another area where running a B & B is a complication to the usual property sale process .
It seems obvious , but a business ( like anything else ) is only worth what you can get a buyer to pay for it .
So you will never actually know the true value of your business until you start getting firm bids , and ultimately until you sell it . However , different types of business have their own widely recognized yardsticks for valuation and , whilst by no means foolproof , these are useful . When you start to think ahead towards selling your B & B , you should certainly look at these yardsticks , as they are the best means you have of gauging the likely value of your B & B .
The best financial valuation of any business is in relation to its sustainable profitability and return on investment . “ Sustainable ” means the ongoing level of profitability which a new owner could rely upon given a realistic trading forecast based on established patterns , and having allowed for any anomalies the current owner ( ie , you ) may have injected in the “ profit and loss ” figures . For example , if you have always done all the cleaning and laundry yourself , this will have kept your costs down and flattered your profit figures , but a prospective owner may feel this is unsustainable , and allow for higher future costs in cleaners and laundry bills , and therefore lower “ sustainable ” profits .
Conversely ( and this would help your sales pitch ), if you have always farmed out the laundry and cleaning at great expense , you could point out how much a new owner with more time could add to the sustainable profits by doing these things in-house .
A widely used method of valuing businesses uses a “ price to earnings ratio ” ( p / e ratio ). Different business sectors have different p / e ratios , which in the case of sectors featured on the stock exchange are easy to find . If shares in a particular sector tend to be valued at say six times earnings , then roughly speaking a business in that sector is worth six times its earnings ( ie its sustainable profits ), all else being equal .
It would be nice to be able to quote a “ p / e ratio ” for B & Bs but unfortunately , for very small property-based businesses , the other variables ( location , condition , property valuation , the state of the property market , interest rates etc .) are so important that any such figure would be meaningless .
This “ sustainability ” concept also shows how important a well-documented record of trading figures is . Where a business has just started , and valuation will be based on hope or wishful thinking , but where there is a solid record of sales , the valuation can be solid , too . And because businesses are valued on future expectations of sustainable profits , a record of steadily growing sales and profits will greatly improve the valuation of that business ( just as a record of decline will greatly reduce it ).
A hospitality business like a B & B , though , has an added complication , which is that it is not just a business but also a property . Whereas its value as a business is limited to an accepted multiple of its sustainable ( or possible future ) earnings in revenue from its
How to Start & Run a B & B www . howtorunabandb . com