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.
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!