgets and assist with developing both short-term and long-term
strategic goals; develop Human Resources goals and objectives for all areas of the hotel including both
Housekeeping and Cleaning services; and oversee the management of Food & Beverage Services. As President,
Mr. Kuffman will receive dividends based on the company’s performance.
General Manager
Mrs. Lynd Joseph is the General Manager of Hillstone Holdings, LLC and is responsible for the effective
operational management of the hotel. Mrs. Lynd assisted Mr. Varin Joseph over his seven years’ experience in
successfully managing and operating hotels, and has further management expertise through running a
franchised gas station and fast-food restaurants. Her duties include: creating short-term budgets; developing
both short-term and long-term strategic goals; provide effective leadership of the hotel management team and
team members; planning, directing and coordinating the service delivery of all the operational departments
according to hotel and company service and quality standards; ensuring that costs are controlled effectively
throughout the operational departments and results are analyzed regularly, and managing and developing the
department heads; seeking and responding to guest feedback; develop marketing and sales strategies; and liaising
with hotel chains on franchising matters. Mrs. Joseph will receive an annual salary of $50,000 for performing
the role of General Manager for the time being.
Sales Manager
The Sales Manager will work closely with the leadership team, and actively promote the hotel and its meeting
room facilities in order to maximize occupancy rates and increase revenue. This will be especially important
given the EB-5 investment and how these funds will be used to rejuvenate the Hotel’s accommodation and
facilities. The role will entail developing relationships with key regional stakeholders, in concert with the
Planning & Development Manager, such as local attractions, tourism authorities, or businesses, to further
market the hotel, as well as using other marketing channels such as online platform to maintain an ongoing
marketing campaign. This position will attract an initial annual salary of $30,000, and commence in 2016.
15. 15
7. Financial Projections
In addition to the previously stated information relating to the company’s
structure and ownership; its corporate mission and primary objectives; its
business operations; its sales and marketing strategies, and how these are
influenced by both market and industry forces; and detailed personnel plan,
this section will further examine the sustainability of the business model, and
appraise the relative risk or return to investors, by presenting a series of robust financial modeling outcomes
that have been developed by making reasonable and conservative estimates.
Projected Profit and Loss
As the chart below illustrates, the company is expecting a modest loss of around $50,000 during 2015 as the
renovation works undertaken during the latter half of 2015 affect the occupancy and marketability of the
business. The following year will see a significant improvement in net profits, which are forecast to rise to
around $130,000. During this year, Hillstone Holdings will invest heavily in much-needed human resources,
increasing the company workforce by ten (10) new employees during the year. These staffing additions will help
the company manage the growth in occupancy and onsite amenities as a result of the EB-5 funded renovation
and enhancement plans. In 2017, the EB-5 funded improvement project will be approaching stabilization, and
subsequently the hotel will continue to cater for a greater volume of patrons, as well as developing its additional
revenues streams such as hosting business meetings or other special events. As a result, net profits will rise
from over $250,000 in 2017 to over $400,000 by the end of 2019. Improving efficiencies and eventual business
optimization will help the net margin grow steadily from -25% to 24% over the five years to 2019.
16. 16
The following chart shows the progression in the gross margin over the same five-year period, which will stay
steady around 68% between 2015 and 2019, providing a reliable cost foundation for the leadership to effectively
manage future financial expectations and growth strategies.
The full five-year profit and loss projection is shown on the following page. The gradual move towards stability
in the gross margin is clearly evident and, once stabilized, this will empower the leadership with the confidence
to make informed strategic and operational decisions, helping the hotel to achieve it long-term profit and
growth objectives.
17. 17
8. Scenario and Feasibility Analysis
This confidential business plan previously examined the financial
implications that the proposed EB-5 investment would have on the Hotel
operations of the company Hillstone Holdings, LLC. This examination
involved a series of fiscal projections that were based on a series of
assumptions. The resulting projections would change if the underlying
assumptions change, and therefore it is important to understand the fluctuation or volatility of these financial
results with changing circumstances, scenarios, and assumptions.
