One of the most commonly asked questions we get from aspiring Innkeepers is how to start a bed and breakfast with no money. There are many questions and considerations surrounding the financing process when buying a B&B, and while the process appears abstract to incoming owners and operators, there is a fairly clear framework for determining the “bankability” of a small hospitality business and the best structure for financing based upon a buyer’s unique qualifications. The process involves several key steps and considerations: From understanding the lifestyle and demands of owning and operating a Bed and Breakfast to securing your dream property, the B&B Team’s dedication to and knowledge of the industry is unmatched.

If you’re wondering how you’ll ever afford to finance the purchase of a B&B, a great place to start is one of our upcoming Aspiring Innkeeper Seminars. Our team brings decades of combined knowledge and experience in acquisition, valuation, financing, and operations related to staffing, managing a small business entity, and core hospitality values that will ensure your success in the near and distant future. The best place to start is one of our immersive seminars. Register for one of our upcoming seminars today or call us to discuss if this program is a strong fit based on your plans for the future.

How to Start a Bed and Breakfast With No Money

When buying an Inn or Bed and Breakfast, you must have a solid understanding of the financing process so you can achieve your dreams and have the best possible outcome.

Understand Your Financial Picture

One of the first keys to success when starting a Bed and Breakfast, no matter how much capital is ready for investment or has yet to be assessed, is to understand your complete financial picture. This includes basic tasks like reviewing your credit score, understanding your debt-to-income ratio, and ensuring you have a solid down payment, typically around 20-30% of the property’s purchase price. (The required down payment will be determined by the structure of the loan – direct versus an “enhanced” SBA guaranteed bank loan – the ability of the cash flow to support projected debt service, and other key factors.)

Additionally, it’s essential to have a clear understanding of the required funds beyond the down payment for reserves and working capital, including funds to cover potential renovation costs and initial operating expenses. Lenders will scrutinize your financial health, so having a comprehensive financial portfolio can enhance your chances of securing a loan. More importantly, understanding your finances related to the purchase of an Inn is essential for finding the right Inn for you.

Find the Right Property

Whether you have a property in mind or not, working closely with the experts at The B&B Team will ensure you find the right property for your goals. An important aspect of buying a Bed and Breakfast is ensuring you purchase something that is financially viable – meaning they generate enough income to cover things like operating expenses, any attached debts, and an appropriate stream of revenue. This, of course, depends on the goals of your Innkeeping business.

A critical question in this process: Are you looking for a healthy return on investment, or are you looking for more of a lifestyle property that’s perhaps smaller in size and does just well enough to cover expenses and provide a desired “lifestyle” to owner/operators? Whatever type of Bed and Breakfast you’re looking to buy, these are important considerations to make when it comes to purchase price, overall budget, and financing.

Create Your Business Plan

Preparing a solid business plan is an essential step as you work through financing a Bed and Breakfast. A solid and well-thought-out business plan is necessary not only for securing financing but also for ensuring the long-term success of your B&B and preparing to exit the industry when the time is right. Your business plan should include detailed market research, a clear marketing strategy, and financial projections that demonstrate the potential profitability of the B&B. Most critically, the business plan should establish defensible projections that call for realistic long-term growth with strategic improvements to the physical plant, marketing program, and general operation strategies.

This plan will help you articulate your vision to potential lenders or investors and serve as a roadmap for managing the business effectively.

Different Ways to Finance a Bed and Breakfast

Once you have a solid understanding of your finances and a target property in mind, it’s time to explore various financing options. Traditional commercial real estate loans from banks are a common route, but they often come with stringent requirements. Most lenders require a 20% – 30% downpayment in addition to closing costs, working capital, and reserves. A common misconception when going this route is to turn to big lenders, but we find that often, smaller banks and lenders offer better terms, not to mention more personalized service and attention to detail. You can expect this more conventional process to take 45 – 60 days on average.

Alternatively, Small Business Administration (SBA) loans can be advantageous due to their favorable terms and lower down payment requirements. The application process for an SBA Loan can be daunting and time-consuming, but it can be a required route, particularly when a large downpayment or an historically underperforming business is a hurdle to securing your dream property. This can be an excellent option for those who are looking to start a bed and breakfast with no (or little) money. On average, most SBA loans take 60 – 90 days to finalize authorization and funding.

