Odd Numbers for an Inn

24 replies [Last post]
Offline
Joined:
12/30/2012

One Inn we are looking has provided some numbers for us to review. Using the Planning spreadsheet I found here (via a link in the resources) something is not adding correctly.

Inn states 627 room nights sold out of 1300 available for a year - 48% (they noted a vacation taken and inn closed). Income listed for the year $56K (rounded).

Spreadsheet found here uses:  4 rooms * $114 ADR * 48% = $78K should be the income.

The math is missing $22K of money.

Does this mean they really discounted rates overall? Or is it possible the $56K is "profit" after operating expenses ($20K rounded)? This gets us closer to the $78K number. And I do know they are missing one expense (taxes paid for the part-time employee - only listed Worker's Comp and bookkeeping).

If the $56K is Profit, then the Inn is in great shape and can handle a large debt load against income.

They are on vacation until the middle of the month (still open this time) so I can't get all the questions answered.

I am interested in what y'all have to say as I can't make heads nor tails of it.

Joey Camb's picture
Offline
Joined:
04/02/2010

Well at least the figures they are providing are lower than you would think - which to me indicates either (a) bad book keeping (b) not declaring cash (c) there is something else we don't know about.

I wouldn't get too worked up till I have asked them about it - might be something quite simple.

__________________

Don't mess with me today or I will kill you!!!!

 

Bommelhoeve's picture
Offline
Joined:
08/14/2009

Quote TW: "I got the $114 ADR from the rates listed on the website. I used the double occupancy rate as that is what they are saying is their customer base. 4 rooms, 129 to 99 per night. No rate difference for the weekend."

As I understand the above, you took the average of the room rates ((129-99)/2=114) and assumed it to be the "ADR".? If you did, it doesn't work that way, it gives you the average weblisted room rate, nothing more, nothing less.

The formula you mentioned should be used to calculate the ADR, so based on 627 nights  and 56k income the ADR = 89$.  IMO, they discounted (multiple nights stay), had free nights or recently raised  price of rooms. Since they have not yet given the ADR to you it seems to me that they are honest about the figures. Note, for most B&B's and especially for hotels  the ADR is lower than the average listed room price.

 average room rate = 114$,    ADR = 89$,  roomnights 627, revenue 56k, occupancy 48% based on 1300 available roomnights.

__________________

Innkeeper
Bommelhoeve Inn

 

Breakfast Diva's picture
Offline
Joined:
05/26/2009

Do you know what the actual property is worth without the business?

Offline
Joined:
12/30/2012

taxable: 389,000  real estate: up to $800,000  give or take a little depending on who is doing the appraisal.

This has been on the market for 6 years and the price keeps going up with each new real estate agent (value inflation).

Breakfast Diva's picture
Offline
Joined:
05/26/2009

and there's only $58k? That business is WAY over priced. They will probably tell you that it has the potential of making much more money, but be careful....you do not pay for potential. That's the biggest pitfall most aspirings fall into. Potential will make it sell quicker, not for more money.

Also, if the price keeps going up with each real estate agent, it's probably the only property/business in the country that has increased in value in this country. There are so many well priced properties out there for sale right now, there's no reason to overpay.

gillumhouse's picture
Offline
Joined:
05/22/2008

ThuderingWind wrote:

taxable: 389,000  real estate: up to $800,000  give or take a little depending on who is doing the appraisal.

This has been on the market for 6 years and the price keeps going up with each new real estate agent (value inflation).

That owner needs an education!!! If it has been on the market for 6 years (ignore these numbers because they are smoke) and it did not sell for 1 million 6 years ago, what in heck makes them think it will sell for 2 million now - 6 years later? Nutso!!!

Joey Camb's picture
Offline
Joined:
04/02/2010

exactly! what it is worth is what a buyer is willing to pay - the Balmoral a lovely 23 bed small hotel renovated about 3 years ago and bought for 1.5 million sold a month ago for 750 thousand ie half price - because that is what it is worth to the buyer!

Offline
Joined:
10/07/2008

Oh so the inn is not overinflated their numbers, but giving less, they probably have the figures wrong on room nights. Did they take a room out for maintenance? Also do they host any functions there? That may be $.

