After weighing in the emotional, energy consumption and "how it will affect your family balance" sides of being in the inn keeping business - it's time to focus on the numbers and the actual anatomy of the transaction. Financing your dream is another topic.
There are three separate but united parts of the sale price:
- Real Estate Value
- Business Value
- Brand Name Value
Before the purchase spend some time or consult with a professional who will help you to identify those values for a particular property.
In addition to obvious trends, location pluses and minuses, popularity of this particular Inn and overall economic situation of the area in which bed and breakfast is located several important factors should not be overlooked!
- Zoning (affects real estate value)
- Current operating expenses and their trends
- Occupancy rate and its trend, including seasonal changes
- Current Hotel/Motel occupancy rates in the area
- Current Commercial and Travel Related Area Development (such as construction of new hotels, entertainment areas, access roads, etc)
Make sure that the today's income statement numbers are available to you along with 2-3 years back. While analyzing trends - make sure to consider special events such as weather related that hindered travel, once in a while Olympic games event that sends bookings thru the roof, etc. Having all this information allows you now to align it with your dreams and goals of profitability, expectations, financial responsibilities. So, do you still want to be an innkeeper? :-) hope you made that decision based on your desire and drive and that little stumbles on the road will not stop you but rather let you be better prepared on how to handle them and move forward.
2 comments:
Hi,
I am thinking seriously about buying a small B&B, but the owner has it for sale as both "just a house" and as a semi-turnkey B&B. I know I can value the house on a per sq ft basis, etc. But how do I value the business as a going concern? It is a very small B&B with only a couple rooms. I know at the end of the day it is worth whatever someone will pay, but if I'm to make an offer on it, what rule of thumb should I use? I'm thinking of something like 1x last year's net or something. 2x? Even less? In theory I could skip buying the business and just buy the house and start up a new B&B from scratch there, so it has some value but not *that* much either.
What are your thoughts on this? What rules of thumb do people use when trying to value the business?
Thanks!
It seems that the value lies in what is more important to you - get a house and furnish it yourself and create a new business from scratch or inherit a business from the owners. This will include their style of furnishings, etc. Once you decide this, you can move on to the offer. Obviously, if they had some profit and can show that the the "turn-key" part is really worth it - and i would insist on them showing you supporting data - then you can make a decision. Depending on trends you can then have a better picture. But since this business is so fragmented and there is no real proof of future income I would be conservative in the offer. Things to look at:
1. repeat customer base, trends
2. cost of furniture replacement
3. existing advertising channels
4. how rising costs of fuel, etc may affect the traveling habits of this particular type of customer
Hope, this helps,
Leeza
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