This section will measure financial performance of two key financial metrics – the business net worth by the
third year (2017) and the monthly break-even point during 2017. The following scenarios were chosen as
potentially likely outcomes for the local Hotel & Motel industry that Hillstone Holdings, LLC operates in:
Scenario Analysis
Scenario 1 - Worse than expected
Growth -10%
Inflation 10%
Scenario 2 - Nominal
Growth 0%
Inflation 0%
Scenario 3 - Better than expected
Growth 10%
Inflation -10%
In all of these scenarios, the analyses rely on two key parameters to determine the volatility of financial
performance: occupancy rate growth and fixed cost inflation. Occupancy rate growth is defined as the expected
change in the number of hotel room sales year on year. Fixed cost inflation is the assumed increase in cost per
year. In both metrics, these changes are multiplicative in nature, meaning that these are added to one (1) and
then multiplied by the existing assumption in the model (i.e. fixed cost inflation factor of 100% implies that
inflation in costs would be assumed to be at 6% rather than the nominal 3% applied throughout the fiscal
projections for Hillstone Holdings, LLC).
18. 18
Scenario 1
Refers to a simulation in which all assumptions were too optimistic and the actual reality seems to setting lower
than expected growth in occupancy rates combined with a higher fixed cost inflation. Since inflation rates (as
per November 2014) are at an atypically low level, it is safe to expect that in a worse than expected inflation
scenario, this number could increase significantly, while the chances of inflation being even lower than current
levels are low.
Scenario 2
Reflects the exact assumptions made in the financial model as specified throughout Section 8. This model is
based on a variable growth rate per year and a consistent inflation rate.
Scenario 3
Shows a better than expected simulation, where growth in occupancy rates, and therefore revenues, is 10%
greater than expected, with a lower than expected rate of inflation in fixed costs.
Combinations of these three scenarios – better than expected, nominal, and worse than expected – yield a total
of nine differing simulations.
Scenario Simulation
Each of the two measured financial metrics – occupancy and fixed costs – presents 9 simulated outcomes based
on combinations of the three aforementioned scenarios:
Hotel Value by the end of 2017
Inflation
Growth
Rates
Higher Expected Lower
Lower $1,012,064 $2,103,729 $3,191,166
Expected $2,564,862 $3,668,304 $4,767,517
Higher $4,117,661 $5,232,879 $6,343,868
19. 19
Monthly Break Even Point in Sales for 2017
Inflation
Growth
Rates
Higher Expected Lower
Lower $69,136 $60,795 $53,013
Expected $67,798 $59,899 $52,435
Higher $66,915 $59,320 $52,068
Internal Rate of Return (%)
Inflation
Growth
Rates
Higher Expected Lower
Lower -16% -1% 11%
Expected 4% 16% 26%
Higher 20% 30% 39%
The figures in the center of each matrix match the results presented in the main financial section (Section 8) of
the business plan and in the Appendices that follow. In both table, the best possible scenario is presented in
the lower right corner – corresponding to highest growth rates and lowest fixed cost inflation rates – with the
worst possible scenario depicted in the upper left. The results of these scenario simulations help to predict the
risk of investment in such a business from a purely statistical standpoint, but it is nevertheless useful for
understanding the implications of a business deviating from its cost estimates or expected growth trends.
A brief explanation of the previous tables is below:
Business Value by 2017
Looking at table one, it appears that the business net worth expected for 2017 will be sensitive to changing
economic conditions associated with worst or best case scenarios. The company acquired a hotel that was badly
underperforming and in need of significant renovation and investment, and commenced its ownership of the
Pearl River Resort with a negative net worth as a result of a large mortgage commitment and accumulated losses.
However, the hotel has an operational framework that is fairly resistant to fluctuations in occupancy rates, and
therefore will be generating sufficient revenues, in either a best or worst case scenario, to absorb any
consequences of delays in bringing the net worth to a positive position. The EB-5 investment program will
affect an increase in staffing levels over the two year period to 2017, however with nominal cash reserves
20. 20
expected to be in excess of $300,000 in 2017, any cash-flow deficiency relating to possible worst case scenarios
will not impact the ability of the company to meet its rising salary costs nor affect its ability to meet its
obligations in respect of long-term liability repayments. The long-term outlook for business net worth remains
within acceptable standards, with the company expecting the stabilization of its EB-5 funded improvement
project to only occur towards the end of 2017, and even in the worst possible scenario (Hotel value of $95,143)
the company will still have increased its value by over $1.6 million as todays value with a carrying loss could be
argued to be at -$1.5 million using the same valuation method.