Don't look at those spreadsheets as gospel, please, there are variables. Could be something simple. But if they said $56k, then that is what you need to go on. Then get tax returns etc.

__________________

Gluten free is never free. - Joey Bloggs

 

Offline
Joined:
12/30/2012

They provided month by month numbers of Room Night Available and Room Nights Sold for 12 years of business so far. They did not have December done yet but were closed most of it this year.

What concerns me about the spreadsheet formula is knowing if it a legal, valid and accepted way to calculate projected earnings and check back in time for problems. Since it was found here as a Resource, I hope it is an accepted method.

The only variables are # of Rooms (4), ADR ($114) & Occupancy Rate (48%) - {4 * $114} * 48%. I just want to be sure I can compare each Inn properly to help us either move forward or walk away.

Thus far, this is the only Inn that has provided more detailed info. The others now have our Non-Disclosure Statements (which why I have not said where these are at) so I should have more data soon.

Madeleine's picture
Offline
Joined:
09/29/2011

Get the tax returns. And find out what they mean by 'income'. Is that gross or net? There is revenue and there are expenses. Maybe they own the house free and clear. Maybe they rubbed two sticks together to start a fire to heat water and they have solar panels and the like. Maybe they served dry toast and one egg for breakfast.

No one will tell you the expenses they incur that are not directly related to running the biz. That includes the mortgage payment (if there is one), employee expenses, the cost of new linens and other things of that nature. You should at least have an idea of what food costs are, altho they may say, 'Oh, well we expect you'll do it differently,' and clam up.

So, do you know the property tax info? The licenses you need to renew each year? All of that adds up. Also, if they have been doing this for a very long time, they may be grandfathered in for new regs that will hit you when you sign the paperwork. Also, are they a legitimately operating business? You don't want to find out they were sneaky Petes and now you have the keys to a pricey 4 bedroom house you can't do anything with.

Where did you get the $114 amount? Is that on the website?

__________________

Everyday, for good or ill, we intersect with some else's story and become a part of it.

 

Offline
Joined:
12/30/2012

We will get them eventually.  We have asked about rules, regulations, etc..That is part of the outstanding questions they have yet to answer. We have also asked a trusted attorney in that state to confirm the laws. So far, no surprises in this area.

They provided food expenses, property taxes, utilities, web site, State B & B membership fees. They ARE mortgage free. They listed the painting, new mattress costs and some other similar upgrades & maintenance items in the expenses.  So I feel they are being generally honest.

I got the $114 ADR from the rates listed on the website. I used the double occupancy rate as that is what they are saying is their customer base. 4 rooms, 129 to 99 per night. No rate difference for the weekend.

Madeleine's picture
Offline
Joined:
09/29/2011

If you have the opportunity to go to the town hall and talk to the locals yourself try to do that. We also had an attorney who knew the local regs and he still missed something we are still paying for 10 years later. As a matter of fact, everyone we worked with missed it...broker, lawyer, accountant.

The experts also missed the fact that the PO's put down as their revenue the rooms PLUS the sales tax. That worked out to be a $10000 accounting error. And that's how they filed their tax returns. So, they paid income tax on sales tax.

Good for you that you are checking and rechecking. We also had a spreadsheet we used. We were evaluating several properties at the time and the spreadsheet was good for comparing apples to apples. We were also able to see where things 'broke'. How much of the occ % could we lose before we went broke? At what revenue would we be golden? (And then we bought the place we liked best. But at least we knew it compared favorably with the other places!)

What the spreadsheet doesn't tell you, tho, is what you do the year that you have to pay out $10k just to have heat and hot water. And another $25k to replace old equipment. And how to handle the property tax rates going up by 15%. (That happened to a friend.) However, you can model that using the spreadsheet.

Also, not sure what is going to be required by your bank but we had to pay for an outside agency to evaluate the property and the business. Kind of like when buying a house you have an inspector come in. (We had to do that as well, but the business inspection cost $2500 - $3500.) That's when it was discovered the PO's had added in the sales tax as revenue.

OnTheShore's picture
Offline
Joined:
08/28/2011

Things have to balance.

Assets  = Liabilities + Equity

Revenues = Expenses + Earnings (aka Inputs = Outputs + Change in Storage)

I would look for verification of their number of room nights (occupancy figures) and their room rates (revenue figures) -- i.e. what's the basis of the ADR figure?

