Measuring an inn's business

[undersea]

HappyKeeper = after ready this all....... I need a nap... My tiny BnB has to be sold as a home ( town code) .

.

That seems odd, and I have read a lot of codes (used to be a construction company owner). Was BnB a permitted use, conditional use, a variance, or was it preexisting/grandfathered?
I would double check that with the zoning/code enforcement officer, and purchase a copy of the code book (unless it is online on the municipal site). Look up the permitted, conditional and not permitted tables for the zoning districts.
Would also discuss with a good broker about that. I cannot see how a buyer would not be allowed to continue the current use, unless you let it lapse (such as not using it as a BnB for more than a year).

 

[EmptyNest]

HappyKeeper = after ready this all....... I need a nap... My tiny BnB has to be sold as a home ( town code) .

.

That seems odd, and I have read a lot of codes (used to be a construction company owner). Was BnB a permitted use, conditional use, a variance, or was it preexisting/grandfathered?
I would double check that with the zoning/code enforcement officer, and purchase a copy of the code book (unless it is online on the municipal site). Look up the permitted, conditional and not permitted tables for the zoning districts.
Would also discuss with a good broker about that. I cannot see how a buyer would not be allowed to continue the current use, unless you let it lapse (such as not using it as a BnB for more than a year).
.

It is not uncommon. If a special use permit is given in our town to an owner of a B & B , it does not transfer to the next owner. It is looked at as a new business. Something to always check on before a purchase.

 

[Breakfast Diva]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.

 

[Morticia]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.

When we asked questions about food costs, housekeeping costs, landscaping costs we were told 'you may do things differently so those numbers are irrelevant'. Almost everything we asked about was 'irrelevant'. Once we took possession we found out how the PO's did business. ONE tablespoon of this per plate, ONE teaspoon of that, lots of 'community' jam pots, turn off the heat and A/C the moment breakfast is over, never turn the heat or A/C on in your own space 'while you're working', etc.
(All we wanted was a ballpark. We had NO idea how much the food costs would be or what a housekeeper made and how many hours she worked. It turned out she was working 30-40 hours/week in the summer! At $11/hour ten years ago.)
It was a lot of nickel and diming that probably saved them thousands but made us feel like we were servants. So, yeah, we do things differently. As the next owners will do.

 

[undersea]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.

I cannot say I agree to this concept. Anyone purchasing a serious business should understand that you aggressively pursue all tax advantages. Trying to fluff it up just winds up costing the owner a lot of money for no reason. That $100,000 is unlikely.
Business is not really "net profit" as people tend to fake it by paying under the table or otherwise misrepresenting. Terms like cashflow, owner's benefit, revenue, sales etc. are what is really used these days more than net profit when selling a business. Biz Buy Sell . com is the main player.
Then when the owner leaves, a lot of sales tend to leave as well.
As a former construction company owner, 5+ rental properties and having done a huge amount of research, I take gurus like this with a grain of salt. From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.

 

[happykeeper]

HappyKeeper = after ready this all....... I need a nap... My tiny BnB has to be sold as a home ( town code) .

.

Geez! Me too. I never thought I would be looking at, let alone ever really thinking about, what it all means. It does help to hear what others see in it though.

 

[Morticia]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.

I cannot say I agree to this concept. Anyone purchasing a serious business should understand that you aggressively pursue all tax advantages. Trying to fluff it up just winds up costing the owner a lot of money for no reason. That $100,000 is unlikely.
Business is not really "net profit" as people tend to fake it by paying under the table or otherwise misrepresenting. Terms like cashflow, owner's benefit, revenue, sales etc. are what is really used these days more than net profit when selling a business. Biz Buy Sell . com is the main player.
Then when the owner leaves, a lot of sales tend to leave as well.
As a former construction company owner, 5+ rental properties and having done a huge amount of research, I take gurus like this with a grain of salt. From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.
.

From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.

