Buying a business: Bed & Breakfast businesses
More of a lifestyle than a business, we look what it takes to buy and run a B&B
If you like the idea of really being at home with your business, then running a B&B could be perfect for you. From a guest's perspective, a well-run B&B can be more comfortable than a hotel, offering homely surroundings and a relaxed atmosphere. They can be a home-from-home and a welcome respite for weary travellers.
A B&B is different from a hotel in that it's generally more basic. You will offer a bed for your guests to sleep in, and a full breakfast before they check out. No gyms, no health spas and no concierge service. It is also different in that your home is at the centre of it.
“It's different from other small businesses in that it's domestically based and you're living with the business,” explains Janet Beale, who runs The Bed & Breakfast Business course in Kendal, Cumbria for people wanting to start their own B&B. “The majority of our students live in their home. We address the issue of having your domestic privacy invaded, as the business becomes interwoven with daily life.”
Who is it suited to?
Given that you are effectively opening your home to strangers, you are blurring the edges between your business and your home life so you need to be confident and happy with the arrangement. To a certain extent, it's a creative profession: you have to enjoy cooking and making your accommodation as pleasant and welcoming as possible. It's also something of a lifestyle business, a job that many people will undertake with their partners.
Beale, who has also run her own B&B since 1991, says that what stage your family's life is at is important: “It's difficult with small children, as their needs for breakfast and so on occur at the same time as your guests. Even if you have a separate flat that you live in, you still have to have a bell to be on call.”
There are two stereotypical images of the B&B. One is the basic boarding house of old, when taking a holiday was a luxury. The other is the idyllic country cottage with rose gardens and cream teas on the lawn.
Although both do exist, the B&B has to cater for a wide variety of needs and can therefore be whatever you want it to be. You may want to cater for the luxury end of the market. You could also cater for those on a budget, though. They're two very different businesses.
Before you race down to the estate agents, there are a few things you need to consider: for one thing, you will need a considerable amount of capital. If you buy your business in November, it may give you plenty of time to get ready for the start of the season in April. Good going. Just remember that this is almost six months without any income.
You also need to have sufficient space. If you want to have a four-bedroom business you should look for a six-bedroom property so you have enough space for yourself. “You should try to keep a part of the house yours,” says Beale, “ideally you need a bedroom and a private sitting room.”
Although it's always impressive to see a row of stars or crowns on the sign outside, you don't need to sign up to bodies such as the Tourist Board, the RAC or AA who run such rating systems. Businesses go from being ‘listed' to having five stars or crowns. The ratings ensure cleanliness, room and washing facilities. It's purely optional, but Beale has this warning: “They lead the industry in terms of style in as much as people come to expect TVs and tea and coffee making facilities in their rooms.” It can do your business harm if you don't sign up.
It's also worth thinking about what size of business you'd like. Six to 12 bedroom businesses are popular. If you have slightly bigger ambitions, many former care homes are coming on to the market and being converted into B&Bs.
But the larger the business the more likely you are to need help, which means wages. Wages mean more money and more hassle. If you are looking for more of a balance between work and life, smaller businesses allow you to do the beds in the morning and have the afternoons free.
Because B&Bs are popular, especially in places such as the Cotswolds, then they sell very quickly. This is a factor to take into account before you enter the market, says Simon Wells from Robert Barry hotel agents in Cirencester: “Many people ring up expressing an interest in properties when they haven't even put theirs up for sale. You need to sell your house and get that under your belt. Live in rented accommodation if needs be, so that you can take the time to find what you want.”
Rules and Regulations
You should check with the planning authority, given that you may be changing the purpose of the building from purely residential to business.
Depending on how many guests you can accommodate, you may have to register with environmental health officers. With four rooms or less you should be okay. Any more and your kitchen will have to be inspected.
“They look at food safety and check that your kitchen is in line with the law. You may have to make substantial changes,” Beale explains. This is particularly worth bearing in mind given that your kitchen may just be your standard domestic kitchen, possibly ill equipped for the many breakfasts you may have to prepare each day. You may have to go on a course to help you. In a worst case scenario, you can be closed down if your business falls below standard.
Fire regulations also need to be met, again depending on the size of your business. If you are a large establishment, you may be advised to fit fire doors and fire escapes, emergency lighting and planned escape routes. Even if yours is a smaller business, if you have an attic bedroom you will need to contact your local fire department. At the very least you will need a fire extinguisher and fire blanket.
