Business planning for beginners...

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02/11/2012

Hi! My husband and I have been tossing around the idea of purchasing an inn in the next 5-7 years, as we've had several amazing experiences with innkeepers up in Vermont, Maine and Alaska, and we've managed to catch the "I need to be my own boss" bug. I'm currently working on my MBA in the evenings, and as one of my entrepreneurship projects, decided to write a business plan for the type of inn we would like to have one day. However...I'm a little overwhelmed right now and wondering if anyone might be so kind as to offer thoughts on a few things?

  • Given the current economy, if we were to purchase an inn, how much cash would we need to come to the table with? 20%? 50%? More?
  • I'd like to create an estimated income statement to incorporate into the business plan...are there any recommended resources for setting up the financial aspects of the business (this is what I'm most concerned about, as accounting and finance are not my forte )
  • Are there any tips to writing a business plan for a B&B? Anything specific we should make sure to include?

Sincerely appreciate any help anyone can provide, thank you in advance!

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Joey Camb's picture
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thing is at least your plan  is 5-7 years ahead and are starting to get the building blocks in place and starting to do your homework. We see people on here that have say been made redundant and think "oh well we have a house lets do bb" and it makes me go spare combined with then they come back and gasp at you how much more to it there is!

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02/11/2012

Thanks for all the feedback, it's much appreciated. For me personally, the main draw of owning a B&B is all the considerations @HighMountainLodge outlined...I love the idea of interacting with people and getting my hands a little dirty, my husband is a phenomenal cook and frankly, I am really intrigued (and challenged) by the idea that our success is heavily driven by the effort and work we're willing to put into the business.

Ultimately, I would plan to purchase an exisiting business and go from there - I'd prefer to have at least one leg to stand on in the beginning vs. starting completely from scratch. Very interesting comment from @Madeline about a drop off in repeat customers, that's not something I would have considered right away.

As for the financial aspect, completely agree with @gillumhouse, obviously something I will need to become intimately acquainted with, but at this point, without a specific property in mind, never having owned a business before and having only taken a couple accounting courses (the MBA is giving a broad view into all areas business, and my concentration is global marketing, not accounting or finance), it's more a question of where I need to start focusing attention...fully plan on diving in head first though!

Joey Camb's picture
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I think there are 2 books I would read straight away that deal with financials and working out if a property will make a return - how to open a financially successful bed and breakfast by arduser & Brown and start and run a bed and breakfast by taylor 4th edition. too many books focus on "i love picking out sheets and baking!" the taylor book is about how to pick out a BB that will make money and the second is very good for financials. My advice would be to put down as much as you can, however make sure you have some one hand for renovations and for emergencies. Too many people try and do every renovation out of turnover and in some ways especially now with interest rates so low it would be better to borrow do the work and then have the property make more money which would pay the loan. its all things to consider.

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10/31/2009

There are some fundamental intangibles that you need to evaluate as you write your business plan that you will need to include in your executive summary.

First and foremost: do you like people?

Additional considerations:

  • can you get up early?
  • are you a good and creative cook?
  • are you emotionally flexible?
  • can you balance being detail-oriented (dust on the furniture) with the Big Picture (what type of experience do you want your guests to have?)
  • are you comfortable doing menial tasks: clean bathrooms to surgical-suite clean; do more laundry that you ever thought it was humanly possible; make beds;
  • are you and/or your spouse/partner "handy"? Can you repair a toilet? Snake a drain? Fix a leak? Replace a shower head? Are you afraid of learning these skills if you don't already know them?
  • how hard is it for you to get to sleep at night? how comfortable are you with stress/pressure/fear?

You get the idea. Inasmuch as you are getting an MBA, you will surely understand (or can discover) the financial issues involved in such a risky small business. There's never enough money; there's never enough time.

The benefits of owning a B&B are intangible on a balance sheet/P&L statement. They're about people. But that isn't going to get you a loan.

What *may* get you a loan is a plan to grow your business in 10 years. Turn a real estate investment into a business that generates decent multiples of your cash outlay investment. Turn around a moribund business that barely paid its bills because the owners were burnt out/didn't care.

It all depends on you. B&Bs are about the owners. If you get into this business, you will either be your business's greatest asset or its worst liability.

egoodell's picture
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06/01/2008

 You need to identify where you are considering doing business as you will get differnt responses from different areas. For instance, someone here said you will not make a living with fewer than 5 rooms. We are making a great living here with two rooms and wine tours. 

But - we are in a booming destination area  - the wine country of virginia, a historical destination with three presidents' homes, and a popular university. If we were not in such a popular destination only 1.5 hours from Washinton DC with about 20 wineries, breweries and fantastic restaurants, we not be doing so well.

Riki

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Riki Goodell
Arcady Vineyard Bed & Breakfast
Arcady Vineyard Wine Tours
www.arcadyvineyard.com
Come! Let us show you the beautiful Monticello Appellation!

 

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10/07/2008

egoodell wrote:

 You need to identify where you are considering doing business as you will get differnt responses from different areas. For instance, someone here said you will not make a living with fewer than 5 rooms. We are making a great living here with two rooms and wine tours. 

But - we are in a booming destination area  - the wine country of virginia, a historical destination with three presidents' homes, and a popular university. If we were not in such a popular destination only 1.5 hours from Washinton DC with about 20 wineries, breweries and fantastic restaurants, we not be doing so well.

Riki

Riki I have a lovely couple here who have been visiting our nearby wineries, I told them about your wine tours and B&B. I will email their mailing address to you if you would like to send them one of your rack cards. 

