Inn valuation

[OnTheShore]

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..

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.

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.
.

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?
.

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/
.

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
.

Obviously depends on the multiplier, but I think the usual approach is EBIT*multiplier = Business Value, including tangible assets used in the business.
Thinking being that the profit is your return on investment; and the amount you invested includes the tangible assets as well as the value of the intangibles...

 

[happykeeper]

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..

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.

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.
.

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?
.

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/
.

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
.

Obviously depends on the multiplier, but I think the usual approach is EBIT*multiplier = Business Value, including tangible assets used in the business.
Thinking being that the profit is your return on investment; and the amount you invested includes the tangible assets as well as the value of the intangibles...
.

Given a multiplier of less than 5, it would suggest to me that no inn or b&b with a high value of tangible assets can be sold as a business, but I can't imagine that is true.
Inn A tangible assets 300K market value EBIT 70K x 4 = sells as a business
Inn B tangible assets 900K market value EBIT 210K x 4 = lifestyle
I am obviously not the sharpest pencil in the box on this. Actually, I might be the one that got stepped on, broken into three parts and tossed back in the box in case the good pencils disappeared.

 

[happykeeper]

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..

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.
.

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.
.

So I feel like I was just about there in understanding what would have to happen for the business to have a value.
From what has been shared so far, I was getting the idea that a high value physical property would have a very difficult time having a business value. My rather poor example was using the EBIT formula. The EBIT is not a large number in comparison to the gross revenue, so...
would you say that a small inn with a high real estate value has almost no chance of being considered a viable business?

 

[Breakfast Diva]

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..

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.
.

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

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

yes

 

[happykeeper]

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..

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.
.

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

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

yes
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?

 

[Breakfast Diva]

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..

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.
.

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

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

yes
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?

Yes, but do not include lodging taxes into your earnings number. At least that is my understanding.
Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.

 

[OnTheShore]

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..

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.
.

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.
.

So I feel like I was just about there in understanding what would have to happen for the business to have a value.
From what has been shared so far, I was getting the idea that a high value physical property would have a very difficult time having a business value. My rather poor example was using the EBIT formula. The EBIT is not a large number in comparison to the gross revenue, so...
would you say that a small inn with a high real estate value has almost no chance of being considered a viable business?
.

That's right, a property with a high real estate value but low earnings, would not be able to fetch the real estate value if sold as a business.
....unless of course somebody came along with money already at hand, and that's what they wanted to do was run the property as a business...
There's a saying the recreational marine industry -- how do you make a million dollars in the boat business? Start with two million....

 

[OnTheShore]

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..

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.
.

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

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

yes
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?

Yes, but do not include lodging taxes into your earnings number. At least that is my understanding.
Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.
.

Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.

I think you mean the higher the NOI number...

 

[OnTheShore]

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..

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.
.

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

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

yes
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?

Yes, but do not include lodging taxes into your earnings number. At least that is my understanding.
Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.
.

Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.

I think you mean the higher the NOI number...
.

BTW, I think NOI and EBIT are essentially the same thing (? more or less ?) --- maybe not, but close/similar perhaps....

 

[happykeeper]

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..

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.
.

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

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

yes
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?

Yes, but do not include lodging taxes into your earnings number. At least that is my understanding.
Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.
.

This was VERY informative. I have to go look at our business plan to find our EBIT and NOI. I don't quite get how they are different yet, but I asked my nephew as well. He can help explain it a bit.
I think it is really helpful to take it through the whole discussion. Thanks

 

[happykeeper]

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..

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.
.

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

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

yes
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?

Yes, but do not include lodging taxes into your earnings number. At least that is my understanding.
Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.
.

Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.

I think you mean the higher the NOI number...
.

BTW, I think NOI and EBIT are essentially the same thing (? more or less ?) --- maybe not, but close/similar perhaps....
.

I was just asking about that

 

[EmptyNest]

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..

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.
.

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

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

yes
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?

