Archive for the ‘Viability of an Inn’ Category

Chinese Checkers, Starbucks and B & B’s: a winning strategy

Monday, March 28th, 2011

I like to play Chinese Checkers with my 6 year old grandson, Brody.  That’s the game where you move your marbles across the board and try to be the first one to get them into the spaces on the other side.  You can move a marble one hole at a time, or, you can set up strings of “jumps” to move one marble quite a distance.  My longest is 6 jumps.  But Brody seldom jumps.  He prefers to move his red marbles one at a time…keeping them altogether and only makes a single jump if the move still keeps his group of red marbles together.

When processing this strategy, I realize that it is not important for Brody to win.  He prefers to keep them all together…in one group…and not having a single marble stray from the group.  It’s really hard to lose to him…sometimes I have to jump backwards to lose ground to let him win.  But he loves to play.  He is focused less on winning (an outcome) …and more focused on the pleasure he receives by being methodical and orderly (his strategy).

Katie Couric recently interviewed Howard Schultz, CEO of Starbucks, to discuss the company’s new strategy of retail products in the grocery store.  When queried about the 50% drop in stock price this past year, Mr. Schultz made a statement that explained the failure… “We saw our growth as our strategy…not as an outcome” .  Rather than focusing on their core values of customer service and quality coffee products, they strived only for growth and expanded the company too quickly.  They have since closed over 600 of their less productive stores to get back to their values.

Both of the above stories of Chinese Checkers and Starbucks reveals an important lesson for us innkeepers.  We often focus on the growth of our bottom line (important…but it is an OUTCOME, not a strategy).  The strategy to achieve the desired outcome is to stay focused on those core values that are important to our guests.  Our guests seek the full experience of the stay.  It’s not just a room with a bed anymore.

If a guest is a history nut and asks for directions to the nearby battlefield…listen and think:  “What can I do to go BEYOND the question to make his experience more complete?”  Rather than just giving directions, do you have the National Park Service brochure and map to give him?  Did you buy the park’s Audio CD for your guests to take on an auto tour?  (He won’t buy one for a one-time visit…but YOU can use it dozens of times!).  Do you have a 10% discount coupon for their gift shop?  Can you loan him your digital camera to take a photo of his family at the park to use on your blog page or to print out a copy for their refrigerator door?

We can make our hospitality and concierge services a major part of the full experience by thinking BEYOND their immediate needs and anticipating those extras that make the experience complete and memorable.

As innkeepers, we are all good at this stuff.  We just need to make sure we stay focused on our hospitality strengths as a strategy to get to the outcome we all desire.    Scott

   

Posted in Building Relationships as a Marketing Tool, Financial Health of an Inn, Inn Operations, Inns and Innkeepers, Market Trends, Marketing, Uncategorized, Viability of an Inn | No Comments »

A Valuable Service for Lifestyle Inns

Saturday, November 20th, 2010

In the last couple of posts, I have speaking of Lifestyle Inns…those inns that are either too small or in a weaker location to be viable.  They are the Backbone of our Industry.  About 2/3 of the B&B’s in America are Lifestyle Inns

The Chocolate Turtle, Corrales, NM, a four guest room Lifestyle Inn

according to the PAII industry studies conducted over the last decade and more.  They are the personification of what the leisure traveling public imagines when they hear the term bed and breakfast.

Up until now, Lifestyle Inns, when considering their exit strategies, have had few options.  The most common avenues for selling a lifestyle inn is a FSBO (For Sale by Owner), which has its pros and cons depending on the skills and time availability for the owners, or to list with a local residential real estate agent who usually does not understand how to market a small lodging business, does not know how to value a lifestyle inn, and is not familiar with the intricacies of the unique lodging industry.  I had a local agent representing a buyer call to set up a tour of an inn for 9am on a Saturday morning…convenient for her buyer, but terribly out of the question for the innkeepers up to their ears with breakfast, check-outs, and turning the rooms for that evening’s check-ins.