If you work will the big players in the industry you'll find that they have their own calculations which, I think has been mentioned before, look mostly at revenue. If your revenue is $200k, your selling price is probably over $1m. Regardless of what the property would sell for as a residence. Which is why some are finding it better to close and sell privately.
It helps if the property is in good repair to get a quick sale, but the property will more than likely sell regardless.
The multiplier, this year, is 5. It was 7 when we bought.
If your property would sell privately for $500k but you're only making $75k, the buyer's business broker will tell them the business is worth $375k. Period.
The bank looks at what the business is making, not what the owner takes out of it. They look at the track record. They look at the surrounding area's track record. Is this an up and coming market? Is it in decline? What plans do the new owners have for increasing revenue? (I have a list for them to take to the bank.) What experience do the new owners have? What are they willing to put on the table? The bank does not want to own a B&B.
When we did the numbers on every business we looked at, we calculated losing 35% of the previous owner's business. Due either to attrition or caution on the part of the guests. It took several years to get back those numbers.

 

[happykeeper]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

What I don't understand is that our EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) tells them the health of our business. GE is not going pass up tax breaks to look good, because their suitor will be looking at their numbers before those are accounted for. At least I think that's how it works.
The 10 to 1 ratio seems plausible but is just one factor in having our numbers tell part of our story. If you remember past comments and some on this thread, there are MANY innkeepers that were led down a primrose path in purchasing an operating inn, something we did not do but now know we would not consider.
Suddenly I have a picture of innkeepers crouching in the corner of the kitchen eating scraps and crusty day old bread so they can inflate profits and sell the yoke around their neck.

Buyer beware if this is considered perfectly acceptable.
Really though, I do understand that an inn wants to put it's best foot forward when going on the market. Managing costs, beefing up the marketing, and increasing net profit are beneficial. I just don't think hiding or ignoring expenses that are legitimate deductions is transparent and ethical. All of that can be shown before EBITDA.

 

[undersea]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.

I cannot say I agree to this concept. Anyone purchasing a serious business should understand that you aggressively pursue all tax advantages. Trying to fluff it up just winds up costing the owner a lot of money for no reason. That $100,000 is unlikely.
Business is not really "net profit" as people tend to fake it by paying under the table or otherwise misrepresenting. Terms like cashflow, owner's benefit, revenue, sales etc. are what is really used these days more than net profit when selling a business. Biz Buy Sell . com is the main player.
Then when the owner leaves, a lot of sales tend to leave as well.
As a former construction company owner, 5+ rental properties and having done a huge amount of research, I take gurus like this with a grain of salt. From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.
.

From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.

If you work will the big players in the industry you'll find that they have their own calculations which, I think has been mentioned before, look mostly at revenue. If your revenue is $200k, your selling price is probably over $1m. Regardless of what the property would sell for as a residence. Which is why some are finding it better to close and sell privately.
It helps if the property is in good repair to get a quick sale, but the property will more than likely sell regardless.
The multiplier, this year, is 5. It was 7 when we bought.
If your property would sell privately for $500k but you're only making $75k, the buyer's business broker will tell them the business is worth $375k. Period.
The bank looks at what the business is making, not what the owner takes out of it. They look at the track record. They look at the surrounding area's track record. Is this an up and coming market? Is it in decline? What plans do the new owners have for increasing revenue? (I have a list for them to take to the bank.) What experience do the new owners have? What are they willing to put on the table? The bank does not want to own a B&B.
When we did the numbers on every business we looked at, we calculated losing 35% of the previous owner's business. Due either to attrition or caution on the part of the guests. It took several years to get back those numbers.
.

The bank does not look at net profit, that is a fairy tale. They look at everything. As HK said above, there are metrics, including depreciation and deductions. There are standard expected ratios and categories. Businesses with unbalanced or odd numbers will set off alarms in their systems.
There is no such thing in 2015 as creative accounting getting past the very sophisticated processes used by the banking industry, to get a commercial or residential mortgage.
The business broker's valuation is no better than realtor's valuations. They are pie in the sky, and that is why most properties sit around, until the important thing, the market price, comes to play.

 

[happykeeper]

What's your formula for computing GOPPAR?.

Now that I am without guest, I had a moment to read just a wee bit about Gross Operating Profits Per Available Room and, what I see at this point, you have to have a number at the end of a season or month or some such stable metric. From that you can break it down into smaller time metrics and compare your GOP in the long term with the GOP in the short term to see where each short term falls in regards to what I assume must be some mean or median or both.
I did read just a wee bit, so any enlightenment would be appreciated.

 

[Morticia]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.