Another option you may not have considered when funding the start of a Bed and Breakfast is Private investors or partnerships, most often found in the form of “angel investors” amongst close and supportive family and friends. This can be a beneficial route to take, especially if you lack sufficient capital or need additional expertise. This approach, however, requires that expectations regarding a return on investment be set in no uncertain terms, to ensure that investors understand that the average hospitality property does not resemble a cash cow! Whatever financial vehicle you choose to purchase your Inn, it’s crucial to compare interest rates, repayment terms, and fees across different lenders to find the most suitable financing option for your needs.

Consult with the Experts

Once you have these various puzzle pieces in place, you’re that much closer to financing a Bed and Breakfast! A key component of this process is seeking professional advice, including the wisdom you’ll gain from The B&B Team and our partners. We’re here to support you in this process, from start to finish, and can significantly increase your chances of a successful investment. We offer a range of consulting services and look forward to helping you navigate through a successful purchase of a Bed and Breakfast. Get started by registering for one of our upcoming seminars, or contact us today!

The phone rings, and we answer… How may I help you? “Well…I would like some information on the So ‘n So Inn you have listed on The B&B Team website”. Thus the conversation starts and the journey begins. “For would-be entrepreneurs, sometimes the hardest part about starting a business is taking that first step.” From a recent article “Why 2016 Is the Year of the Entrepreneur” by Paul Sisolak.

I agree with this statement 100%, and making that call to The B&B Team is a smart first step.

The theme of Mr. Sisolak’s article focuses on the need for fiscal responsibility for the “would-be entrepreneurs.” Tip #1 was the need for creating long term wealth. The article gives great advice on how to conserve spending and create future wealth.  The buyers we have worked with that have the strongest buying power have done just that. They are in a position of strength because they have focused on long term financial goals. As a result they have more options in what they can consider to purchase and where!

In The B&B Team’s extensive experience, when we see strong buyers come to us, they come with a good credit score, assets and often times, retirement savings. They have planned and are in control of their financial resources and are now seeking advice on how best to put it to use for their future life as innkeepers.

Aside from the financial (but not underestimating its importance), is the personal side of making that first step.

“2016 is the year to break free from mediocrity and society’s norms. Now is time to quit your 9-5 job and become an entrepreneur. Start becoming the true you and create the lifestyle you are destined for.” Josh Felber, a serial entrepreneur and high performance coach.

Pretty bold statement! Depending on the circumstances, we often suggest that a good position to be in is jobless and homeless!  Why? Because you are ready, willing and able.

There must be an excitement and positive anticipation for pursuing any new venture. Focus on that initial excitement and passion; that is what gives you the incentive to move forward. Then ask yourself these initial questions.

• Are you willing to take that chance, believe in yourself and be willing to learn new skills?
• Do you have confidence that your past successes and your ability to create wealth CAN transfer towards a successful entrepreneur/innkeeping career and lifestyle?

The B&B Team can help you decide if innkeeping is the right choice for you. If you have the passion we can help guide you to achieve your financial goals. They both go hand in hand.

After that first phone call, our next piece of advice is to attend one of our “Better Way to Learn innkeeping” aspiring innkeeper seminars. The wealth of information in our seminars is tremendous. No muffin recipes, just the facts Jack! The kind of information you need to help you make the decision to move forward or…step back.

Take a look at The B&B Team’s 2016 Seminar Schedule and make that first step, your inner would-be entrepreneur is calling you.

