Inn Consultants and Brokers Since 1993

Rick Wolf and Peter Scherman (that’s Rick on the left and Peter on the right) are both experienced speakers who have presented on a range of innkeeping related topics at the state, regional, and national level. They gather and analyze research for the Innkeeping industry and welcome the opportunity to share it with others. Contact Us

The B&B Team
 

Archive for the ‘Acquisition Strategies’ Category

Take the Fear Out of Learning Innkeeping

May 7th, 2012 by Scott Bushnell

The Class of 2012, Bloomsburg, Pennsylvania, graduated from the “Better Way to Learn Innkeeping” aspiring innkeeping workshop yesterday.  Held at The Inn at Turkey Hill, six attendees spent 3 days at this seminar designed to help those with the innkeeping dream to investigate the path to inn ownership which is often laden with speed bumps, roadblocks and u-turns.

Class of 2012-Bloomsburg, PA

A different mix of attendees, however.  Two of the couples already own the property for their inn (one was purchased recently with the purpose of conversion to an inn and the other couple intend to turn their existing home into an inn).  A third couple were the more traditional attendees who intend to purchase an existing inn.

Because of this different mix which included folks about ready to open their inns, we adapted the typical agenda to also include a more intensive focus on the operations and marketing aspects…info these innkeepers will be using soon.

A thanks to Andrew Pruden, owner and innkeeper at The Inn and the great staff for their service and welcome.  If you get a chance to visit Bloomsburg, the recently opened Pub and Grille was fabulous and their  micro-brews and menu were a welcome Friday night treat.

Lots of laughs…lots of strong interaction…and lots of appreciated feedback on the effectiveness of the workshop.  But one attendee made a comment that I am still thinking about a few days later.  “I’m not afraid anymore, Scott”.  I think this just became another goal of these workshops for me.    Scott

 

 

D is for Due Diligence

April 9th, 2012 by Janet Wolf

Leaping Atticus

Cold Feet

 

Have you ever made an important purchasing decision and then gotten cold feet just before everything was signed, sealed and delivered? Hope not, because this act of retreat can be costly. The reason for cold feet usually results from the lack of doing due diligence. In general terms due diligence is defined as ‘a voluntary investigation and evaluation of a target business of its assets for acquisition’. (Once again thank you Wikipedia for this definition).

It helps to know what questions to ask and where to find the information you need to move forward once you have identified a property you believe you want to purchase. There is a strategic process  experienced hospitality brokers and consultants can guide you through. The B&B Team takes pride in working very hard for our clients and being very diligent and persistent in the ‘digging in’ process.

If you are planning to purchase an existing bed and breakfast you may assume that all the regulatory requirements are current and all information will be provided to you in detail. Well you know the rule, don’t assume anything! Here is a ‘Regulatory Checklist’ we have put together.

1. Zoning Compliance and Issues – Sidewalks/Trees/Permits/# of Rooms/Parking/Signage

2. Health Codes and Requirements – Kitchen/Grease Traps/Serv-Safe/Records/Permits

3. Environmental Concerns – Asbestos/Radon/Underground Tanks

4. Fire Codes and Regulations – Fire Escapes/Sprinklers/Alarms/Carbon Monoxide

5. Governmental Agencies, Licenses and Taxes – Local/State/Federal/Occupancy Permits

6. Americans With Disabilities Act (ADA) – Sidewalk Cuts/Ramps/Room Features

7. Alcohol Licenses and Taxes – Past Taxes Due/Renewable Licenses

8. IRS Requirements – Personal Space in Inn/Filings Done

9. Past Records of Violations and Convictions – ADA/Better Business Bureau

10. Local Historical Agencies – Décor/Design Requirements

One of the most important parts of due diligence that we provide for our clients is a thorough and intelligent set of numbers. You want to know exactly what you are buying in terms of $$$. P&L (profit and loss) statements, number of nights sold, true 365 day occupancy rates, detailed expenses, and tax returns. This is the window into how profitable the business is and how successful or not the current innkeepers have been running their business. Extremely important information for you and for the bank where you may be applying to for a loan. The banks don’t just want to see some of this information, they require it!

