Entering Innkeeping, Part 4

After all the research you’ve done, you’re ready to get down to finding your perfect property, one that will help you fulfill your personal entrepreneurial dreams. It's all about location. This is a real estate investment. As in all real estate, its location will greatly affect the results of your decision. There are generally three options for the acquisition of a B&B/Inn property. You can:
• An existing B&B or Inn Purchase
• Renovation/Restoration of an existing structure
• Build to Purpose

Purchasing an existing B&B or Inn can be the easiest way of acquiring your business.
• There is no development time because the business is operating.
• Licenses, permits, zoning are in place along with staff, and operating policies.
• Since there is immediate cash flow through the sale of rooms, there is minimal operating cash required compared to alternative acquisition methods.
• With a financial history, financing is often times easier, especially if an eager seller is willing to finance at least part of the sale.
The disadvantages of purchasing an existing business are limited, but should be carefully considered.
• You may prefer to make significant changes to the physical structure. It is not uncommon for physical structural changes to create an unanticipated financial strain on a new business.
• Even if you're happy with the structure, new ownership may bring about required changes of the property. Certain building code provisions that might have been overlooked in the past, may well have to be addressed with new ownership.
• Since you are buying an ongoing business, there will be a comparatively higher per room purchase cost for this option.
• An ongoing business may have an image problem of which you are unaware. When you buy an existing business, you buy all of it, the good, the bad, and the potentially ugly.
Renovation/Restoration of an existing building is a very popular option. Many of us are drawn to a beautiful old building that needs some tender loving care. Adaptive reuse of historic structures is particularly popular in historic districts.
• There is an unlimited choice of buildings that can use your tender loving touch. Choosing this acquisition alternative allows you to create your vision of your B&B/Inn in the framework of adaptive reuse.
• It may allow you sweat equity in the renovations.
• Since you are not purchasing an ongoing business, there will be a lower per room purchase cost than the purchase of an existing business.
• You should expect significant appreciation when you decide to sell.

However, with that creative license comes the headaches of renovations.
• Cost overruns and missed construction deadlines.
• You may find yourself in the middle of a zoning war with your neighbors.
• Since you're developing your business from the ground up along with your building, there will be higher operating capital needs for the marketing and business development costs.
• With no financial history, financing this new business will difficult and comparatively expensive.
• Renovations can be particularly stressful.

Building to purpose can be a visionaries dream.
• You get to choose a perfect location.
• The design of your B&B/Inn can be focused on your target guests' every want and desire.
• The list of guest amenities can be limited only by your imagination. Fireplaces, whirlpools, guest room size, ceiling heights, accessibility, private gardens, the choices can be endless.
• You can design for efficient use of your square footage, and efficient staff time and operating costs.

With all of that flexibility comes a price tag.
• Construction time seems to always take twice as long as projected, and during all of that time you will be personally involved on a daily basis.
• Your equity requirements will be particularly high because there is no business financial history and you will have to develop your buildings, business, and marketing plan.
• All of those wonderful amenities will create a high construction cost per room and might get out of hand.
• Because this option is the most likely to get out of financial control, it is the most difficult to finance.
• Will require the most operating capital of all the options.
• Is the most stressful of all options.

There you have it, three paths to consider. Will you look for an existing business, adapt a building to suit your business, or build your facility from the ground up?

Next week we’re going to take a look at the analysis of your business venture as you explore your different business options.