Thanks for Listening,

Janet Wolf

1. Location, Location, Location
2. Understanding WHO will be coming to your inn
3. Wrapping your inn AROUND those guests
4. Think Sunday-Thursday
5. Being the Best

Each of these Keys can be put on a continuum numbered, say, from 1-10 with 10 being the strongest.  Let’s look at each one:

1. Location, Location, Location:  This has been the buzzword for any real estate purchase but for a Bed & Breakfast EACH word has a separate meaning:  The first definition is the Macro-location…is the inn located near major metropolitan areas from which to pull guests?  The more population close at hand (gas is getting more expensive!), the higher on the continuum the rating.  For the Wayside Inn, being located nicely in the Baltimore-DC corridor, this inn ranks high on this Location…perhaps a 9.  The second definition of Location includes the area attractions in that region which will draw guests to the area.  And the broader the diversity of attractions (historical, antiquing, entertainment, soft adventures, etc.), the higher the likelihood of drawing folks out of the nearby metropolitan populations.  The third definition of Location is the Inn itself…its attractive location in the town, its curb appeal and its accessibility.
2. The second KEY is identifying the guests who will be coming to those area attractions…and what their needs would be.  If the attraction is an amusement park or college, children will be coming.  If there are businesses in the area, corporate travelers have particular needs as well.
3. Wrapping your Inn around those guests’ needs is the next KEY.  Room features, amenities and services must satisfy the needs of those identified guests.  Business travelers need desks, Wi-Fi, multiple outlets, a forgiving cancellation policy, early breakfasts, and NO advanced deposits.
4. The fourth KEY can often be a difficult one…Thinking Sunday through Thursday.  Any inn can fill up on the weekend, but that is only 28% of the week…an occupancy not high enough to pay all the bills.  Marketing to corporate guests, elder-travelers, quilting and scrap booking groups, or offering discounts to weekenders to encourage them to stay an extra day or two becomes a high priority targeted activity.
5. Being the Best.  This KEY is what will keep your parking lot full while the inn across the street wonders how you do it.  Investigate what the competition is doing (and NOT doing!) and Beat Them!  Have the best breakfast in town, offer a welcoming warmth that guests enjoy, and make their experience complete.

This dynamic group of aspiring innkeepers heard this important message and are currently defining the profiles of the inns that are RIGHT for them.  Congratulations to all of them as they continue their journey into the world of inn ownership!      Scott

My antennae went up like a dog’s ears at suppertime.  After failing to convince him that this is an important step to understanding the revenue and net operating income of the inn (to help establish its value), we closed our conversation that perhaps the best way to sell his property is as a residence through the local MLS system since a buyer would never be able to get a commercial loan on that property without the bank seeing the financials.  He was satisfied with that…I guess.

But the point is trust.  I lost trust with him.  Was he cheating the IRS and did not want to let anybody discover it?  Were his numbers so poor that I would be trying to sell his inn only on its potential?  Does he even have records?  All kinds of distrustful thoughts went through my head.  I hope all them are wrong.  If a seller, perhaps even unwittingly, withholds information from a buyer, trust is jeopardized, and with the limited number of buyers and the huge inventory of inns for sale, buyers will look elsewhere.  Building Buyer/Seller trust is critical.  So how is it done?

Like a good Boy Scout…Be Prepared!

• Having complete and accurate records (including taxes…they will be scrutinized during a buyer’s due diligence period)
• Track occupancy by month from year to year.  A buyer wants to see the seasonal nature of the inn (especially to understand what happens in the slow season).
• Have a complete Inclusion/Exclusion list of the furniture and fixtures will transfer with the property and what will go with the sellers.
• For a smaller inn, have a property condition disclosure (available from any real estate agent) prepared.  This is required in many states anyway.
• For larger inns, consider a Seller’s Inspection completed BEFORE a buyer’s inspector finds any defects (and they WILL find the problems!),  This inspection demonstrates full disclosure of the condition of the inn, provides a report accuracy defense in the event the buyer’s inspector overinflates the seriousness of a deficiency, and leads to a corrective plan to defuse emotions and begin negotiations.
• Keep your gift certificate log current
• Open and honest conversations about marketing, buyer’s opportunities, and full disclosure.

When Marilyn and I were looking for our inn long ago (the Dead Sea was only sick back then), the owner of one of our candidate inns pulled me aside and said “Don’t worry about the numbers, Scott.  I put two kids through college on this inn!”.  We left never to return.  If he was willing to cheat the IRS, he was willing to cheat us.

Innkeepers…think about the “surprises” that made YOU angry when you bought your inn.  We’ve all been there.  Think like the buyer of your inn.  What roadblocks can be removed now to build Trust and not jeopardize the chances of a timely and financially rewarding transfer.