I cannot say I agree to this concept. Anyone purchasing a serious business should understand that you aggressively pursue all tax advantages. Trying to fluff it up just winds up costing the owner a lot of money for no reason. That $100,000 is unlikely.
Business is not really "net profit" as people tend to fake it by paying under the table or otherwise misrepresenting. Terms like cashflow, owner's benefit, revenue, sales etc. are what is really used these days more than net profit when selling a business. Biz Buy Sell . com is the main player.
Then when the owner leaves, a lot of sales tend to leave as well.
As a former construction company owner, 5+ rental properties and having done a huge amount of research, I take gurus like this with a grain of salt. From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.
.

From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.

If you work will the big players in the industry you'll find that they have their own calculations which, I think has been mentioned before, look mostly at revenue. If your revenue is $200k, your selling price is probably over $1m. Regardless of what the property would sell for as a residence. Which is why some are finding it better to close and sell privately.
It helps if the property is in good repair to get a quick sale, but the property will more than likely sell regardless.
The multiplier, this year, is 5. It was 7 when we bought.
If your property would sell privately for $500k but you're only making $75k, the buyer's business broker will tell them the business is worth $375k. Period.
The bank looks at what the business is making, not what the owner takes out of it. They look at the track record. They look at the surrounding area's track record. Is this an up and coming market? Is it in decline? What plans do the new owners have for increasing revenue? (I have a list for them to take to the bank.) What experience do the new owners have? What are they willing to put on the table? The bank does not want to own a B&B.
When we did the numbers on every business we looked at, we calculated losing 35% of the previous owner's business. Due either to attrition or caution on the part of the guests. It took several years to get back those numbers.
.

The bank does not look at net profit, that is a fairy tale. They look at everything. As HK said above, there are metrics, including depreciation and deductions. There are standard expected ratios and categories. Businesses with unbalanced or odd numbers will set off alarms in their systems.
There is no such thing in 2015 as creative accounting getting past the very sophisticated processes used by the banking industry, to get a commercial or residential mortgage.
The business broker's valuation is no better than realtor's valuations. They are pie in the sky, and that is why most properties sit around, until the important thing, the market price, comes to play.
.

Not net profit, gross sales.
Have you gone to a bank lately to get a loan to buy a B&B? Even just to pick a few brains about what they want to see when you DO apply for a loan? Have you worked with a broker selling B&B properties?
I'm strictly going by what we experienced here, in this particular location, which has a LOT of B&B's and a fair number of banks willing to talk to prospective B&B owners.
I'm basing my statements about what the brokers are telling buyers on what has sold here and for how much in the past 3 years. 2 places sold for a lot less than was paid for them because they did not have the gross sales, regardless of how much the property would sell for as a private residence. (Based on what much smaller homes next door to the inns have sold for.)
Places that upped their game sold for a lot more than they would have as a private residence.
It's really not about the value of the house or the land, altho that can mean a lot to the buyer or seller. It may be the difference between the buyer forking over a larger down payment because they LOVE the property.
You can also use your outside employment to get a non-commercial loan and forget dealing with gross profits altogether. Buy it as a house.
Friends whose biz is still for sale are still for sale because they run a lifestyle business. They have million dollar views but they don't have million dollar gross multiplier revenue. It's a gorgeous property. It would make an excellent 'cottage' for someone looking to live on lovely bit of the coast. But it's not selling for what the property itself is worth as a private residence because it doesn't make enough money. The two things are separate when buying a business.

 

[undersea]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.

I cannot say I agree to this concept. Anyone purchasing a serious business should understand that you aggressively pursue all tax advantages. Trying to fluff it up just winds up costing the owner a lot of money for no reason. That $100,000 is unlikely.
Business is not really "net profit" as people tend to fake it by paying under the table or otherwise misrepresenting. Terms like cashflow, owner's benefit, revenue, sales etc. are what is really used these days more than net profit when selling a business. Biz Buy Sell . com is the main player.
Then when the owner leaves, a lot of sales tend to leave as well.
As a former construction company owner, 5+ rental properties and having done a huge amount of research, I take gurus like this with a grain of salt. From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.
.

From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.

If you work will the big players in the industry you'll find that they have their own calculations which, I think has been mentioned before, look mostly at revenue. If your revenue is $200k, your selling price is probably over $1m. Regardless of what the property would sell for as a residence. Which is why some are finding it better to close and sell privately.
It helps if the property is in good repair to get a quick sale, but the property will more than likely sell regardless.
The multiplier, this year, is 5. It was 7 when we bought.
If your property would sell privately for $500k but you're only making $75k, the buyer's business broker will tell them the business is worth $375k. Period.
The bank looks at what the business is making, not what the owner takes out of it. They look at the track record. They look at the surrounding area's track record. Is this an up and coming market? Is it in decline? What plans do the new owners have for increasing revenue? (I have a list for them to take to the bank.) What experience do the new owners have? What are they willing to put on the table? The bank does not want to own a B&B.
When we did the numbers on every business we looked at, we calculated losing 35% of the previous owner's business. Due either to attrition or caution on the part of the guests. It took several years to get back those numbers.
.