Just like in any real estate transaction you want a good building inspection. Again knowing what you are buying. You don’t want to wake up in the middle of the night wondering about the age and condition of the boiler, you want to know how often it has been inspected and serviced and the approximate time you will need to replace it. No surprises, no cold feet from lack of heat. Ha!

Another important part of the process of due diligence is making sure you receive a detailed ‘inclusion, exclusion list’ from the sellers. You don’t want to walk into your newly purchased bed and breakfast and find out the pots and pans have disappeared. Believe me we know of innkeepers this happened to.

Even dogs need warm feet

Warm=Happy Feet

This isn’t by any means a complete list of information that needs to be gathered before your decision can be made on a property purchase. The expression ‘but wait there’s more’ is very relevant here. The B&B Team is experienced in guiding future innkeepers through this process. We know how powerful a knowledgeable buyer is vs. a buyer with ‘cold feet’. We love to warm those tootsies up!

 

 

K is for the 5 Keys to a Strong Business at your Bed and Breakfast

February 28th, 2012 by Scott Bushnell

Marilyn and I had the good fortune this past weekend to work with 9 excited aspiring innkeepers at our A Better Way to Learn InnkeepingTM  seminar held at the Wayside Inn B&B in Ellicott City, Maryland.  What a great group!  We laughed and networked with Bill and Charlotte Schmickle of the Flag House in Annapolis but the real focus was on the KEYS to a strong business at your inn.

  1. Location, Location, Location
  2. Understanding WHO will be coming to your inn
  3. Wrapping your inn AROUND those guests
  4. Think Sunday-Thursday
  5. Being the Best

Each of these Keys can be put on a continuum numbered, say, from 1-10 with 10 being the strongest.  Let’s look at each one:

  1. Location, Location, Location:  This has been the buzzword for any real estate purchase but for a Bed & Breakfast EACH word has a separate meaning:  The first definition is the Macro-location…is the inn located near major metropolitan areas from which to pull guests?  The more population close at hand (gas is getting more expensive!), the higher on the continuum the rating.  For the Wayside Inn, being located nicely in the Baltimore-DC corridor, this inn ranks high on this Location…perhaps a 9.  The second definition of Location includes the area attractions in that region which will draw guests to the area.  And the broader the diversity of attractions (historical, antiquing, entertainment, soft adventures, etc.), the higher the likelihood of drawing folks out of the nearby metropolitan populations.  The third definition of Location is the Inn itself…its attractive location in the town, its curb appeal and its accessibility.
  2. The second KEY is identifying the guests who will be coming to those area attractions…and what their needs would be.  If the attraction is an amusement park or college, children will be coming.  If there are businesses in the area, corporate travelers have particular needs as well.
  3. Wrapping your Inn around those guests’ needs is the next KEY.  Room features, amenities and services must satisfy the needs of those identified guests.  Business travelers need desks, Wi-Fi, multiple outlets, a forgiving cancellation policy, early breakfasts, and NO advanced deposits.
  4. The fourth KEY can often be a difficult one…Thinking Sunday through Thursday.  Any inn can fill up on the weekend, but that is only 28% of the week…an occupancy not high enough to pay all the bills.  Marketing to corporate guests, elder-travelers, quilting and scrap booking groups, or offering discounts to weekenders to encourage them to stay an extra day or two becomes a high priority targeted activity.
  5. Being the Best.  This KEY is what will keep your parking lot full while the inn across the street wonders how you do it.  Investigate what the competition is doing (and NOT doing!) and Beat Them!  Have the best breakfast in town, offer a welcoming warmth that guests enjoy, and make their experience complete.

This dynamic group of aspiring innkeepers heard this important message and are currently defining the profiles of the inns that are RIGHT for them.  Congratulations to all of them as they continue their journey into the world of inn ownership!      Scott

 

T is for Trust…Especially Between an Inn Seller and Buyer

January 11th, 2012 by Scott Bushnell

Just yesterday I received a call from an innkeeper with whom I have had a relationship who was considering selling his inn, a 7 room bed and breakfast inn in a nearby state.  Just what we do!  Thanks for the call!   We opened up a dialog about the inn, its size, its location, discussed the process, and then I suggested he send me a copy of his 2010 and 2011 financials.  You would have thought I was asking for his FBC (first born child).  “I just will not get into the hassles of trying to explain my financials and business with ANYBODY.  Just sell my inn!”  He was adamant and fixed in his stubbornness.

