Contrary to popular opinion there is lending money available. Its availability is for prime buyers and properties, even more so now than ever before. It’s your challenge to make sure you are in one of those categories if you want to make the change that has you reading this article.
Let me share three different consulting jobs I’ve been involved in recently. The idea is to share information that can make your innkeeping situation the best it can be.
My most recent buying clients had the wind knocked out of their sails by the numerous severe hurricanes the Gulf Coast has suffered in the past few years. They were ready to go to a less volatile location and bed and breakfast innkeeping seemed like the perfect change of career and lifestyle for this couple. So they called me.
My first suggestion to every aspiring innkeeper is to take “how to” seminars, and this couple already had plans to do so. They also bought my Buying Series ebooks and some of my consulting time. It seemed to me they were off to a good start.
As many aspiring innkeepers do these people started sifting through the online listing for their perfect B&B. They found lots of lovely inns across the country. None of them really fit these buyers’ reality (read that as available investment, suitable climate, and mis-matched business style) though, so my challenge was to take the stars out of their eyes and the rose-colored glasses from their faces. That’s never easy.
What came out of our discussions was that to me these were desperate buyers, they found desperate sellers, and were going to jump before completing their education. Warning! That’s not the way to approach buying a bed and breakfast. It’s an especially bad idea if you are going to put your life’s savings on the line with your decision.
Lessons to share from these buyers:
- don’t rush into shopping or buying for your B&B
- buy a turnkey business, not a business opportunity
- buy today’s reality, avoid buying blue sky
- do your homework thoroughly
- listen to your heart as well as your brain
- hire professionals to help you, and listen to their advice
My personal lesson, which I seem to relearn with every client is to continue to offer my best knowledge and insights, and then let go of the results. It’s not for me to take credit for innkeepers’ successes or failures. It’s for me to learn from each job so I can continue to provide the best I can.
I don’t yet know what these buyers have decided to do, but time will tell. I hope they make the best decision for their situation. They either will have to live a long time with their decision or tend their wounds from a bad transaction.
Once in awhile I have the joy of working with a client more than once. A valuation client came back for an update to see if the improvements to the property and cash flow would garner a listing price the innkeeper could live with. The building and operation changes were good and will have payback in a few years, but not yet.
What I learned in going through the new numbers was the innkeeper was trying to make the bottom line look better by reducing expenses. While that can be a good move, if it’s an indication of improved efficiencies, it can also be a bad business move or just a smoke-and-mirrors move. In comparing the previous valuations with the newest one it seemed to me not much had changed for this innkeeper since buying the inn.
Let me remind you of some business basics.
- don’t cut your advertising budget unless you are getting great free publicity, and then still think twice about cutting the budget
- in slow times you may want to actually increase your advertising budget
- keep your building and furnishings in good shape, avoiding deferred maintenance
- remember that payment to yourself doesn’t go into calculating NOI, regardless of how you get paid
- focus on building income at least much as on reducing expenses
- consider building several income pillars to bolster your bottom line
- don’t over improve the real estate improvements so that you aren’t upside down in your cash flow when it’s time to sell
- it takes at least three years to build a viable business
Buyers and financing are available for strong businesses. Work at making your B&B a viable one so when you are ready to sell you can get a good price. A “good” price is one where you get your investment out and some profit. Make long-term decisions for building your business and watch long-term results reward you.
Back when I was a B&B Broker I approached one innkeeper several different times as buyers I was working with expressed interest in that very kind of inn. Each time she turned me down. Now, I appreciate not being ready to get out of the business, but make sure you are giving it your best and enjoying the process if you are going to stay an innkeeper.
This particular innkeeper never really enjoyed innkeeping and didn’t build the business very much. It showed too. And then life happened. Health issues made it imperative to sell quickly, but the innkeeper continued making bad decisions. The inn is still on the market after several years. Between a high price and a badly run inn this innkeeper’s market is slim.
When you find you don’t really like innkeeping be willing to let go, especially if a buyer knocks at your door. Just because you haven’t done what you dreamed of doing with the business don’t turn away from a serious buyer. Run the business as if tomorrow could be the day you have to sell. When you do have to sell put a “today” price on the inn, not a “next week” price. Your dream selling price may not be a reasonable purchase price. Properties that are on the market for too long get stale and buyers and agents tend to avoid them.
Don’t stick to your inn longer than your time, if you don’t want to be stuck with it long past your interest.
Buying and selling are the flip side of the same process. Approach the side you’re on this time with business savvy. Avoid greed and desperation. Go for long-term decision making. And take those rose-colored glasses off so you can see the world as it really is, not just how you want it to be.