The bank does not look at net profit, that is a fairy tale. They look at everything. As HK said above, there are metrics, including depreciation and deductions. There are standard expected ratios and categories. Businesses with unbalanced or odd numbers will set off alarms in their systems.
There is no such thing in 2015 as creative accounting getting past the very sophisticated processes used by the banking industry, to get a commercial or residential mortgage.
The business broker's valuation is no better than realtor's valuations. They are pie in the sky, and that is why most properties sit around, until the important thing, the market price, comes to play.
.

Not net profit, gross sales.
Have you gone to a bank lately to get a loan to buy a B&B? Even just to pick a few brains about what they want to see when you DO apply for a loan? Have you worked with a broker selling B&B properties?
I'm strictly going by what we experienced here, in this particular location, which has a LOT of B&B's and a fair number of banks willing to talk to prospective B&B owners.
I'm basing my statements about what the brokers are telling buyers on what has sold here and for how much in the past 3 years. 2 places sold for a lot less than was paid for them because they did not have the gross sales, regardless of how much the property would sell for as a private residence. (Based on what much smaller homes next door to the inns have sold for.)
Places that upped their game sold for a lot more than they would have as a private residence.
It's really not about the value of the house or the land, altho that can mean a lot to the buyer or seller. It may be the difference between the buyer forking over a larger down payment because they LOVE the property.
You can also use your outside employment to get a non-commercial loan and forget dealing with gross profits altogether. Buy it as a house.
Friends whose biz is still for sale are still for sale because they run a lifestyle business. They have million dollar views but they don't have million dollar gross multiplier revenue. It's a gorgeous property. It would make an excellent 'cottage' for someone looking to live on lovely bit of the coast. But it's not selling for what the property itself is worth as a private residence because it doesn't make enough money. The two things are separate when buying a business.
.

Bank, yes. And they want ALL the numbers, including off the tax returns, to go through the underwriting department.
And any serious buyer will hire a CPA as part of due diligence. And the CPA will be suspicious if profits are too high and tax writeoffs are too low. There is too much information out there to try to clever into an extra $100K by trickery or losing money by not taking the maximum legal writeoffs.
The net profit comment was towards the conversation above. Gross sales is not hindered by depreciation and deduction, so there is no reason to try and hide anything or avoid writeoffs.

 

[Breakfast Diva]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

What I don't understand is that our EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) tells them the health of our business. GE is not going pass up tax breaks to look good, because their suitor will be looking at their numbers before those are accounted for. At least I think that's how it works.
The 10 to 1 ratio seems plausible but is just one factor in having our numbers tell part of our story. If you remember past comments and some on this thread, there are MANY innkeepers that were led down a primrose path in purchasing an operating inn, something we did not do but now know we would not consider.
Suddenly I have a picture of innkeepers crouching in the corner of the kitchen eating scraps and crusty day old bread so they can inflate profits and sell the yoke around their neck.

Buyer beware if this is considered perfectly acceptable.
Really though, I do understand that an inn wants to put it's best foot forward when going on the market. Managing costs, beefing up the marketing, and increasing net profit are beneficial. I just don't think hiding or ignoring expenses that are legitimate deductions is transparent and ethical. All of that can be shown before EBITDA.
.

Suddenly I have a picture of innkeepers crouching in the corner of the kitchen eating scraps and crusty day old bread so they can inflate profits and sell the yoke around their neck.

Buyer beware if this is considered perfectly acceptable.

Don't be absurd. I never even suggested that a seller even do anything different to the running of the business! I never said cut back on what you offer guests or even spend less than you usually do. I never said don't take time for yourself or you should be like an indentured servant to your business! I really resent you trying to turn my words into something they obviously weren't. What I'm suggesting is that there are some minor adjustments in the way you do some deductions that can make a substantial impact. That's it. Period. End of subject. Take it or leave it.

 

[Morticia]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.