Limestone Inn, State College, PA, a 5 guest room Lifestyle Inn

But The B&B Team® has recently announced their Lifestyle Inns Program™, an alternative for Lifestyle Inns that offers the professionalism of industry-experienced consultants and brokers to help with an inn owner’s exit strategy.  Bushnell & Bushnell Services, an affiliate member of The B&B Team® is proud to be working with a number of Lifestyle Inns across America.

So what’s in it for you?

  • You benefit from our deep cumulative experience as innkeepers, brokers, and consultants with our commitment to ethical practices
  • You get results-focused professionals…this is our livelihood, not a hobby.  We succeed by helping you achieve the results YOU want
  • You receive unvarnished, credible valuations…important for you since an overpriced inn will just sit and sit on the market and an underpriced inn leaves money on the settlement table…both undesirable outcomes.
  • Your inn is presented with a superior (we feel the best!) Buyer’s Offering Report to properly represent the quality of your inn
  • You receive our Commitment to Client Communications…you will actually hear from us to keep you informed of progress
  • You benefit from our leading industry presence
  • Your inn will be featured on the most informational websites in our industry.

Finally…an alternative of significant value for the Lifestyle Inns of America!  …especially in the current economy where results-focused professionalism is critical.     Scott

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The Operations of a Lifestyle Inn…Thinking Big when You are Small

Friday, October 22nd, 2010

In the last posting, we talked about the definition of a Lifestyle Inn, typically too small or located in a less-than-optimum location to be viable, but which comprise the Backbone of the B&B industry.   The smaller inn has some advantages and some disadvantages over their bigger brothers when it comes to the operations side of inn ownership.

Being smaller usually limits the amount of help the inn can afford.  3-5 rooms often means doing it all yourself.  6-8 rooms may allow for some part-time help with housekeeping and laundry or sitting the desk.  Such intense and time-consuming involvement by the owners in a 24/7 environment can take its toll.  Taking care of yourself to prevent burnout is a topic at nearly every convention.  I received a call yesterday from some lifestyle innkeepers in Kentucky who are nearing the end of their toleration rope.  Advice in this situation?

  • Find that “rhythm” of the inn…the daily routine that manages your time for you.  If housekeeping after breakfast and check-outs is done by 1 pm, take a nap, or sit and read, or enjoy a hobby until the check-ins start strolling in that evening.
  • Force yourself into days off.  It is an easy temptation to take your “day off” and catch up on emails, or paying the bills, or shopping.  Before you know it, the day is over and it’s time to get back to work!  Get off for the whole day…play golf, visit the museum you send your guests to, or catch a movie with friends.
  • Alternate time off. If you are a couple, plan time for one person covering the inn while the other takes some time off.

Answering the phone is not only interrupts your work, it is too important to ignore!  Having a message that promises you will return the call between certain hours not only has the likelihood of NOT losing the reservation, it allows you to exercise good time management in order to get things done.  Some phone services can be engaged who will answer for you and are professional allies in the battle against interruptions.  Dave Balderson, owner of  the 6 room Wayside Inn in Ellicott City, MD., is a strong believer, and user!, of such a service to allow for evenings off.  He’s a believer, and is now way past the average innkeeper turnover rate of 7 years.  Answering 24/7, even if it is not YOU, makes you look big in a small lifestyle world.

Smaller inns may not have the conference room space or facility for corporate retreats and meetings as do the larger inns.  But marketing to the smaller groups, the birders, quilters, scrap-bookers, local garden club, or the Red Hat Ladies offers these smaller groups a venue they cannot afford (or that the larger inns even want) elsewhere.  And it’s a great way to get the big-time exposure in the community of your presence as a lodging alternative for visitors.

The website of the small inn can level the playing field even against the Big Guys.  The Chocolate Turtle in Corrales, NM, a 4 guest room Lifestyle Inn owned by Dallas and Nancy Renner, won the Best Website competition in all of New Mexico…even beating out the Marriott and other mega-names in the lodging industry.  This is a primary contributor to their incredibly high occupancy rate.  A small inn’s website needs to “think big” in its style, its format, its functionality, its photography and its Search Engine Optimization effectiveness.  Gone are the days of having your website, designed by your high school daughter, with photos of the bed in each room (guests want to see MORE than just a bed), with backgrounds of mauve, harvest gold, and avocado.  Think Big, and up-to-date, with your website.