Monthly break-even point by 2017
The table shows how resilient the monthly break-even point is to any best or worst case scenarios, with just
minor fluctuations in the expected 2017 break-even. This resilience underlines how the core hotel operations
are able to withstand external pressures.
Internal Rate of Return
The internal rate of return shown above provides a good representation of the return on investment. It is
defined as the capital rate at which the net present value of the cash flow would become zero. The table provides
a modest return on investment of a reasonable 6% by using only the first five years of operations. This is a
healthy return considering that bank deposits and existing interest rates on financial assets are between 0 and
1.5%. In the worst case scenario however the return would be negative, clearly presenting the case that the EB-
5 capital is at risk. On the other end, the business could provide a return of up to 39%, which is a significant
return.
21. 21
Conclusion
The proposed $500,000 EB-5 investment funding will help the company improve its operational capacity by
increasing its workforce and providing working capital to rejuvenate and promote its facilities. The resilience
of the operational model is highlighted by the relatively narrow fluctuation in the monthly break-even of the
business under best and worst case scenarios, and this means that the EB-5 investment will be able to provide
sufficient liquidity for the hotel to be able to absorb any cash deficiencies arising out of lower than expected
occupancy rates and higher than expected growth in fixed costs as well as fulfilling its other goals. This
reinforces the robust strategic and investment appraisal approach the current owner and the proposed EB-5
investor has taken in respect of the rejuvenation and staff recruitment project and funding options. The business
net worth is impacted by a lack of goodwill value being applied to the company during the acquisition process
of the Pearl River Resort, however the overall movement in net worth – regardless of best or worst case
scenarios – remains strongly positive over the first three years, and will continue to grow following this period
once the EB-5 project has delivered the proposed improvements and the hotel operations stabilize.
The graph below provides a useful visual aid for analyzing the net worth of the business over the projected five
year period, showing the expected net worth of $632,000 by the end of 2019. The results of the best and worst
case possible scenarios are shown by the green and dark blue lines respectively.
22. 22
Appendix
The following information is presented in this plan to illustrate financial details, projections, general assumptions, and expected results. As in any business plan, success is solely
dependent on the business execution and the circumstances that surround its operations. The objective of these projections is therefore to aid the entrepreneur on understanding the
business model, along with the feasibility of such business development in current market conditions and with the underlying assumptions considered only as part of this study.
Table 1: Sales Forecast
Sales Forecast
Availability 1Q 2Q 3Q 4Q 2015 1Q 2Q 3Q 4Q 2016 2017 2018 2019
Available rooms per day 46 46 54 65 65 76 84 84 84 84 84 84 84
Available rooms per quarter/year 4,198 4,198 4,928 5,931 19,255 6,935 7,665 7,665 7,665 29,930 30,660 30,660 30,660
Target Occupancy 2015 2016 2017 2018 2019
Occupancy Rate 26% 26% 35% 45% 45% 52% 52% 52% 52% 52% 60% 65% 72%
Unit Sales 2015 2016 2017 2018 2019
Rooms 1,092 1,092 1,725 2,670 6,579 3,588 3,966 3,966 3,966 15,486 18,247 20,071 22,078
Banquet room 0 0 7 9 16 12 15 18 18 63 72 83 95
Meeting room 0 0 7 9 16 9 9 9 9 36 41 47 54
Restaurant Income 60 69 81 99 309 111 120 129 138 498 573 659 758
Total Units 1,152 1,161 1,820 2,787 6,920 3,720 4,110 4,122 4,131 16,083 18,933 20,860 22,985
Rooms 54,600 54,600 86,250 133,500 328,950 184,782 204,249 204,249 204,249 797,529 968,003 1,096,679 1,242,550
Banquet room 0 0 2,100 2,700 4,800 3,708 4,635 5,562 5,562 19,467 22,915 27,209 32,077
Meeting room 0 0 700 900 1,600 927 927 927 927 3,708 4,350 5,136 6,078
Restaurant Income 18,000 20,700 24,300 29,700 92,700 34,299 37,080 39,861 42,642 153,882 182,369 216,033 255,939
Total Sales $72,600 $75,300 $113,350 $166,800 $428,050 $223,716 $246,891 $250,599 $253,380 $974,586 $1,177,637 $1,345,057 $1,536,644