I cannot say I agree to this concept. Anyone purchasing a serious business should understand that you aggressively pursue all tax advantages. Trying to fluff it up just winds up costing the owner a lot of money for no reason. That $100,000 is unlikely.
Business is not really "net profit" as people tend to fake it by paying under the table or otherwise misrepresenting. Terms like cashflow, owner's benefit, revenue, sales etc. are what is really used these days more than net profit when selling a business. Biz Buy Sell . com is the main player.
Then when the owner leaves, a lot of sales tend to leave as well.
As a former construction company owner, 5+ rental properties and having done a huge amount of research, I take gurus like this with a grain of salt. From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.
.

From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.

If you work will the big players in the industry you'll find that they have their own calculations which, I think has been mentioned before, look mostly at revenue. If your revenue is $200k, your selling price is probably over $1m. Regardless of what the property would sell for as a residence. Which is why some are finding it better to close and sell privately.
It helps if the property is in good repair to get a quick sale, but the property will more than likely sell regardless.
The multiplier, this year, is 5. It was 7 when we bought.
If your property would sell privately for $500k but you're only making $75k, the buyer's business broker will tell them the business is worth $375k. Period.
The bank looks at what the business is making, not what the owner takes out of it. They look at the track record. They look at the surrounding area's track record. Is this an up and coming market? Is it in decline? What plans do the new owners have for increasing revenue? (I have a list for them to take to the bank.) What experience do the new owners have? What are they willing to put on the table? The bank does not want to own a B&B.
When we did the numbers on every business we looked at, we calculated losing 35% of the previous owner's business. Due either to attrition or caution on the part of the guests. It took several years to get back those numbers.
.

The bank does not look at net profit, that is a fairy tale. They look at everything. As HK said above, there are metrics, including depreciation and deductions. There are standard expected ratios and categories. Businesses with unbalanced or odd numbers will set off alarms in their systems.
There is no such thing in 2015 as creative accounting getting past the very sophisticated processes used by the banking industry, to get a commercial or residential mortgage.
The business broker's valuation is no better than realtor's valuations. They are pie in the sky, and that is why most properties sit around, until the important thing, the market price, comes to play.
.

Not net profit, gross sales.
Have you gone to a bank lately to get a loan to buy a B&B? Even just to pick a few brains about what they want to see when you DO apply for a loan? Have you worked with a broker selling B&B properties?
I'm strictly going by what we experienced here, in this particular location, which has a LOT of B&B's and a fair number of banks willing to talk to prospective B&B owners.
I'm basing my statements about what the brokers are telling buyers on what has sold here and for how much in the past 3 years. 2 places sold for a lot less than was paid for them because they did not have the gross sales, regardless of how much the property would sell for as a private residence. (Based on what much smaller homes next door to the inns have sold for.)
Places that upped their game sold for a lot more than they would have as a private residence.
It's really not about the value of the house or the land, altho that can mean a lot to the buyer or seller. It may be the difference between the buyer forking over a larger down payment because they LOVE the property.
You can also use your outside employment to get a non-commercial loan and forget dealing with gross profits altogether. Buy it as a house.
Friends whose biz is still for sale are still for sale because they run a lifestyle business. They have million dollar views but they don't have million dollar gross multiplier revenue. It's a gorgeous property. It would make an excellent 'cottage' for someone looking to live on lovely bit of the coast. But it's not selling for what the property itself is worth as a private residence because it doesn't make enough money. The two things are separate when buying a business.
.

Bank, yes. And they want ALL the numbers, including off the tax returns, to go through the underwriting department.
And any serious buyer will hire a CPA as part of due diligence. And the CPA will be suspicious if profits are too high and tax writeoffs are too low. There is too much information out there to try to clever into an extra $100K by trickery or losing money by not taking the maximum legal writeoffs.
The net profit comment was towards the conversation above. Gross sales is not hindered by depreciation and deduction, so there is no reason to try and hide anything or avoid writeoffs.
.

