Three Rooms, One Hand Pump
A former vocational student wants to open a three-room homestay in the ground-floor portion of her family house, 3 km from the terracotta temples at Bishnupur. She has ₹2,50,000 in savings. The house has one shared bathroom, a hand pump and a municipal tap that runs for about two hours a day; electricity fails for two to five hours on most days in May and June. Hotels in town charge ₹1,200–1,800 per room in the October–February season and about ₹700 off-season, and on winter weekends 30–40 tourist vehicles are turned away for want of rooms. A bank will lend ₹1,00,000 at 11% simple interest a year, but only to a registered business with a current account. A cousin advises her to "just start, put the rooms on a booking app, no licence is needed for a homestay".
1. Name the three things she must settle before spending any of the ₹2,50,000, and explain why each must come first.
Read the worked answer
1. Permission and paper. A homestay that takes paying guests is a lodging business: municipality trade licence, registration under the state tourism homestay scheme, GST once turnover crosses the threshold, fire-safety basics, and a guest register that can be produced for police verification (Form C applies to foreign guests). A current account in the business name is needed for the bank loan anyway - so registration is step one, not paperwork to do later.
2. Water and power. The product she is selling is a room with a working bathroom. Two hours of municipal water and daily five-hour outages in May–June will produce complaints, refunds and reviews that kill the listing. A borewell or storage tank plus a filter and an inverter are prerequisites, not decoration, and they must be costed before the first booking.
3. A price-and-demand reality check. She must decide what she will charge, who fills the rooms mid-week and in the monsoon when the town hotels drop to ₹700, and what her actual differentiator is - home-cooked food, a courtyard, a temple walk. The winter weekend queue of 30–40 cars is real, but a business planned on ten weekends a year has to survive the other forty-two.
2. Allocate the ₹2,50,000, then work out how many room-nights a year she needs to cover annual fixed costs of ₹66,000 (including ₹11,000 loan interest) if she averages ₹1,400 a room-night with a variable cost of ₹350.
Read the worked answer
Allocation
| Item | ₹ |
|---|---|
| Two additional bathrooms (3 rooms, 3 baths) | 1,10,000 |
| Borewell, overhead tank, filter | 45,000 |
| Inverter, wiring, LED lighting | 22,000 |
| Beds, mattresses, linen, fans | 40,000 |
| Signage, photographs, listing fees | 13,000 |
| Licence, insurance, guest register | 10,000 |
| Contingency | 10,000 |
| Total | 2,50,000 |
Break-even
- Contribution per room-night = ₹1,400 − ₹350 = ₹1,050
- Break-even = 66,000 ÷ 1,050 = 62.86 → 63 room-nights a year
- Available capacity = 3 rooms × 365 = 1,095 room-nights, so 63 is about 6% annual occupancy, or roughly 21 nights in the year with all three rooms full.
Reading the answer: occupancy is not the risk. Sixty-three room-nights in a town that turns away 30–40 cars on winter weekends is easily reachable. The risk is spending the ₹2,50,000 on things guests do not pay for - a fancy façade, an extra bed nobody uses - and leaving nothing for water and power, which is exactly what she would be judged on.
3. Answer the cousin in three sentences that a Class X student could defend in a viva.
Read the worked answer
- "A homestay that charges guests is a lodging business, so the municipality's trade licence, fire safety and a guest register that the police can check apply - and listing on a booking app makes it easier for officials to find us, not harder."
- "Guests pay for water, power and a clean bathroom, and one bad review on a booking site can empty the rooms for a whole season, so the borewell, tank and inverter come before the curtains."
- "The bank will not release ₹1,00,000 to an unregistered business, so registration is the first step and it also unlocks the loan - starting 'just like that' costs more than it saves."
The sentence to keep in mind for the viva is the second one: in a small homestay the reviews are the marketing budget.