Inn valuation

I have been zipping around for the last some many days, but I have been thinking about the recent comment from Mort about valuation.
So, if I read it correctly.... a rule of thumb?... an inn is valued at 5 times it's revenue?

It's rule of thumb for the valuation of any business, where one approach is to look at current and projected revenues (http://en.wikipedia.org/wiki/Business_valuation#Income_approach -- or watch Shark Tank). Other approaches look at the underlying assets. Some Inns are likely worth more as real estate assets than they are as a business.

Yes, it's a good rule of thumb. In the old days, depending on your market you could push it up even higher, but not so much these days.

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation.

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation.

Click to expand...

Of course there are exceptions, like when you live in an area where the real estate is astronomically expensive like where Happy lives, but if your 5x or pushing it to 6x is less or at your property price, then it's considered a "Lifestyle" B&B. The business value has very little value unfortunately.

That is why my plan is to sell at the market value of my house - what the value is when I am able to put it on the market - and the B & B is a bonus. I plan to take only my personal; belongings - they get dishes, silver, linens, furnishings, etc. For me it is a selfish thing - I want my city to have a B & B and I do not want them so buried in debt that they cannot make it. And at my age, I will not have that much time left to spend it. We are not a place that tourists flock to.

Breakfast Diva said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation.

Click to expand...

Of course there are exceptions, like when you live in an area where the real estate is astronomically expensive like where Happy lives, but if your 5x or pushing it to 6x is less or at your property price, then it's considered a "Lifestyle" B&B. The business value has very little value unfortunately.
.

Click to expand...

Okay, I did not get that. So if you run a dry cleaning business and you make 200,000 in revenue, your business is worth 1 mil?

happykeeper said:

Breakfast Diva said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation.

Click to expand...

Of course there are exceptions, like when you live in an area where the real estate is astronomically expensive like where Happy lives, but if your 5x or pushing it to 6x is less or at your property price, then it's considered a "Lifestyle" B&B. The business value has very little value unfortunately.
.

Click to expand...

Okay, I did not get that. So if you run a dry cleaning business and you make 200,000 in revenue, your business is worth 1 mil?
.

Click to expand...

happykeeper said:

Okay, I did not get that. So if you run a dry cleaning business and you make 200,000 in revenue, your business is worth 1 mil?

Click to expand...

Nope. This is a rule of thumb for b&bs. We are so different from any other business because it's also our home and you can't compare apples and oranges.

Harborfields said:

It's rule of thumb for the valuation of any business, where one approach is to look at current and projected revenues (http://en.wikipedia.org/wiki/Business_valuation#Income_approach -- or watch Shark Tank). Other approaches look at the underlying assets. Some Inns are likely worth more as real estate assets than they are as a business..

Click to expand...

I tried to read some of this...

Breakfast Diva said:

happykeeper said:

Breakfast Diva said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation.

Click to expand...

Of course there are exceptions, like when you live in an area where the real estate is astronomically expensive like where Happy lives, but if your 5x or pushing it to 6x is less or at your property price, then it's considered a "Lifestyle" B&B. The business value has very little value unfortunately.
.

Click to expand...

Okay, I did not get that. So if you run a dry cleaning business and you make 200,000 in revenue, your business is worth 1 mil?
.

Click to expand...

happykeeper said:

Okay, I did not get that. So if you run a dry cleaning business and you make 200,000 in revenue, your business is worth 1 mil?

Click to expand...

Nope. This is a rule of thumb for b&bs. We are so different from any other business because it's also our home and you can't compare apples and oranges.
.

Click to expand...

Okay - that is different from what HF said, but I couldn't quite rap my head around the stuff in the link to figure out how it related to the
5x theory I was asking about. So if you run an inn and your income is 200,000, your inn is worth 1 mil?

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Around here it is 5x. Period. That includes everything. Business, property, goodwill. And that is the number the buyer will hew to. I've watched friends struggle with this for years.
Seasonal businesses with million dollar views. Valued at $500k. Property for sale as a residence with the same view? Million dollars.

happykeeper said:

Breakfast Diva said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation.

Click to expand...

Of course there are exceptions, like when you live in an area where the real estate is astronomically expensive like where Happy lives, but if your 5x or pushing it to 6x is less or at your property price, then it's considered a "Lifestyle" B&B. The business value has very little value unfortunately.
.

Click to expand...

Okay, I did not get that. So if you run a dry cleaning business and you make 200,000 in revenue, your business is worth 1 mil?
.

Click to expand...

Not necessarily -- as Diva says, businesses in different industries might use a different multiplier -- but the idea is similar: one way to value a business is to use some multiple of the revenue.
ETA- Here is an explanation that might be easier to get one's head around: http://www.bizbuysell.com/seller_resources/valuation-rules-of-thumb/14/

Morticia said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Around here it is 5x. Period. That includes everything. Business, property, goodwill. And that is the number the buyer will hew to. I've watched friends struggle with this for years.
Seasonal businesses with million dollar views. Valued at $500k. Property for sale as a residence with the same view? Million dollars.
.

Click to expand...

Ayuh, don't I know it. Of course that $500K is the value of the Inn as a business -- it could quite possibly be sold for more as real estate rather than as an Inn.