Yes, the bank does want the tax returns. And we found that the PO's here had claimed the lodging tax as income on their tax returns. Duh. We lowered our offering price by $50k to offset THAT mistake. Mostly because we didn't know then what other creative accounting they had done. Altho, why overstate your earnings and pay income tax on lodging tax??? That's just silly.
However, I do know some sales that went thru without disclosure of tax returns. So, it depends on the bank.
I know you haven't been looking at working properties, but you should, just to get a feel for the accounting principles some folks follow. We were given a sheaf of paper showing all the checks written for the business and told to 'figure it out yourselves' when we asked, repeatedly, for the expenses report. THAT was a big cash biz that didn't come close to being able to pay the expenses they were accruing against the income they stated.
Another time we were told there were no reports for the 2nd quarter (we looked at the property in Sept). They wouldn't be done until year end. OK, how are you paying the lodging tax if you don't know how much you took in?
Other places had a lovely print out, bound, with photos. We kept a couple of those as a template for when we sell.
I think we got lucky. We were pretty naive going into this.

 

[happykeeper]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

What I don't understand is that our EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) tells them the health of our business. GE is not going pass up tax breaks to look good, because their suitor will be looking at their numbers before those are accounted for. At least I think that's how it works.
The 10 to 1 ratio seems plausible but is just one factor in having our numbers tell part of our story. If you remember past comments and some on this thread, there are MANY innkeepers that were led down a primrose path in purchasing an operating inn, something we did not do but now know we would not consider.
Suddenly I have a picture of innkeepers crouching in the corner of the kitchen eating scraps and crusty day old bread so they can inflate profits and sell the yoke around their neck.

Buyer beware if this is considered perfectly acceptable.
Really though, I do understand that an inn wants to put it's best foot forward when going on the market. Managing costs, beefing up the marketing, and increasing net profit are beneficial. I just don't think hiding or ignoring expenses that are legitimate deductions is transparent and ethical. All of that can be shown before EBITDA.
.

Suddenly I have a picture of innkeepers crouching in the corner of the kitchen eating scraps and crusty day old bread so they can inflate profits and sell the yoke around their neck.

Buyer beware if this is considered perfectly acceptable.

Don't be absurd. I never even suggested that a seller even do anything different to the running of the business! I never said cut back on what you offer guests or even spend less than you usually do. I never said don't take time for yourself or you should be like an indentured servant to your business! I really resent you trying to turn my words into something they obviously weren't. What I'm suggesting is that there are some minor adjustments in the way you do some deductions that can make a substantial impact. That's it. Period. End of subject. Take it or leave it.
.

It was meant to be absurd and perhaps funny. It obviously was not. I wasn't attempting to tie you personally to any of that. You have my apologies for implying you are anything but upstanding. It's okay that we see it differently, but not if it offended you.

 

[undersea]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.

I cannot say I agree to this concept. Anyone purchasing a serious business should understand that you aggressively pursue all tax advantages. Trying to fluff it up just winds up costing the owner a lot of money for no reason. That $100,000 is unlikely.
Business is not really "net profit" as people tend to fake it by paying under the table or otherwise misrepresenting. Terms like cashflow, owner's benefit, revenue, sales etc. are what is really used these days more than net profit when selling a business. Biz Buy Sell . com is the main player.
Then when the owner leaves, a lot of sales tend to leave as well.
As a former construction company owner, 5+ rental properties and having done a huge amount of research, I take gurus like this with a grain of salt. From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.
.

From what I see, it is hard to sell an inn for a robust price these days. Trying to get a mortgage, they will look at the appraisal value of the house, owner's income as such as much as anything.

If you work will the big players in the industry you'll find that they have their own calculations which, I think has been mentioned before, look mostly at revenue. If your revenue is $200k, your selling price is probably over $1m. Regardless of what the property would sell for as a residence. Which is why some are finding it better to close and sell privately.
It helps if the property is in good repair to get a quick sale, but the property will more than likely sell regardless.
The multiplier, this year, is 5. It was 7 when we bought.
If your property would sell privately for $500k but you're only making $75k, the buyer's business broker will tell them the business is worth $375k. Period.
The bank looks at what the business is making, not what the owner takes out of it. They look at the track record. They look at the surrounding area's track record. Is this an up and coming market? Is it in decline? What plans do the new owners have for increasing revenue? (I have a list for them to take to the bank.) What experience do the new owners have? What are they willing to put on the table? The bank does not want to own a B&B.
When we did the numbers on every business we looked at, we calculated losing 35% of the previous owner's business. Due either to attrition or caution on the part of the guests. It took several years to get back those numbers.
.

