Performing Due Diligence And Making An Offer

When you are making an offer to buy your B&B, be sure to perform due diligence like looking for evidence of termite, examine the books, hire a home inspector to conduct buyers pre-sale inpsections, and verify zoning. Develop a game plan for making an offer and negotiating the deal. And be prepared for the search and negotiations to take time.

       The Forbes article shared seven tips for buying seven-figure homes. The information is pertinent for buying a B&B of any price. Forbes' seven points are to get a good agent, get your finances together, make contingency plans, look for termites (conduct Due Diligence), what's next door )more Due Diligence), prepare to negotiate, and take it easy. In the March issue I discussed the first three points from the article. This month we'll cover the remaining four points.

4. & 5.) Look for termites, etc. What's next door? Let's call these two points Due Diligence. Inspect the inn for not only termites but also wear and tear beyond what you are willing to accept and that the various mechanical/electrical systems work appropriately. Keep in mind that you aren't buying a new building (most of the time), but also remember that some innkeepers don't focus on inn maintenance, and catching up the deferred maintenance could cost plenty. You don't want to pay their top dollar if you then have to tend to deferred maintenance issues..

Examine the inns' books. Hire an accountant familiar with business accounting, and preferably B&B accounting, to review not only the books but also the tax returns. Be comfortable with the cash flow. Know what you are getting, as best you can.

Investigate with the local government what rules and guidelines are on the books that will impact your future plans. Can you expand the building and business the way you dream of? How will that be affected by the fire, ADA, parking, and health codes, for example? Can you serve alcohol to your guests? Will you be allowed to host meetings, weddings, or other special events? Does the gift shop you have planned need anything special to be legal?
Investigate future plans for surrounding areas so you don't have surprises later. Are there major road changes planned that will impact your business? Will future zoning regulations affect your ability to run your business or sell the inn? Confirm that you can run the B&B as you want. Check around. Look at more than the B&B itself.

6.) Prepare to negotiate. I believe that you should do your homework and then make your best offer, but the world wants to negotiate. Given that tendency, once you are ready to write an offer, decide how you want to play the game. Since you probably will negotiate, don't present your best offer initially unless you feel there are other interested Buyers -- in which case the game is to get in quickly with your best offer. The downside of making a lowball offer is that it might be summarily rejected. Then when you go back with your second offer they think they have the upper hand and might feel it's still not your best offer. Be prepared to counteroffer and find a reasonable compromise. Getting a sense of the Seller's motivation to sell will help you in this process. It's not always easy to determine their real motivation, though many innkeepers gladly share some of their reasons for moving on.

7.) Take it easy. It can take months even years, to find the right B&B, so pace yourself. I have heard of innkeepers looking at hundreds of inns before finding the one they want. Most innkeepers don't look at that many before finding a B&B that will satisfy their dream, but you might as well be prepared for "the worst".

       Hire a Inn Broker to help guide you through these steps. An Inn Broker knows both the B&B industry and the Inn real estate industry. Knowing the B&B industry helps them evaluate the inn for your situation, the price and the cash flow, and can connect you with other industry professionals. Knowing B&B real estate helps them be alert to zoning issues, local regulations, and other real estate professionals who can be valuable assets in your acquisition. Avoid the trap of thinking you'll save money by not using a Broker, much less an Inn Broker. There's much more to buying a B&B than buying a house, and having expert guidance can save you time, money, and heartache. It's not uncommon for both Buyers and Sellers to think they can save money by not using a Broker. The reality is that Buyer and Seller can't both save the commission, and the Seller is typically in more of a position to save the commission than the Buyer. But why try to save money on such a complex and important transaction? I have seen many sad and unfortunate B&B sale transactions that could have been avoided if the Buyer and Seller had used B&B Brokers. I have seen lawsuits come from some of those transactions -- an inconvenience, expense, and distress that nobody needs.

       In summary, develop a team of professionals who will guide you through your search, research, and acquisition. Having such a team will ease the stress and risk to you. Start your team with an Inn Broker, add a Hospitality Attorney, and then collect accountants, inspectors, and lenders. Your winning team will ease the transition to innkeeping so you can move from dream to reality.