My antennae went up like a dog’s ears at suppertime.  After failing to convince him that this is an important step to understanding the revenue and net operating income of the inn (to help establish its value), we closed our conversation that perhaps the best way to sell his property is as a residence through the local MLS system since a buyer would never be able to get a commercial loan on that property without the bank seeing the financials.  He was satisfied with that…I guess.

But the point is trust.  I lost trust with him.  Was he cheating the IRS and did not want to let anybody discover it?  Were his numbers so poor that I would be trying to sell his inn only on its potential?  Does he even have records?  All kinds of distrustful thoughts went through my head.  I hope all them are wrong.  If a seller, perhaps even unwittingly, withholds information from a buyer, trust is jeopardized, and with the limited number of buyers and the huge inventory of inns for sale, buyers will look elsewhere.  Building Buyer/Seller trust is critical.  So how is it done?

Like a good Boy Scout…Be Prepared!

  • Having complete and accurate records (including taxes…they will be scrutinized during a buyer’s due diligence period)
  • Track occupancy by month from year to year.  A buyer wants to see the seasonal nature of the inn (especially to understand what happens in the slow season).
  • Have a complete Inclusion/Exclusion list of the furniture and fixtures will transfer with the property and what will go with the sellers.
  • For a smaller inn, have a property condition disclosure (available from any real estate agent) prepared.  This is required in many states anyway.
  • For larger inns, consider a Seller’s Inspection completed BEFORE a buyer’s inspector finds any defects (and they WILL find the problems!),  This inspection demonstrates full disclosure of the condition of the inn, provides a report accuracy defense in the event the buyer’s inspector overinflates the seriousness of a deficiency, and leads to a corrective plan to defuse emotions and begin negotiations.
  • Keep your gift certificate log current
  • Open and honest conversations about marketing, buyer’s opportunities, and full disclosure.

When Marilyn and I were looking for our inn long ago (the Dead Sea was only sick back then), the owner of one of our candidate inns pulled me aside and said “Don’t worry about the numbers, Scott.  I put two kids through college on this inn!”.  We left never to return.  If he was willing to cheat the IRS, he was willing to cheat us.

Innkeepers…think about the “surprises” that made YOU angry when you bought your inn.  We’ve all been there.  Think like the buyer of your inn.  What roadblocks can be removed now to build Trust and not jeopardize the chances of a timely and financially rewarding transfer.

Anybody have any trust surprises when you bought your inn?  We would love to hear about them and what could have been done differently.   Scott

Starting a Bed and Breakfast – Dream vs Reality

March 18th, 2011 by Janet Wolf

In a recent blog post I talked about how important education was in the pursuit of starting a bed and breakfast.  My analogy was that taking a seminar as the first step in exploring and learning about the world of hospitality is just like your first steps as a toddler where everything you explore is at a newer and higher level.  Our seminars cover so many important aspects of the bed and breakfast industry that our attendees end up viewing their dream from many different angles.  Reality does not squash the dream, it just brings it into focus.

One aspect of our seminars helps our attendees focus not only on the location of your bed and breakfast but the important question; “Do I/we want to live in that location”? Many people fall in love with a building which may be set on a beautiful piece of land but don’t think of the overall area, town or village which may not meet their personal (or business)  needs. This is just one of many topics we cover. Another is how to assess and value a property.  Quoting from our seminar book, “You MUST understand what you are buying and why, so you will know what to pay.”  We go over, step by step, the process we use in our bed and breakfast valuations. This reality check helps prospective buyers avoid costly mistakes, mistakes we see all too often.  I called these mistakes the “ouchies” in my recent blog.

We at The B&B Team offer our seminars in a wide variety of locations throughout the year. We choose wonderful inns in wonderful locations to host our seminar guests. We have two upcoming seminars, one at The Inn at Turkey Hill in Bloomsburg, PA taught by Scott Bushnell.  The next seminar is in Kennebunkport, Maine at the Captain Jefferds Inn taught by Peter, Rick and myself. Everyone on the team loves to teach and we believe our graduates have a great time while learning.  As you know in hospitality it is all about the guest!  In our seminars it is all about our attendees!  