How much does it cost to buy a bed and breakfast business?
B&Bs are not the cheapest businesses to buy. This is because they are often vast Victorian villas with numerous bedrooms. The successful ones are often situated in beautiful but expensive locations like the Cotswolds and historic towns around the country.
“It's not like buying a house and going for a mortgage where they just look at your salary, lend you between two and a half and three times that and away you go, ” explains Lindsay Edwards, a director at Walbrook Commercial Finance, which specialises in hotels and leisure facilities. “The majority of buyers are first timers, with a variety of roles in life. When we approach lenders with a plan with the clients' help, they're looking at your background. In this case, presentation is nine tenths of the law.”
When you go and see the bank, they'll want to see a CV for all partners involved, your account history and recent accounts for the business itself to see whether they've dipped recently. Your business plan needs to address how the property looks in the current owners' hands, its state of repair and location.
“Is it near to major routes? How long have any staff been working for the owner? In terms of marketing, you need to say what you would do to build on the trade. Also, what skills will you apply, if for example you're a keen cook. These are all things the bank will need to know,” says Edwards.
Banks will judge each case on its merits but they can provide up to 70% of the purchase price. “You will need to bring 30% for the ingoing costs. You will also need 5% of the purchase price to cover legal fees, stock, stamp purchase, business valuation and admin fees. Brokers only charge a fee on a result. Therefore, 35% should be sufficient – it depends on the business you're buying,” advises Edwards.
The costs involved in buying a large B&B can seem staggering. And the more beautiful the area and the building — the more secure the business prospects — the more you can expect to pay. But try to put the figures in context. If you buy a freehold, your bank may stump up 70% of the premises costs; then you've just to supply the final 30% plus another 5% or so for costs.
Tax-wise, a B&B can prove to be very efficient – a spin-off from living on the premises, expenses such as daily newspapers which you may buy for your guests but may also read yourself are certain ‘hidden' advantages. However, the taxman is aware of this, so don't get too carried away.
The amount you spend on interiors and furnishings will depend on what kind of market you want to attract. If you want to style your B&B as a ‘luxury retreat', then cheap nylon flooring, army blankets and economy sausages will not go down well. Axminster carpets, goosedown duvets and the best Cumberlands most definitely will.
Once you're up and running, your costs shouldn't be that high, as apart from utilities, breakfast should be your primary cost.
You may find it worth considering buying a bed and breakfast business in comparison with our guide on how to start a bed and breakfast business from scratch.
How much will I earn?
How much you earn will in some ways depend on your financial situation upon going into the business. Simon Wells of Robert Barry hotel agents explains: “It depends on how much you borrowed, some people can have quite a bit of money swilling around from the sale of their property. They may want to be their own boss and top up the pension. You may be in the position where from time to time you can just put up your ‘No Vacancies' sign and go away for a few days.” Wells has also found that in cases, bed and breakfasts can be sold for up to 11 times what you made with it.
Again though, a lot depends on where your business is based. According to Wells, there are certain ‘honeypot towns' where all year trade is pretty much guaranteed. These are towns such as Bath, Stratford, Chester, Oxford, Cambridge, Edinburgh and Canterbury. Outside these towns it won't be quite so good in the winter season.
Your pricing strategies may also depend on your location, the time of year and what day of the week it is. As Wells explains: “In Bath and Stratford, they may charge £75 for a double room during the week and £125 at the weekends.” This is largely because of their popularity as a weekend destination. In conference towns such as Harrogate however, the reverse may be true, as you'll be aiming to capture the week's corporate trade.
Lindsay Edwards, director at Walbrook Commercial Finance adds: “At B&Bs in somewhere like Bath, which has an extended commercial base, they're more like hotels with between 12 and 15 rooms, with very good returns. If you take anyone else on, your wages should be low.” For the sake of your health and sanity, if you have more than eight rooms you may want to advertise for extra help.
You will need to look closely at the B&B business' accounts. If the turnover has been going down you need to think about why you are buying it. You may be the one to turn it around, but it won't be as easy as buying a healthy business.
“You can make up to a 50% return of the turnover. A major expense can be wages but if it's just a husband and wife team then you avoid that,” Edwards says.
It's a good idea to contact the local tourist office, which should be able to advise you of the turnover levels and the visitor numbers for B&Bs in their area.