According to a recent report in USA Today, "Commercial bankruptcies are surging. Fewer people are starting small businesses, and firms already open are struggling under changing consumer habits, a lack of funding options and tougher bankruptcy laws."
Two bed and breakfast industry experts, Rick Wolf of The B&B Team and Howard J. Levitan of Quantum Hospitality Group, offered some advice for anyone who is currently considering buying a bed and breakfast.
"Overall, this is a great time to consider buying a B&B," said Wolf. "Having said that, there are some fairly significant points to be made along the way."
The Basics Remain Vital
Among those "significant points" are some basics that never change. "Buyers today need to be concerned with exactly the same things today as yesterday," Wolf said. "Due diligence is the key. Full, complete, and accurate financials should be readily available."
Levitan agrees that paying attention to the basics is crucial: "The key to buying a B&B has always been location," he said. "Destination locations have greater occupancy and thus stronger businesses. You need to do real due diligence about the historic financial performance of the inn, and particularly whether the inn has a strong repeat and referral guest base."
But there are some unique aspects to buying a bed and breakfast when the overall economy is sour.
"Loans are more difficult to come by, especially with larger money-center banks," Levitan said. "Smaller, local or regional banks have money to lend but are extremely cautious."
Wolf agreed that community banks have money to lend but are being very careful. He added that potential buyers can help themselves by understanding "the metrics that lenders are looking for in terms of debt coverage ratios, credit scores, and down payments."
Levitan and Wolf both said that lending programs available through the U.S. Small Business Administration are worth exploring.
The B&B Real Estate Market
Wolf pointed out that "because many buyers' liquidity for a down payment, closing costs and reserves will come from the sale of their home, there has been a natural slowing of B&B sales" in the current economy.
Fluctuations in the real estate market, however, tend to affect smaller bed and breakfasts much more than larger inns.
"Real estate prices do have an impact, but usually only with those bed and breakfast inns which are not stand alone businesses," Levitan said. "The usual rule of thumb is that it takes about eight rooms for a B&B to become a self-sustaining business which can cover all of the expenses for a two-person team of innkeepers working full time at the inn. Smaller operations would likely require additional income, such as a pension, or one person working outside the inn."
"Smaller B&Bs tend to go in and out of the business depending on the strength of the real estate market," Levitan added. "When things were booming, many smaller B&Bs in strong real estate markets went back to being single family homes."
Wolf agreed that smaller bed and breakfasts, which he described as "lifestyle" inns, tend to be more affected by fluctuations in the real estate market. "One needs to look at the property and determine whether the value of the real estate exceeds the value of the business," he said. "A good example might be a three-room inn on or near the water. This is a property that might easily be sold as a private home because of its size and location."
Larger inns, Wolf added, have higher revenue streams and "might be better valued as a business. ... These are businesses and when run properly, make money, cover their expenses and provide a wonderful lifestyle for their owners. These are the inns that will, when well run, continue to grow and be the backbone of the industry."
The Importance of Marketing
Anyone considering the purchase of a bed and breakfast today needs to look well below the surface. An inn's electronic marketing efforts are one key area that may not be immediately obvious.
"If the inn is not at the top of its game with electronic marketing, both web-based and email varieties, it simply is not worth as much," Levitan said. "Savvy innkeepers are well into marketing via blogs and a variety of social media like Facebook and Twitter."
Wolf put it this way: "This is not just an industry about pretty rooms and making muffins. The really successful innkeepers today are savvy marketers, are involved with social media, understand today's contemporary traveler, are in tune with travel trends and niche marketing strategies, ... and are thoughtful and creative in their approach to hospitality and running their business."
Tools for Asprining Innkeepers
The Professional Association of Innkeepers International, recommended by Wolf and Levitan, is an excellent source of information for prospective innkeepers.
In addition, Quantum Hospitality Group and The B&B Team -- along with PAII and a number of other companies and organizations -- offer seminars specifically designed for aspiring innkeepers.
"We sadly see far too many instances where well-intended people felt they could do it all themselves," Wolf said. "And too often with disastrous results."
"Prospective innkeepers really have to think long and hard as to whether they have the skills and strengths to run an inn business," Levitan said, "or perhaps they would just prefer to continue to enjoy visiting them."
Many more tools for aspiring innkeepers, including a series of worksheets, are available on this site.
