Factors influencing financial performance of small hotels in Tanzania

Purpose The purpose of this paper was to investigate the factors influencing financial performance of small hotels, particularly in developing countries like Tanzania. Design/methodology/approach This investigation used financial ratio analysis on business performance data collected from small hotels in Tanzania through face‐to‐face interviews. Currently there is no existing data on such aspects of the hotel industry in Tanzania. As a consequence, Arusha region was selected as the sample for this study due to a significant amount of hospitality industry activity in this area. Findings Findings of this investigation suggest that operating factors in small hotels such as inefficiencies due to lack of employee training, low investments in fixed assets and technology may be equally responsible for low profitability as are government policies that ignore appropriate emphasis on ensuring safety and security, and quick processing of licenses and permits. Research limitations/implications Even though this is one of the few studies that has investigated the profitability of small hotels in a developing country, its findings are based on the analysis of one (even though a prominent) tourist area of East Africa. Practical implications Nevertheless, findings provide preliminary evidence for professionals and policy makers to critically evaluate factors that would ensure profitability of small hotels in countries such as Tanzania. Originality/value As this paper highlights, this is critical because such businesses are locally owned and may truly and positively influence economic development.