Anybody have any trust surprises when you bought your inn?  We would love to hear about them and what could have been done differently.   Scott

]]> https://bbteam.com/blog/is-living-social-or-groupon-confusing-your-performance-indicators/ Wed, 27 Jul 2011 12:58:39 +0000 https://bbteam.com/?p=2717 Countless inns are participating in the Living Social and Groupon craze (not sure if I should use the word “fad” there, which implies a short-term shelf life) and, as seen in previous postings from Janet and me, there are a number of “rules of thumb” that can make participation worthwhile.

One thing that is happening, however, is the monstrous effects it has on Occupancy and Average Daily Rate (ADR) calculations…typical discussion mileposts among innkeepers concerning the strength of their businesses.  The voucher bookings send occupancy soaring but the revenue margin on each voucher is miniscule compared to the “normal” operating rates.  Consider this example from this 10 room inn in Pennsylvania:

2010 revenues were about $156,000 and occupancy was 31.7%.  They sold 1156 rooms in 2010 giving them an annual ADR of $135.  Like many inns, they are seasonally slow in January-May and participated in a coupon drop with a net income per coupon (after discount to purchaser and the company) of $47.25.  They sold 413 coupons for a windfall check of almost $20,000…nice bucks in the slow season.

Using their 2010 performance, with these additional 413 room-nights sold, their occupancy for the year LEAPED from 31.7% to 43%!  But because their revenue for the additional 413 rooms was so low, their ADR fell from $135 to $112.

With these indicators,  was the coupon drop worth it?

Don’t know yet.  The hotels have been using RevPar as their measuring indicator forever.  RevPar is the Revenue per Available Room and is calculated by dividing the total room revenue by the number of rooms in the facility times 365 (days per year).  This combines the Occupancy level and the ADR into one number and makes comparisons so much simpler.

In our guinea pig inn above, the RevPar for 2010 prior to the coupon drop impact was $42.76.  With the addition of 413 room nights at $47.25 each, RevPar increased to $48.10.  This makes an easy correlation when comparing performance indicators from year to year or from inn to inn.

So was the coupon drop worth it?

Some of you just now said, Yes!   (I heard you!) but I am not sure you are right.  RevPar does NOT take into account your expenses and the ultimate impact on Net Operating Income…the REAL driver of the strength of your business.  If the inn’s expenses for the coupon drop are above $47.25 (the revenue received for each one) …their NOI dropped unfavorably.  And, as you have seen in previous postings, an inn’s variable costs (for housekeeping labor, those little soaps, laundry, breakfast, etc.) can easily be $30 or more.

RevPar needs to become the measurement of choice in the B&B industry to replace Occupancy and ADR.  It’ll take a generation or two to evolve, but with the current discounting crazes that will, most likely, become routine marketing tools (thus throwing the traditional indicators into a roller-coaster tizzy), RevPar is the only one that makes sense when comparing performance from year to year or from inn to inn.      Scott

It used to be the mantra in the B&B industry to NEVER discount your rooms.  You cheapen your image and could set lower price expectations for the traveling public for their next trip to your inn.  Well William Shatner in his TV ads and a multitude of Price Lowering websites and alternatives have already changed those expectations…so get over it.

Here are a few Mid-Atlantic stories that counter the old school discounting taboo:

A Full Service Inn in New Jersey, through Living Social Escapes, sold 225 vouchers offering two options to purchasers…a one night stay (voucher price $230) or two night stay ($380)including dinner, breakfast, champagne, chocolates, 2 martinis at the bar and 2 tickets to a regional attraction.

Another upscale B&B in Maryland sold 86 coupons through Groupon for one night, flowers and chocolates for a voucher price of $155, and a larger inn in Maryland, using Living Social Escapes,  is offering two nights, wine and chocolates for $157 (weekends) and $117 (weekdays) and sold 632 at last count.  They make their money on upselling spa services and gift baskets with each voucher at a 20% discount from usual pricing.

A fourth, very upscale inn in Baltimore sold 550 Groupons at $99 for a room with a value up to $250!

The two largest companies, Living Social and Groupon, offer coupons to their memberships at deep discounts…often 50% or more.  They do mass marketing through their email membership databases usually targeted in a particular region or city.  Retailers and service providers have seen phenomenal traffic from the vouchers sold to these members.