Yes, but do not include lodging taxes into your earnings number. At least that is my understanding.
Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.
.

Stealing your thread BD gave a link...wow there are alot of opportunities for innkeepers / assistants out there at some really nice places. SOmeone looking here, should search there.

 

[Morticia]

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..

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.
.

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

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

Yes.

 

[Breakfast Diva]

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..

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.
.

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

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

yes
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?

Yes, but do not include lodging taxes into your earnings number. At least that is my understanding.
Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.
.

Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.

I think you mean the higher the NOI number...
.

Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.

I think you mean the higher the NOI number...

Oops. I think I need more coffee! You're right Harbor!

 

[Innkeep]

My place will never sell as a business. One of my first guests was a Boston lawyer who was very complimentary of my place and said that it was worth 1.3 million in Boston dollars. At that price, I could afford to pull it off its foundation and move it to Boston and still come out ahead. I'm not in a destination, so if it sells as a business, it will sell to someone who is as desperate as I was to get out of the rat race. So ratios and equations don't work for me. I suspect it will be my estate that will have to sell this place, so I'm not worrying about it.

 

[irisevelynn]

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..

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.
.

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

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

yes
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?
.

Sorry for all the flubs in trying to understand. It would be 200,000 EBIT?

Yes, but do not include lodging taxes into your earnings number. At least that is my understanding.
Here is another way to get to a figure. The best thing to do is to use all these variables and then find a common approximate number. Many professionals will tell you that the last 3 years of your taxes should be pared down so you have your highest figure of NOI (net operating income). If you're writing off for example an expensive car as a business expense, pay it off. Stop writing off those trips, etc. The lower the NOI number, the higher your inn is valued. Someone with the exact same property & income with lower NOI would be able to sell for more money than that exact clone neighbor with a higher NOI.
.

Stealing your thread BD gave a link...wow there are alot of opportunities for innkeepers / assistants out there at some really nice places. SOmeone looking here, should search there.
.

Thank you for pointing that out EmptyNest!

 

[An Old Tavernkeeper]

In Charlottesville VA the recent bnb sales are all in the 8 to 10 times revenue range.
But with a million visitors a year to the area, a University, five US President's homes and 42 wineries within 20 minutes of town everything is at a premium. Our real estate taxes on a 7 room bnb that is not fancy by any means, $61,164, up 28% from last year. Holy MMOG, and the city is raising sales tax to 12.3% on lodging and 10.3% on food.

 

[Copperhead]

In Charlottesville VA the recent bnb sales are all in the 8 to 10 times revenue range.
But with a million visitors a year to the area, a University, five US President's homes and 42 wineries within 20 minutes of town everything is at a premium. Our real estate taxes on a 7 room bnb that is not fancy by any means, $61,164, up 28% from last year. Holy MMOG, and the city is raising sales tax to 12.3% on lodging and 10.3% on food..

Our real estate taxes on a 7 room bnb that is not fancy by any means, $61,164, up 28% from last year. Holy MMOG, and the city is raising sales tax to 12.3% on lodging and 10.3% on food.

I will try to remember this the next time I pay my property taxes. WOW!

 

[undersea]

In Charlottesville VA the recent bnb sales are all in the 8 to 10 times revenue range.
But with a million visitors a year to the area, a University, five US President's homes and 42 wineries within 20 minutes of town everything is at a premium. Our real estate taxes on a 7 room bnb that is not fancy by any means, $61,164, up 28% from last year. Holy MMOG, and the city is raising sales tax to 12.3% on lodging and 10.3% on food..

Real Estate taxes - is that the standard taxes on a similar residential house, or are they knocking your property valuation as a revenue-producing location (commercial?) in some way...
Also, what is property assessment? If it is $1.5 Million vs. $0.5 Million, then that may have a lot to do with it...

 

[Nika]

Is it typically 5X the revenue for the previous year or an average of several years? Are all furnishings and vehicles included in that price? We're not interested in selling but it's good information to know.