Lifestyle Inns, and there are about 15,000 of them in the US, have a predominant role in the lodging segment that we all enjoy.  Their success as a smaller inn can depend on them thinking like the big guys!      Scott

Posted in Financial Health of an Inn, Inn Operations, Inns and Innkeepers, Marketing, Uncategorized, Viability of an Inn, Websites | No Comments »

The Lifestyle Inn… the Backbone of the B&B Industry

Sunday, October 17th, 2010

According to the PAII Industry surveys over the last decade or more, about 2/3 of the inns surveyed have consistently had less than 8 rooms.  The 2006 survey indicates 7.66 is the average sized inn and the 2008 data, offering medians instead of averages, reported a median of 6.0 guest rooms and suites.  In the last few years, a definition has evolved in the consulting side of the industry that has identified these smaller properties as Lifestyle Inns.  The name came about as an alternative to Viability, the moniker for an inn that is large enough and located in such a strong marketing location, that it can provide enough Net Operating Income (NOI) to support the value of the Real Property assets…ergo, viable.

A Lifestyle Inn is one that, although not viable as a self-supporting business, offers the LIFESTYLE to the innkeepers… one of the personal rewards of inn-ownership.  Usually there is some other source of income to help sustain the small business (the 2006 survey indicates that 83% of owners of 1-4 guest room B&B’s RELY on outside income and it shows 61% for those inns with 5-8 rooms).  Perhaps a pension, perhaps one of the owners has a career outside of the inn, perhaps they have owned the inn long enough to not have a large, if any, mortgage, or perhaps the owners are blessed with other income producing assets to help pay the bills, including the mortgage, of the small inn, but they rely on some source of outside income.

I am not suggesting that there is anything wrong with being a Lifestyle Inn.  On the contrary, these smaller inns are the backbone of the B&B industry.  They have woven the very fabric of the definition of a B&B.  When the leisure traveler thinks of a B&B, they reflect on thoughts and memories of a beautifully maintained, perhaps historic property, creatively landscaped, romantic rooms and room features, and a breakfast that tantalizes the eyes AND the palate.  Lifestyle B&B’s have created the getaway release of which people dream and yearn.

Lifestyle Inns have created the very definition of a growing alternative for the American leisure travel industry.

More to follow soon about Lifestyle Inns.    Scott

Posted in Financial Health of an Inn, Innkeeping Consulting, PAII, Uncategorized, Viability of an Inn | 1 Comment »

Tax Time means Exit Strategy Time

Thursday, January 21st, 2010

I hate this time of year when the thought of doing taxes pops into my mind several times a day, especially with all the reminders that bombard me.  H & R Block commercials, 1099′s and statements arriving in the mail, commercials of the scams of companies that can reduce your tax burden with the IRS.  W-2′s showed up yesterday from my payroll service.  AAAACCHHH!

But it is time to also self-reflect on an innkeeper’s plans to exit the Bed & Breakfast scene and understand the TIMING of that exit.  I have been a proponent of the 5 Year Plan to exiting the business, and the first 3 years is to ensure your taxes are clean and clear.  When you are in the due diligence process, the buyer’s representatives and lender will want to see 3 years of taxes…and you will want them looking spiffy!

Marilyn and I were innkeepers and fully understand the emotional pull to reduce income taxes each year.  There is definitely the temptation to expense (instead of capitalize) that new roof or charge up some restaurant visits as inn Travel & Entertainment expenses.  But if you plan on selling your inn within the next 5 years, there are preparations to be taken NOW to ensure the selling price is what your property deserves.

It all boils down to increasing Net Operating Income.  The value of your business activity is based on how much NOI your inn’s performance delivers.  At the “rule-of-thumb” cap rate of 10%, a $10k increase in NOI can result in a $100,000 increase in sale value.  Sacrificing a few short-term tax bucks for the big benefit is well worth the effort!