So which is it, a dream or a reality, in your pursuit of starting a bed and breakfast?  We believe both are equally important, but as a future innkeeper, you can’t have one without the other. The entrepreneurial spirit is all about pursuing your dreams. Go for I, but take that first step and learn the realities or you may have a nightmare on your hands, especially if your location is on Elm Street…get it?

Janet Wolf

Aspiring Innkeeper Seminar at Iris Inn is a Hit!

August 10th, 2009 by Peter Scherman

One of the things we at The B&B Team enjoy most in our work is introducing enthusiastic aspiring innkeepers to the myriad aspects of this wonderful lifestyle and business. This past weekend we had a terrific group that came from as far away as Arizona and as close as a couple of miles from Iris Inn in Waynesboro, Virginia where we gathered from Friday to Sunday. With Delaware, South Carolina, New York, and Florida also represented, it was a diverse group, and, I think all agreed, we had a great time.

Key to our seminars is bringing a strong dose of reality to the table. We know future innkeepers have dreams and aspirations, and we love to support those ideals with facts, figures, and experience gained from many years on the ground as innkeepers, consultants, and brokers.

A core focus of our seminars is the process of building a model. It's both so easy and so hard to simply take a stab in the dark trying to find a B&B, but a focused idea of what business model, location, style, and income needs comprise makes the process of searching for an inn much more efficient and enjoyable.

In our last post here we wrote about The Basics of Inn Valuation, and our attendees got a (mind swirling!) dose of information on what the difference is between commercial and residential real estate and financing as it applies to the Innkeeping world and acquiring or starting an inn. They learned about the role of cash flow in valuation and how the marketplace assesses the different components of inn value.

We also talked about current marketing trends, the importance of branding by creating a unique and memorable experience, and the basics of hospitality as well as some tricks of the trade.

It's gratifying for us to read comments like this: "Fantastic! Current, cutting edge, frank and honest, not sugar-coated to give a false or misleading impression of all the nuts and bolts of running a successful B&B," or "It took some of the intimidation edge off, as far as feeling capable of running a B&B."

As the seminar leaders, Rick, Janet and I especially enjoy dinners with our attendees, where we all have a chance to relax with a glass of wine, get to know each other a little better, and delve into some of the questions and concerns we don't or can't cover in a weekend-long seminar.

Our thanks to all who attended this weekend and to Dave and Heidi Lanford for being such great hosts! We thoroughly enjoyed ourselves and hope it was a rewarding experience for you! With our next seminars coming up in October at Candlelight Inn in North Wildwood, New Jersey, and November at the English Meadows Inn in Kennebunk, Maine, we'll continue with our practice of refining our program thanks to the thoughful feedback from our graduates.

Peter

2009 Inns For Sale Study Released

April 9th, 2009 by Peter Scherman

After much anticipation, the 2009 Inns For Sale Study researched by Hilary Jones of Inngenium, LLC was released at the recent Innkeeping Conference and Trade Show hosted by PAII, the Professional Association of Innkeepers International, in Atlanta.

The study, now in its fifth year, takes a snapshot of the bed and breakfasts and inns for sale in March of the year and breaks the statistics down into several categories by price, size, state, region, and the country as a whole. The core criteria is that the property be currently operating with two or more guest rooms, be for sale, and be advertised in at least one of several primary "inns for sale" websites.

In March, 2009 there was an increase over 2008 of 6.4% in the number of inns for sale across the country, rising to 990 properties. New to the study this year was an examination of how many inns had verifiably sold since the previous study. 82 properties had sold, indicating that there is currently a twelve year supply of inns for sale, assuming no changes and no additions!

On average, despite a soft economy and a devastated real estate market, prices on average were up 0.7% nationwide, though this varied by region and property size. The increase was "1.5% for inns in the 5-10 room class and 10.9% in the 12-15 room class. Prices did however drop for larger inns (17-40 rooms) by almost 2%." Regionally, prices trended up everywhere except in the New England, Pacific, and South West regions. Only the East North Central region remained static.

