How to Start & Run a B&B BandBED2eBook-1 | Page 65

Back in Chapter Three, we talked about how essential budgeting is and how relatively
simple it can be while still being invaluable. Budgets are the “what if?”, crystal ball
version of accounts. Think of it as a mirror – in theory, if all goes to plan, your
accounts should be identical to your budget. Of course, the once certainty is that they
never will be – but that is not the point. The point is that budgeting is necessary to
help you set your course, quantify your targets and maintain the discipline you need on
costs, margins and sales. And for the same reasons, having put together a budget it
would be nonsensical not to record the “actuals” to see how you have done in relation
to your targets. Those “actuals” are your accounts.
So you need accounts to manage your business long-term, as well as to satisfy the
taxman. The discipline of producing accounts forces you to confront any self-delusions
you may be clinging to about your business. We all do it – businesspeople are human,
and usually passionate about their businesses, and so often have stubborn “blind
spots”. You may be sure that cutting your prices by 5% was the right decision –
bookings went up, after all. But your accounts will show the reality of sales and profits
in the cold hard light of day. Sometimes it is uncomfortable – your pet theory may be
proved wrong, or your business may actually be less profitable than you thought while
all the sales were coming in. But the alternative – blissful ignorance, steering the ship
blindfold – is always worse.
And there is another good reason for keeping good accounts. As and when you decide
to sell your B&B, your accounts may make a big difference to the price you can get.
Think about it – what is a buyer buying, other than the physical property itself? What
he is buying is a “revenue stream”, or the capacity of the business to generate money.
This revenue-generating capacity is known by accountants as “goodwill” – a homely-
sounding word, but a vital one for any seller of a business. This is the added value that
you are in effect asking the buyer to pay you for. If he just has your word that you
have been selling quite well for a few years, he is unlikely to pay much. If you have
clear and well produced sets of accounts for each year you have been trading, backed
up by bank records, receipts and invoices, then you have “proved” your sales and
profits and thus can command an appropriate price for the “goodwill” in your business.
The best thing of all from your point of view is to have a set of successive accounts
showing good steady, consistent increases in sales and profits, because that
demonstrates to a buyer that what he is paying for – which after all is the future of your
business, is worth more than the present or the past. But more of that in Chapter Six,
when we come to selling your B&B.
The two most common ways of accounting for B&Bs are as a “sole trader” business, or
under the Her Majesty’s Revenue and Customs (HMRC – the new name for the Inland
Revenue) “Rent a Room” scheme. The latter is suitable for small-scale B&B businesses
– basically you can receive up to £4,250 B&B income a year tax-free, but you can’t offset
any costs against your income. The following explanation is from HMRC: