The paper primarily shows Zadar as a tourist destination and the cultural and historical heritage of the city are described. Further more, hospitality is defined and the development of the hotel industry in Croatia is described, from its beginnings to the present day. As the basic problems of hotels in Croatia, seasonality, unfavorable structure of accommodation facilities, lack of quality service levels and low capacity utilization are mentioned. Through the work, guidelines for the reduction or elimination of these problems are provided. Precisely because of the above, the growth and development of small family hotel business are desired. The current state is shown in the context of Europe, Croatia, and in the city of Zadar. The last part of the paper concentrates on thinking about the possibilities of further development of this type of hotels, and the conclusion is brought using the analysis of tourist demand in recent years, and by putting the benefits and incentives and flaws and limitations of such a development in comparison.