The bank does not look at net profit, that is a fairy tale. They look at everything. As HK said above, there are metrics, including depreciation and deductions. There are standard expected ratios and categories. Businesses with unbalanced or odd numbers will set off alarms in their systems.
There is no such thing in 2015 as creative accounting getting past the very sophisticated processes used by the banking industry, to get a commercial or residential mortgage.
The business broker's valuation is no better than realtor's valuations. They are pie in the sky, and that is why most properties sit around, until the important thing, the market price, comes to play.
.

Not net profit, gross sales.
Have you gone to a bank lately to get a loan to buy a B&B? Even just to pick a few brains about what they want to see when you DO apply for a loan? Have you worked with a broker selling B&B properties?
I'm strictly going by what we experienced here, in this particular location, which has a LOT of B&B's and a fair number of banks willing to talk to prospective B&B owners.
I'm basing my statements about what the brokers are telling buyers on what has sold here and for how much in the past 3 years. 2 places sold for a lot less than was paid for them because they did not have the gross sales, regardless of how much the property would sell for as a private residence. (Based on what much smaller homes next door to the inns have sold for.)
Places that upped their game sold for a lot more than they would have as a private residence.
It's really not about the value of the house or the land, altho that can mean a lot to the buyer or seller. It may be the difference between the buyer forking over a larger down payment because they LOVE the property.
You can also use your outside employment to get a non-commercial loan and forget dealing with gross profits altogether. Buy it as a house.
Friends whose biz is still for sale are still for sale because they run a lifestyle business. They have million dollar views but they don't have million dollar gross multiplier revenue. It's a gorgeous property. It would make an excellent 'cottage' for someone looking to live on lovely bit of the coast. But it's not selling for what the property itself is worth as a private residence because it doesn't make enough money. The two things are separate when buying a business.
.

Bank, yes. And they want ALL the numbers, including off the tax returns, to go through the underwriting department.
And any serious buyer will hire a CPA as part of due diligence. And the CPA will be suspicious if profits are too high and tax writeoffs are too low. There is too much information out there to try to clever into an extra $100K by trickery or losing money by not taking the maximum legal writeoffs.
The net profit comment was towards the conversation above. Gross sales is not hindered by depreciation and deduction, so there is no reason to try and hide anything or avoid writeoffs.
.

Yes, the bank does want the tax returns. And we found that the PO's here had claimed the lodging tax as income on their tax returns. Duh. We lowered our offering price by $50k to offset THAT mistake. Mostly because we didn't know then what other creative accounting they had done. Altho, why overstate your earnings and pay income tax on lodging tax??? That's just silly.
However, I do know some sales that went thru without disclosure of tax returns. So, it depends on the bank.
I know you haven't been looking at working properties, but you should, just to get a feel for the accounting principles some folks follow. We were given a sheaf of paper showing all the checks written for the business and told to 'figure it out yourselves' when we asked, repeatedly, for the expenses report. THAT was a big cash biz that didn't come close to being able to pay the expenses they were accruing against the income they stated.
Another time we were told there were no reports for the 2nd quarter (we looked at the property in Sept). They wouldn't be done until year end. OK, how are you paying the lodging tax if you don't know how much you took in?
Other places had a lovely print out, bound, with photos. We kept a couple of those as a template for when we sell.
I think we got lucky. We were pretty naive going into this.
.

There is a former inn (many BRs) that was foreclosed that I passed on to a business realtor yesterday. It is not listed, so cannot find out who to buy from.
Looked at a former inn/restaurant from 1850s that used to be a stagecoach stop. My Spidey senses were tingling with possibilities, until zoning officer made it clear that its restaurant variance expired (not doing business for > 2 years). What is the point of a commercial kitchen, nice bar, seating area that cannot be used? And little parking. Not make sense, and fully priced.
We looked at a working B&B/retail as I posted last week, but 60 miles from work, and it would bring in significantly more as a rental property. So I consider it about $55K overpriced. Walked through, and am not feeling pressure to make an offer. Sometimes good to let them perk, and the price to come down.
There is a HUGE former inn/conference center empty for many years (400 BR) that is being auctioned starting under 500K. Not foolish enough to ignore the millions it will take to bring it up to all the codes and regulatory stuff. But can dream...
Current leading candidate is a 9000 SF commercial place for under $100K (they bought last year under $30K but had a $250K mortgage). Major mold problems in parts of the building, but it is more than everything I want to do, including beyond B&B. Currently wrangling over purchase price, then will bring in army of mold, roof and septic inspectors. I smell opportunity, if the structural issues are affordably fixable.