Living Social has an “Escapes” section on their site specifically attractive to their travel membership.  Often, this is the section in which an inn can participate.

Here’s the general process:  A retail or service provider signs a deal with the service for a particular product or service having an identified value.  A discount to the purchaser is provided (50% off is usually the minimum…but negotiable with the company), and the coupon “drop” is targeted for a specific market.  The company sells the voucher, subtracts a commission (often 30%+ depending on the voucher price), and sends a net proceeds check each month to compensate the business.

Sound scary to try it?  Here are a few VERY IMPORTANT considerations when planning such a coupon drop:

• Understand your variable costs.  Your fixed costs are those bills that you have to pay anyway…whether there is a guest in the house or not…such as the electric, real estate taxes, insurances and cable TV bills.  Variable costs are the extra costs when you have a guest, including:
  –  Food costs (take your annual food costs and divide by the number of room-nights sold…should be about $8 or $9).
  –  Laundry (use about $4 per room)
  –  Room amenities (shampoos, soaps, munchies, etc….perhaps $3?)
  –  Housekeeping labor and the withholding associated with wages (probably in the $10-$12 range)
  –  We won’t count the little bit of extra utilities a guest will use.
  –  Add a buck or two for the office supplies (confirmation letters, postage), wear and tear on the linens, etc.

This Variable Cost adds up to about $25-$30 for the first room-night…about $15 more for a second night’s stay.

• Take the rack rates for the rooms you wish to dedicate to this effort…say it’s $160.  Divide that by two to figure in the 50% discount to the purchaser.  That leaves $80 price for the voucher in our example.
• You can expect to pay at least 30% commission to the company.  They will also, most likely, charge you the credit card fee they have to pay (let’s say 2.5%).  That leaves $54 which is sent to you for each voucher sold.

  Then compare the proceeds you will receive with the Variable Costs you will incur…Worth it?

That is why inns are upselling other packages and services with their offer.  It increases the value of the voucher and ultimately the check received at a rate greater than the costs associated with the package.  But you must understand your costs.

On the good side of such an effort:

• You can dedicate a time frame within which the voucher must be used.  Aim those dates to the holes in your schedules including the slow season and mid-week.  Stay away from the weekends and busy season when you will sell your rooms at your usual rates anyway.  You can put those restrictions on the voucher.
• You can limit how many you sell so that you don’t have the risk of overselling for the time frame and angering guests.
• Experience is showing a large number of younger couples taking advantage of the deals.  This is the NEXT generation of inn visitor…a valuable asset to the industry.
• You will build your database with email addresses for future marketing efforts.
• You can “hook ’em” with your hospitality so that they become repeat guests.
• It seems about 20% of the vouchers will never be redeemed.  This is free income to you, but don’t budget it.

A few watch-outs from those who have used these programs:

• The demographics of the visitors may not be your what you are used to.  They can be “cheapskates” (as one innkeeper put it), asking for other discounts and taking advantage of the free goodies you have around the inn.
• “Sit by the phone” when the coupon drops…you will be swamped all at once.  One inn had a list of 60 callback names and numbers to get back to because the calls came in like a tsunami.
• You will get calls from people trying to buy the deal after the vouchers sell out.  They saw it online and feel they have the right to book it directly with you.
• The voucher holders tend to book early (as soon as they buy it) or late (just before they expire).  Be prepared with rooms for the procrastinators.

For those start-up inns or inns with very slow months of the year…I think it’s a valuable tool for cash flow.  Any other inns out there doing it?  Would love to hear your comments.    Scott

To calculate occupancy you need two essential pieces of information: (1) how many guest rooms does the bed and breakfast have, and (2) how many room nights did the inn sell? A room night is any one room occupied for one night. If a guest stays for three nights, there were three room nights sold.