Don't rely on the spreadsheet to give you answers -- it's just a tool -- garbage in = garbage out.

__________________

"where even time relaxes...."

 

Offline
Joined:
12/30/2012

I understand for the most part.

I just do not understand the difference in the calculations. The simple 627 Nights rented * $114 ADR    SHOULD EQUAL      4 rooms * $114 ADR * 48% Occupancy.

OnTheShore's picture
Offline
Joined:
08/28/2011

ThuderingWind wrote:

I just do not understand the difference in the calculations. The simple 627 Nights rented * $114 ADR    SHOULD EQUAL      4 rooms * $114 ADR * 48% Occupancy.

Yes, IF they really rented 627 nights. IF 627 room nights really was 48% occupancy of 4 rooms. IF the ADR really was 114 (i.e. what if most of those nights were the $99 room rather than the $129 room, in that the owner's recollection of "mostly couples" was inaccurate? ETA- and what was said just above about ADR)

This is why I suggested verifying the room nights, %occupancy, and the ADR figures. Since things are not balancing, the figures you are using cannot be relied upon.

For example, if they had open 4 rooms all 365 nights in the year, 627 room nights = 42.9% occupancy, NOT 48%  -- so it is probably that 48% figure that is faulty.

Madeleine's picture
Offline
Joined:
09/29/2011

Harborfields wrote:

For example, if they had open 4 rooms all 365 nights in the year, 627 room nights = 42.9% occupancy, NOT 48%  -- so it is probably that 48% figure that is faulty.

And this is where the confusion lies a lot of times. If it is a 'seasonal' business it's one thing but if they are usually open all year then the occ% has to be calculated on the entire year, not just when they felt like being open. But, I think TW said they told him they were closed and the number is based only on when they were open. If I calculated it that way I'd be running 75%! But we base it on the whole year, even when we are closed because this is not a seasonal property, we just choose to close.

Joey Camb's picture
Offline
Joined:
04/02/2010

same with us - we have shut at various times when we could have taken bookings to do majour works - ie all the windows, all the roof and so on - if we suddenly decided to sell the new owners would not have do do so which would increase their revenue.

we are half shutting for 3 weeks in feb to do the work on the top landing which will take 4 rooms out of service and mean it is very difficult to sell the other 2 due to noise - this will hit our occupancy and revenue - but again would not be something a future buyer would do - as it was already done!

Breakfast Diva's picture
Offline
Joined:
05/26/2009

It's very simple....they are not telling the truth. Welcome to the world of creative numbers. Some owners do it on purpose, others do it because they just have good book keeping. lt happens all the time.

When we bought our inn 12 years ago it was torture getting numbers from the owners. We found out in escrow (very late in the process) that the stated income was off by $20,000. On a 4 room inn, that's significant! Know what they said? "oh, we just raised our room rates ($10 per room!) and they were using the figure of 50% occupancy. They weren't trying to lie to us, they just didn't keep good books. Turns out the occupancy was 35%. We didn't believe their P&L sheets and forced them to give us their business banking statements for 3 years.

Another way you can double check is to see how much they paid in room tax and sales tax from their retail store. It's public record. Those figures also have to jive.

This kind of stuff happens all the time. I've seen it where they state they have 70% occupancy and when the revenue number doesn't match, they say "oh, it's 70% occupancy in the busy season".

Wait until they get back in town and you can question them. I assure you, it will be eye opening!

Offline
Joined:
12/30/2012

I greatly appreciate the comments. Y'all ain't beating 'round the bushes neither. That is good for me. I learn better that way.

I agree that they may have paid the part time staffer (mostly yard work, $9/hr) using a 1099. Makes sense with the information they provided. BTW, the data is part of the real estate package.

I am just not sure where the difference in the money went!  Using the spread sheet formula, 4 rooms * $114 ADR * 48% Occupancy = $218.88 per day income, then * 30 for a month and the Month * 12 for Year, thus the $78K number.

If I use the 48% Occupancy (provided the 627 days is legit), and divide that into the Income $56K (provided it is legit), I would get $90 ADR.

Using the 627 Nights Booked * $114 ADR (from website), we get the $71K as noted above.