Harborfields said:

Morticia said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Around here it is 5x. Period. That includes everything. Business, property, goodwill. And that is the number the buyer will hew to. I've watched friends struggle with this for years.
Seasonal businesses with million dollar views. Valued at $500k. Property for sale as a residence with the same view? Million dollars.
.

Click to expand...

Ayuh, don't I know it. Of course that $500K is the value of the Inn as a business -- it could quite possibly be sold for more as real estate rather than as an Inn.
.

Click to expand...

They've thought about selling it as a family compound.

Morticia said:

Harborfields said:

Morticia said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Around here it is 5x. Period. That includes everything. Business, property, goodwill. And that is the number the buyer will hew to. I've watched friends struggle with this for years.
Seasonal businesses with million dollar views. Valued at $500k. Property for sale as a residence with the same view? Million dollars.
.

Click to expand...

Ayuh, don't I know it. Of course that $500K is the value of the Inn as a business -- it could quite possibly be sold for more as real estate rather than as an Inn.
.

Click to expand...

They've thought about selling it as a family compound.
.

Click to expand...

I do know of a family that bought a B&B as their family compound.... very nice view of Eggemoggin Reach.
I also know of another family compound that also rents its cottages to the occasional outsider. Of course with the ownership now spread among the 3rd or 4th generation of descendants from the original three brothers, some ends of the family don't necessarily know the other end of the family all that well anyways!

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

And tonite at 9:26:53pm takes pi to ten places

Harborfields said:

happykeeper said:

Breakfast Diva said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation.

Click to expand...

Of course there are exceptions, like when you live in an area where the real estate is astronomically expensive like where Happy lives, but if your 5x or pushing it to 6x is less or at your property price, then it's considered a "Lifestyle" B&B. The business value has very little value unfortunately.
.

Click to expand...

Okay, I did not get that. So if you run a dry cleaning business and you make 200,000 in revenue, your business is worth 1 mil?
.

Click to expand...

Not necessarily -- as Diva says, businesses in different industries might use a different multiplier -- but the idea is similar: one way to value a business is to use some multiple of the revenue.
ETA- Here is an explanation that might be easier to get one's head around: http://www.bizbuysell.com/seller_resources/valuation-rules-of-thumb/14/
.

Click to expand...

Funny, was going to mention bizbuysell
What is being overlooked here, is a listing price is far diff than what a buyer might offer. The market value of property, deferred maintenance, profitability, how many other inns for sale or in area, seasonality, furniture inclusion, time in his, and many things matter.

Harborfields said:

happykeeper said:

Breakfast Diva said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation.

Click to expand...

Of course there are exceptions, like when you live in an area where the real estate is astronomically expensive like where Happy lives, but if your 5x or pushing it to 6x is less or at your property price, then it's considered a "Lifestyle" B&B. The business value has very little value unfortunately.
.

Click to expand...

Okay, I did not get that. So if you run a dry cleaning business and you make 200,000 in revenue, your business is worth 1 mil?
.

Click to expand...

Not necessarily -- as Diva says, businesses in different industries might use a different multiplier -- but the idea is similar: one way to value a business is to use some multiple of the revenue.
ETA- Here is an explanation that might be easier to get one's head around: http://www.bizbuysell.com/seller_resources/valuation-rules-of-thumb/14/
.

Click to expand...

Funny, was going to mention bizbuysell
What is being overlooked here, is a listing price is far diff than what a buyer might offer. The market value of property, deferred maintenance, profitability, how many other inns for sale or in area, seasonality, furniture inclusion, time in his, and many things matter.

Morticia said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Around here it is 5x. Period. That includes everything. Business, property, goodwill. And that is the number the buyer will hew to. I've watched friends struggle with this for years.
Seasonal businesses with million dollar views. Valued at $500k. Property for sale as a residence with the same view? Million dollars.
.

Click to expand...

so in your area an inn that earns 200,000 is worth a mil?

Harborfields said:

happykeeper said:

Breakfast Diva said:

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation..

Click to expand...

Arks said:

I'd say in the case of a B&B, 5X revenue is the value of the business end of things, but I'd have to add more to that to include the value of the property.
That is, tell the buyer the house is worth X as a residence. If you also want to run a business out of it, that's worth Y in addition to X.
It being date 3 14 15, I also need to work pi into this equation.

Click to expand...

Of course there are exceptions, like when you live in an area where the real estate is astronomically expensive like where Happy lives, but if your 5x or pushing it to 6x is less or at your property price, then it's considered a "Lifestyle" B&B. The business value has very little value unfortunately.
.

Click to expand...

Okay, I did not get that. So if you run a dry cleaning business and you make 200,000 in revenue, your business is worth 1 mil?
.

Click to expand...

Not necessarily -- as Diva says, businesses in different industries might use a different multiplier -- but the idea is similar: one way to value a business is to use some multiple of the revenue.
ETA- Here is an explanation that might be easier to get one's head around: http://www.bizbuysell.com/seller_resources/valuation-rules-of-thumb/14/
.

Click to expand...

That was easier to understand. Now I did get a little confused. If a business is making a profit, that should have some value in addition to the tangible assets. So I imagined
EBIT * multplier + tangible assets = Business Value
and I imagined
Gross revenue x multiplier = Business Value