The first calculation is to determine how many room nights were available in the course of a year. If a B&B has 5 rooms, it has 5 x 365 = 1,825 available room nights. Let’s say the B&B sold 976 room nights last year. To calculate the occupancy you need to know what percentage of the available nights were sold. You do that by dividing the rooms nights sold by the room nights available and multiplying by 100 (to get the percentage). 976 ÷ 1,825 = .53 x 100 = 53% occupancy. If an inn has 10 rooms, it had 3,650 available rooms nights. If they sold 1,675 rooms, they had a 46% occupancy (10 x 365 = 3,650 available rooms nights; 1,675 ÷ 3,650 = .46 x 100 = 46%).

There is a tendency to want to make occupancy look better than it is by reducing the number of available rooms nights because of vacations or being “closed.” Most of the time, these are discretionary choices made by an innkeeper, may often be in slower periods of the year, and are not governed by any rules. The problem with this is that as soon as an innkeeper does this, one has no way of knowing how to compare their occupancy to someone else’s.

There are only a couple of acceptable exceptions to the 365 day rule. One is where a property is in a seasonal location where virtually all properties close for an extended period (open season is May to October, for example). In this case, the occupancy may be calculated using the days of the season but should indicate that it is a seasonal rate. The other exception would be if a block of rooms are unusable for a period of months due to a fire or major renovation. It is not acceptable to say that because two rooms were repainted and that while they were being painted they were “not in service.” Unless an innkeeper was painting in the midst of their busiest season, it is unlikely that 100% of the rooms would have been sold anyway. The rooms still count in the “available” calculation.

If an innkeeper is putting data on an inns for sale directory, make sure your calculations are correct. And when reading statistics about an inn for sale, aspiring innkeepers should take much of what they read with a grain of salt until the method of calculating occupancy can be verified. If you have questions about this, we at The B&B Team® would be pleased to answer them for you.

Innkeepers are the best when it comes to delivering a great experience for their guests. Smiles come easily, breakfast is delicious, and the world just looks, well, rosy. Or does it? On the best of days even the best inns, as we well know, aren’t perfect. But if perfection is what you strive for, and if that perfection includes a healthy bottom line, it’s a good idea to tune up your inn just as you would your automobile.

So what’s an Inn Tune-up? Just as a mechanic goes over your car from end to end, checking fluids and connections, looking for wear, and ensuring that the electronics are functioning at their peak, an Inn Tune-up looks at your inn from top to bottom looking for the things that will make your inn run as smoothly as it can, helping you garner rave guest reviews, making you money, and increasing your satisfaction with your Innkeeping lifestyle.

We are all guilty of not seeing the forest for the trees sometimes. It’s human nature. When you live in an environment day after day, it becomes like a second skin. But your guests see it for the first time when they walk across your threshold. And they will often see what you no longer do. Take some time to look for details that, if improved, will improve your guest’s experience and, in turn, increase your revenues and improve your reputation.

Rooms become tired and need to be touched up regularly, annually at the least. How is your style and décor? Is it looking a bit frumpy and old fashioned, or are you updating to stay current with trends? Even Victorian ladies like to look their modern best! Look at all your rooms to see if you have adequate lighting wherever a person might sit or lie to read. Is there adequate space for guests to lay down their “stuff” without moving yours? And is there a place for them to plug in all their “stuff” without moving furniture or unplugging lamps and clocks? Power strips are a simple answer to a big annoyance. Do you still have clock radios or clock/radio/CD players in your rooms? Try changing them out for clock/radio/iPod docking units that look and sound great and meet the contemporary traveler’s expectations. In short, are your rooms thoughtful?

How are your bathrooms? Are they behind the times and worn out? How’s that caulking around the tub? If it isn’t in perfect condition and perfectly white and clean, you should change it. Make sure that grout is free of mildew.  It sounds elementary, but we at The B&B Team® see too many tubs that are simply neglected and are less than inviting. Your guests, as you know, form really strong impressions and opinions, and they tell others about it. In fact, cleanliness (or lack thereof) everywhere is the number one complaint of travelers. Look around your B&B with fresh eyes, run your finger along the tops of picture frames, get down on your knees and look under beds, under the cushions, in the drawers, inside lampshades, and be sure that everywhere is spotless and that you have systems in place to ensure they stay that way.

Beyond your rooms, how’s your website? Is it working for you, or are you losing potential guests because of the “three second rule?” Do you know what this rule is? Is your site homemade or more than three or four years old? If so, you probably need a new one. How are the photos? Do you know what your visitor counts and bounce rate are? You should. And if you don’t know how to find that out, ask someone who does.