Another important observation of the study is that inns appear to remaining on the market longer with 21% being for sale for two or more years and 5% still available after three or more years. The B&B Team, sponsors of the study, believe that this 2-3 year time period to sell a bed & breakfast inn is not unusual, but there is clear statistical evidence to support this. Additionally, a large number of properties which are still operating dropped off the list in 2009, indicating discouragement with the marketplace.

In light of the large numbers of B&Bs and inns for sale, The B&B Team believes that the smaller properties, those that would be desirable as residences, should focus their efforts on selling as residential real estate rather than as B&B's. This will increase their owners' chances of a successful sale in a timely fashion. Inns that are viable going concerns should ensure that their asking price reflects what an over-saturated marketplace and lenders will find "reasonable and defensible."

1031 Exchange Warning and Advice

January 21st, 2009 by Peter Scherman

1031 Tax Deferred Exchanges are wonderful when they work, but we've just learned of a financial disaster and believe everyone needs to take note.

Simply put, a 1031 Tax Deferred Exchange is a mechanism whereby a real estate investor can roll over the cost basis from one investment property to another and defer paying capital gains taxes until the last property is sold and cashed out. In a transaction, a third party "qualified intermediary" ("QI") holds the funds from a sale until a new purchase is made following strict IRS guidelines. The QI then pays out the funds for the purchase and receives a fee for their services. The problem is, the industry of exchanging is not regulated, and here's what happened to clients of The B&B Team.

They sold their inn. Proceeds of sale went to a qualified intermediary per the rules. They had 45 days to designate new investments and 180 days to settle. After 45 days they hadn't found a property to buy, so they asked for their funds back, only to discover that there was no money! "It seems that he [the QI] invested client funds in Lehman Brothers auction rate securities probably as long as a year ago. When that market froze, he started funding exchanges with new client money (otherwise known as a Ponzi scheme). By the time we were to be funded, there wasn't any cash left."

This is an unmitigated disaster for these folks, and apparently there are a number of exchange companies recently that have filed for bankruptcy, so others have been hurt by similar schemes and problems. But don't throw out the baby with the bath water. There is a solution to protect yourself.

Our client goes on to say, "If someone wants to do a 1031, they need to make sure that the agreement states that their funds are to be kept segregated in an account in their name (very important) and that they specify how the funds are to be invested. In addition, they need to make sure they get copies of the bank statements. If the amount is more than FDIC covers, they might want a surety bond for the difference." To support this, our client adds that "The only one getting their money back so far is someone who did the above. The court ordered an immediate release of their funds."

In a time of greed and uncertainty, there seems to be no shortage of unscrupulous people. But bad behavior doesn't make a system wrong. It's people who are flawed, and people who can learn lessons. We hope you'll make note of this warning and advice about 1031 exchanges, so you can both take advantage of the great tax benefits inherent in them and protect your assets in the process.

Peter

Bed and Breakfasts and Property Values

October 23rd, 2007 by Peter Scherman

Any time a new bed & breakfast is in the planning stage, there are inevitably regulatory hurdles to surmount. Often times the neighbors have to approve, or at least not object too vehemently, to secure approval from planners and local elected officials.

Over the years many people have asked us about studies that show the positive impact a B&B can have on a neighborhood, especially on property values. However, to my knowledge, there are none. It would be a long term, gargantuan task to gather the information and would require enormous amounts of historical research. The evidence, however, is empirical and widespread. It’s the old "keeping up with the Joneses" mentality. B&Bs are invariably the nicest house on the block and generally serve to cause the neighbors to want to bring their own property up to comparable snuff, thus improving the neighborhood generally and property values specifically.

Clients of ours have held open houses to invite the neighbors and have personally invited local officials for private tours to explain the planning and the positive impact the B&B will have on the area. We have written letters of support and have even spoken on our clients’ behalf at public hearings. Fortunately, more people today know what a bed and breakfast is, though there are still some who think they are like the boarding houses of the past.

With a clear plan and a smiling face, you should be able to convince the people who matter most that your bed & breakfast will be a great asset to their community.

Peter

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