 

[Momma Smurf]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.

When we asked questions about food costs, housekeeping costs, landscaping costs we were told 'you may do things differently so those numbers are irrelevant'. Almost everything we asked about was 'irrelevant'. Once we took possession we found out how the PO's did business. ONE tablespoon of this per plate, ONE teaspoon of that, lots of 'community' jam pots, turn off the heat and A/C the moment breakfast is over, never turn the heat or A/C on in your own space 'while you're working', etc.
(All we wanted was a ballpark. We had NO idea how much the food costs would be or what a housekeeper made and how many hours she worked. It turned out she was working 30-40 hours/week in the summer! At $11/hour ten years ago.)
It was a lot of nickel and diming that probably saved them thousands but made us feel like we were servants. So, yeah, we do things differently. As the next owners will do.
.

Hmmmm, we will present all of our Utilities expenses to the penny when we go on the market. But we are born and bred New Englanders, who even enduring 90 degree days in Maryland for 25 years, fought the A/C cult. We have never run A/C in our kitchen nor third floor living quarters. And as children of depression era parents, we keep the entire inn at 52 degrees in the winter when we have no guests, with most of the lights off. It's also are age group (62) tending to be Green conservators of energy. But to each their own, and we feel no obligation to reveal our personal lifestyle decisions to potential buyers when we sell in the next 3-5 years. Simply the concrete numbers without subjectivity.
Although, now that oil has finally dropped back down to those 2006 rates, we will likely nudge the thermostat up a tad.

 

[MtnKeeper]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

I'm with you Breakfast Diva. If innkeepers are going to all kinds of seminars so they can travel, that expense makes the #s look worse. Dinners out, that is my personal expense unless I'm trying a brand new restaurant and I make sure that it's only my husband and me. Same thing with a vehicle - why not put off buying that new $50K vehicle for a year instead of using it as a tax reducer. These are smart ideas, not deceitful tricks. Some owners don't want to pay lots of capital gains so they don't depreciate the building/assets completely, others want to save taxes now so they depreciate everything.
If you're currently closing lots of dates, then it's smart to not do that the year or so you're going to sell. It will show the actual income of the property, not what you wanted as a lifestyle. Then it's up to the new owners if they want to capitalize on the true income or take lots of time off. Do what's legal and right for your business plan/exit strategy.

 

[Momma Smurf]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
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I'm with you Breakfast Diva. If innkeepers are going to all kinds of seminars so they can travel, that expense makes the #s look worse. Dinners out, that is my personal expense unless I'm trying a brand new restaurant and I make sure that it's only my husband and me. Same thing with a vehicle - why not put off buying that new $50K vehicle for a year instead of using it as a tax reducer. These are smart ideas, not deceitful tricks. Some owners don't want to pay lots of capital gains so they don't depreciate the building/assets completely, others want to save taxes now so they depreciate everything.
If you're currently closing lots of dates, then it's smart to not do that the year or so you're going to sell. It will show the actual income of the property, not what you wanted as a lifestyle. Then it's up to the new owners if they want to capitalize on the true income or take lots of time off. Do what's legal and right for your business plan/exit strategy.
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We haven't declared a penny of Depreciation in 10 years.

 

[happykeeper]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
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Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

I'm with you Breakfast Diva. If innkeepers are going to all kinds of seminars so they can travel, that expense makes the #s look worse. Dinners out, that is my personal expense unless I'm trying a brand new restaurant and I make sure that it's only my husband and me. Same thing with a vehicle - why not put off buying that new $50K vehicle for a year instead of using it as a tax reducer. These are smart ideas, not deceitful tricks. Some owners don't want to pay lots of capital gains so they don't depreciate the building/assets completely, others want to save taxes now so they depreciate everything.
If you're currently closing lots of dates, then it's smart to not do that the year or so you're going to sell. It will show the actual income of the property, not what you wanted as a lifestyle. Then it's up to the new owners if they want to capitalize on the true income or take lots of time off. Do what's legal and right for your business plan/exit strategy.
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Of course these are all valid and I am sure BD was only suggesting the same.
I just must be firmly rooted in the "pay no taxes willingly and reinvest your capital gains" camp.
I think where I got in trouble was lumping the legitimate strategies BD was advocating in the same category as those that can be less so. Your examples confirm that.
I think it would be an interesting discussion to talk about the difference between the two.