Your business’s financial health is also essential to its running well. Do you know exactly where you stand week to week, month to month, relative to last year and the year before? How do your occupancy and ADR stand up against industry norms? How are your advance bookings running? Do you track your business using simple accounting tools like QuickBooks Pro, or are you putting all those receipts in a box and just hoping there’s enough money in the bank to pay the bills? You simply must do this the right way!

Innkeepers who really pay attention to their inn, from the physical plant to policies and procedures, from marketing and social media to the latest style trends are those who are doing well. If your B&B business is running a little sluggish, maybe you should give yourself a tune-up. Block out a day or two without guests, take a note pad, and go through your rooms looking for the things that could make them better. Then fix them! Not everything costs a lot: some attention to details, a fresh coat of paint, swapping out a piece or two of furniture can sometimes make a big difference for your guests even as it inspires you to be more enthusiastic.

Tax time is a good time to take stock of the health of your business. Look at your expenses and find out where you could save money and where you might want to increase your budget. Spend some time looking at what others are doing; those “others” should be inns that you admire, maybe even feel a little jealous of. When was the last time you stayed at another inn that wasn’t owned by a friend of yours and that’s really different from your own? How was the style? How were the details? How was the service? Did you learn something new or get a new idea to take home? Get out of your comfort zone and explore. Be a stealer of great ideas!

At The B&B Team® we encourage you to get inspired! Don’t let your inn’s engine run rough; it won’t perform as well, last as long, deliver as much satisfaction, or preserve its value. And if you feel you could benefit from a professional Inn Tune-up rather than an oil change in the driveway, we’d love to help you out! We have many clients who have grown their business simply by reaching out for professional assistance. Can we help you?

When you’re thinking of refinancing to make capital improvements to your inn, there are many questions to ask. In the analysis of finance and construction costs, anticipated revenues, and future value of the tangible assets, one question that is often overlooked is this: How will improving the physical plant impact the future marketability of your inn when you sell?

The resale market for inns can be broken down into three basic categories. First, there are homes from which someone operates a bed & breakfast for fun, some additional income, and tax breaks. Second, there are somewhat larger homes with stronger businesses that generate a significant amount of lodging income, but which have a potential market as a high end residence. And third, there are large B&B’s and full service inns and spas which are strictly businesses and, essentially, commercial property, valued almost entirely for their ability to generate income.

The third category of properties is ideal for refinancing for capital improvements which can enhance their ability to increase revenues — and, therefore, value — and are not addressed here. The first two, however, are. Consider this: you have a lovely three to five guest room B&B in a nice area, make a respectable, if modest, living from the B&B business, and you are at a crossroads. You’d like to earn more and have decided that you are either going to “improve” the property to grow your business, or sell it and buy something larger. Capital investments are generally considered improvements, but they may not improve your chances of selling. The reason is simple. If, for instance, you turned your five bedrooms into eight or ten, or you added a commercial kitchen and a restaurant, both intended to increase your business (which they may well do), you will have fundamentally changed the nature of what you own and caused you to travel down a new path.

Your new property with ten guest rooms and/or a small restaurant (or other business requiring a physical change to the property) may no longer be attractive as a home in the residential market where people pay a price based on the supply and demand for housing in an area. Market factors may have caused the value to be much higher as a residence than could be supported by any lodging income after improvements. The residential market is very broad and, in recent years, home values have increased dramatically with no reduction in demand for these homes. However, with your new, “improved” property, you now have to generate enough income to support your investment plus add revenue-based value, as you have now converted your residential real estate to commercial, with the commensurate change in valuation approaches. You may or may not be able to grow the revenues sufficiently – even if it is enough to pay back the loan – to increase the value beyond what it may have been previously. You will have certainly narrowed the pool of potential buyers when the day comes to sell. But if you do your homework and know what your goals are, growing your inn may be the best business decision you’ll ever make.

To help with the “go, no-go” decision when contemplating a major capital improvement, consider hiring an experienced inn consultant to help you assess the potential return on investment, both from a cash flow as well as a marketability standpoint.