If I add the Yearly expenses (if legit) to the $56K income, we DO reach the $71K number.

If we add in EmployeR share of taxes, we get closer to the $78K number.

I will get a look at the tax form data once they answer some other outstanding questions (after vacation). They are reporting $19K in expenses not including food.

I am now a little concerned about the two different calculations getting the 71K and 78K. One seems real (71K) and the other is what the Bank formula is according to the spreadsheet.

Offline
Joined:
05/30/2008

I worked part-time to for a year to help out a neighbor with some office work.  I was not paid enough to even generate a 1099, apparently, per their accountant.  So, there is that...

I had a very part-time housekeeper as an independent contractor who would have fallen in that category as well. 

I agree to try and get tax returns, which may take signing a non-disclosure form.  There's a good chance at that amount of income that it was all spent on the property and expenses.

 

__________________

People don't notice whether it's winter or summer when they're happy.
~ Anton Chekhov

 

seashanty's picture
Offline
Joined:
06/02/2008

about the employee expenses ... i am going to guess the person was paid by 1099 misc as an independent contractor and the inn paid the worker's comp and for bookkeeping.  that puts taxes squarely on the shoulders of the person doing the cleaning or whatever.  something to keep in mind ... when you have employees, you have to figure in how much YOU have to pay in taxes ... federal, state, local, social security .... each of my $16 an hour employees cost me about $24 an hour when it was all totalled up including uniforms, the workers comp i had to pay, the taxes, etc.  just a guess

funny thing was they wanted TIPS so bad and i said 'i don't know from tips ... if you get any, i don't know about it because i'd have to report them to the irs and so would you'  ....

i was warned NOT to misclassify them as independent contractors (which carries fines) and i was warned not to give them more than 1/2 time hours or i'd have to offer health and dental benefits which i could not.  wow.

my employees made much more $$ than i ever did and yet they thought i was rolling in dough ...

and i was, BREAD DOUGH.  blush

ah, well.

 

Offline
Joined:
10/07/2008

PS Let me say upfront, the #1 benefit of owning a B&B is living in it and deducting expenses. And that depends on where you are, many can deduct heating ONLY for the inn side of the house, not the owners quarters, no lawn maintenance, nothing where the owners could be living, etc etc.

But having said that, if there is not a second income to claim those expenses against, who is paying regular taxes, then it will be harder. Ie, for myself I make no income, there is no paycheck to me for owning and operating this inn, so I have nothing to get back tax wise.  Anything I make pretty much goes right back into the inn, repairs, upkeep and living costs.

I will be frank here and say that it is not a money maker, if anything it is a money taker.

Depending on the overhead and what you offer, plus number of room nights, makes the bottom line.

So if the revenue is $56k, but they have a mortgage, insurance, pay staff and operate the inn (all utilities, expenses etc) then they make virtually nothing. I am speaking from my own experience.  If there is no mortgage then that is an immediate step up.

Just want to be clear on that. Sorry to sound like a sourpuss, but want to not sugar coat. Just things to look into and be clear on from the owners there.

Offline
Joined:
10/07/2008

I don't think any inn will give you figures of PROFIT. That depends on too many factors, perhaps this year they had to do a major emergency maintenance overall or something, and went into the red.

They will give you room revenue.

As a person who "believed" the previous owners of this inn, who falsified (LIED AND DECEIVED) the figures, and not being an innkeeper and not knowinh how it all works, I would recommend seeing TAX RETURNS.  This will give you profit and loss statements as well, how much do they deduct each year? More accurately.

If they won't give them, then go to the local municipality, either town or city and ask for figures (their business license WILL HAVE the annual revenue figures). They may or not be able to give you them, depending on where you are.

Figures should be for the last 5 years of business.

Hope that helps!

Don't trust them even if they they Sunday school.

Generic's picture
Offline
Joined:
02/24/2011

627 x 114 (ADR) = $71,478

If they are saying that $56K is profit then they are saying that costs ran $24.5 a night. I can't see much salary being paid. I guess maybe a part time employee. What are the expenses for breakfast, amenities, heating, cooling, electricity? Other items, packages? You see to be missing a lot.

__________________

Permission to quote in whole or in part, other than usage on this forum, is entirely forbidden.

 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.