4. Know the metrics of the industry.
To know whether a particular B&B is priced appropriately, you need to learn the valuation metrics of the Innkeeping industry. Financially viable inns sell on average with a gross revenue multiplier (GRM) of approximately 4.5x. That means the price divided by the revenues is in the 4x – 5x range. If it’s 10x, the numbers won’t work. That’s just one of many metrics that you should understand.
5. Know what you have to work with.
If you are going to finance the purchase of an inn, figure you’re going to need around 25-percent as a down payment. Your capital can come from home equity, other investments, or retirement funds (like your 401k). Multiply your capital by 5 and don’t even consider anything more expensive.
6. Know the revenues and cash flows from the business.
Just looking at a price isn’t enough. Two inns of the same price aren’t necessarily equally affordable. Sometimes more expensive is more affordable thanks to the cash flow. So, before “looking at” an inn, get the numbers. You might save yourself a trip.
7. Understand how inns are financed.
Depending on what you are buying, the type of loan you get will vary. If you’ve bought and sold homes, you know you can be “prequalified” to buy a home of a certain price. In the commercial world, until you know the cash flow from the business, you won’t know if you can afford that inn. Commercial financing is different from residential, but people get commercial loans all the time. Don’t be afraid!
8. Understand all the benefits of ownership.
Owning an inn, especially one where you live onsite, has many economic benefits. You have a roof over your head, many expenses are paid for by the business, your guests are paying off your loan, and you have cash in your bank account. You’ll pay less income tax on that cash because you own real estate and depreciable trade fixtures (furnishings). So, the amount of “salary” you “need” is actually a lot less than you imagined. And your total return on investment can be very attractive.
9. Have an acquisition plan.
Put all the parts together by becoming informed. Know what you need vs what you want, where you want it, how much you can afford, and have a method for searching for possible acquisitions. Don’t fall in love with a picture. Get the facts, then go.
10. Work with a qualified and experienced professional.
If you are going to invest your life savings in becoming an innkeeper, work with someone who knows the industry and who will listen to your needs and put your interests first. As a team you can get there! This is a good step toward ensuring that your career as an innkeeper will be happy and profitable.