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egoodell's picture
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Joey Bloggs wrote:

egoodell wrote:

 You need to identify where you are considering doing business as you will get differnt responses from different areas. For instance, someone here said you will not make a living with fewer than 5 rooms. We are making a great living here with two rooms and wine tours. 

But - we are in a booming destination area  - the wine country of virginia, a historical destination with three presidents' homes, and a popular university. If we were not in such a popular destination only 1.5 hours from Washinton DC with about 20 wineries, breweries and fantastic restaurants, we not be doing so well.

Riki

Riki I have a lovely couple here who have been visiting our nearby wineries, I told them about your wine tours and B&B. I will email their mailing address to you if you would like to send them one of your rack cards. 

Thank you for thinking of me! If they are interested I would love to mail them a rack card!

RIki

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09/29/2011

Riki- You wouldn't be making a go of it with 2 rooms ONLY. As you said, you have the wine tours and a job outside the inn. If the OP owned the inn outright, 2 rooms would be fine. Most people starting out today, not owning outright, need more than 5 rooms.

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egoodell's picture
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Madeleine wrote:

Riki- You wouldn't be making a go of it with 2 rooms ONLY. As you said, you have the wine tours and a job outside the inn. If the OP owned the inn outright, 2 rooms would be fine. Most people starting out today, not owning outright, need more than 5 rooms.

Actually, I disagree. With the wine tours we are making the income we would if we just had 5 rooms. In our county B&Bs are only allowed 5 rooms. And my cpa tells me to quit my job this year as it is actually costing us money.

I am only staying at my job right now to watch the economy, and once the other two rooms are up will quit.

So, quitting my side job I will be making more money. We are paying CASH to build the wing. On two rooms and the tours make an equivalent of 5 rooms income. So you have to take in account we have spent a huge amount of cash this past year instead of taking out a loan to build the wing.

My point is, choose your location wisely and you can live comfortabley on less than 8-10 rooms very well

Riki

Madeleine's picture
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09/29/2011

Yes, location is key. There is a one room B&B here and she makes a go of it. On the water, full all season long. Closes in the winter and goes to FL to her other home. Essentially the guests pay her property taxes.

4 room B&B in the same town does just fine. She owns the building outright, no mortgage. Ditto another place with 6 rooms.

If a mortgage is going to be a big part of the equation, and there are fewer than 5 rooms, location and very high prices are paramount. All things the OP needs to understand.

We looked at a few 4 season properties in what LOOKED like busy vacation areas. Every once in awhile I check their websites for prices. Right now in peak ski season, because of the glut of rooms, they are charging $79/night with a full breakfast and on some weekends that also includes a lift ticket.

gillumhouse's picture
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05/22/2008

Did I miss something? Isn't an MBA a Masters in Business Admin? Doesn't that include the financial side of business? Not meaning to be snarky, just asking? I cannot imagine running a successful business without a darn good grasp of the financials.

Do you have knowledge of what the day-to-day operations of a B & B entail? You also need that to write a business plan. Even if you think it is an area where all you have to do is hang out a sign, it is NOT like that. Marketing, shopping, laundry, cleaning, cooking, kitchen clean-up, reservations, AR, AP, greeting and waving goodbye, yard work, and myriad tasks factor in to decide if hired help is needed and what kind of halp.  As for how much money will be needed? You never have enough (unless you won the lottery). Just my opinion.

Madeleine's picture
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09/29/2011

A couple of suggestions:

Given you right now seem to have zero knowledge of what goes into running a B&B from the financial side, why not talk to a B&B broker. Brokers have exactly the info you're looking for in a more general sense than anyone here, who would obviously be speaking from a personal POV.

If you have a target market for your business (state, county, town) you could always contact a broker there and ask what the general feeling is for how much money you need to come in with. Of course, THAT depends on how well kept the business is, how well-positioned the biz is and what 'decor' changes you would want to make.

If contacting a broker doesn't fit with what you want to get into right now, you can use lodging taxws collected in a given area. It takes more research as you need to know how many rooms that includes. However from that info (collected on the state's website) and your research, you will be able to determine (somewhat), the going room rate for that many rooms. If the state breaks the taxes down by month, you will also know what your 'season' is.

Many B&B's live off the 'season's' income in the slow months. You need to figure this into your biz plan.

Also in your biz plan needs to be calculated any up and coming construction in the area. Are businesses moving in or out? Are more lodging properties opening? Closing?

Are you planning on writing this biz plan from the POV of taking over a going concern or starting from scratch?

As for money coming in...you will definitely need 40% down on the biz, and then another 20-40% in cash on hand for 'emergencies'. What you might not know, but would definitely find out, is that a lot of long time repeat guests do not return when the biz changes hands. If the present owners have built up a large clientele you should figure that 30-50% of them won't return during your first year. They will wait and see if you burn out or how the reviews are going.

How will you make up that difference?

If you have other specific questions, fire away.  I know it's hard to know what to ask, so read thru some of the other topics that have to do with financials, operating expenses and things like that. You can kind of skip the parts about the obx guests unless you want your eyes opened a little wider. Eye-wink

When I took a business class one of the most important parts of the class was understanding ALL of the tasks that need to be done in a day and WHO is going to do them. You may find that in your biz plan you need to account for hiring a lot of staff.

Other things to consider...it's hard to make a living with fewer than 5 rooms. More than 8 rooms you need staff if you don't want to die in your first year.

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