Here are a few ideas to improve your NOI:

  • Remove personal expenses from inn expenses, such as supplies and food
  • Report all revenues, including cash sales
  • Only pay yourself what you need…but have something in there.  If there is no payroll included in the expense report, a lender will insert some, perhaps too much, and reduce NOI.
  • Consider whether you are overstaffed and can reduce unnecessary payroll labor and associated withholding expenses.
  • Keep depreciation, income taxes, rent you pay yourself and other legitimate expenses in your expense schedule to avoid a buyer’s lender from inserting too-high estimates.
  • Capitalize major renovations and equipment purchases rather than expense them.  Your accountant can help you with appropriate practices.
  • Of course, do NOT let your marketing practices falter.  Keep increasing Occupancy and ADR!

I hate this time of year too.  But thinking ahead and keeping your financial records in order will grease the skids when it is time to exit the business.    Scott

Comments?  Do you have other NOI increasing ideas?

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Viable Inn vs. Lifestyle Inn…a tough question

Thursday, August 20th, 2009

Is a VIABLE Inn or a LIFESTYLE Inn Best for you?

As an aspiring innkeeper, one of the more difficult decisions to be made is viability vs. lifestyle.  A viable inn, usually an inn with 8 or 9 guest rooms or more, is one that has enough cash flow to pay not only the operating expenses, but the debt service (mortgage) as well.  A lifestyle inn is usually a smaller inn, perhaps even very busy and popular, but does not have enough cash flow to pay the mortgage.

One Choice is Not BETTER than the other!  They BOTH can offer the Rewards of Inn Ownership!
The BIG QUESTION becomes “Do You Need to Make Money?”

If the answer is YES, then viability of an inn becomes a priority for your search and part of your inn profile.
If the answer is NO, then a lifestyle inn may be just the ticket…the joys of inn ownership at a smaller inn.
Financial considerations for a lifestyle inn include the size of the down payment and whether there is outside resources to help pay the bills.  A smaller inn typically does not require much staffing which helps keep expenses down, and, if someone is working outside of the inn, the need to pay for health insurance and other corporate benefits may not pose a expense burden.  And the rewards can be very satisfying!  The inn may even make enough to pay the usual household bills (utilities, phone, food, insurance, etc.) and ease the pain of the mortgage.

A good example of a lifestyle inn  is The Limestone Inn, currently for sale at $595,000.
Located in The Limestone InnState College, PA., only 4 miles from Penn State, the inn enjoys the privacy of being out in the country, but close enough to corporate businesses and the campus to do a strong business.  But the inn only has 5 rooms which limits its ability to make enough to pay the full mortgage.  But with over $50,000 of revenue for each of the last 3 years, the inn can easily pay its bills with a good size chunk of cash flow left over to take a dent out of the mortgage payment…an ideal lifestyle inn in a great marketing area.

Grape ArborAn example of an affordable viable inn is Grape Arbor B & B located in North East, PA.   This inn, currently for sale for only $845,000, with 8 rooms, all with private baths, with its 33% occupancy, is large enough to be able to pay the bills AND the mortgage.  It is ideally located in the Chautauqua-Lake Erie Wine Trail region within easy reach of the Buffalo, Cleveland, and Pittsburgh marketing areas.  Compared with The Limestone Inn, the additional 3 rooms helps bring in the extra revenue to be viable.

Both of these inns offer the rewarding experience of inn ownership.  Both are not necessarily huge inns, and may be managed by a single person, with perhaps some part-time staff help, or by a couple.  Size of the inn is typically the primary determining factor when considering viability vs. a lifestyle inn, and, when coupled with the marketing location and potential to attract guests to the area attractions, either inn can offer the enjoyable experience of owning your own B & B.       Scott

Posted in Aspiring Innkeepers, Inns and Innkeepers, Uncategorized, Viability of an Inn | No Comments »

What is the Highest and Best Use of YOUR Property?

Wednesday, July 15th, 2009
The title phrase above about the highest and best use describes a real estate appraising term often applied to the B & B Valuation process as well.  Use is the operative word.  Using Wikipedia’s definition, the concept states that the “value of a property is directly related to the use of that property; the highest and best use is the reasonably probable use that produces the highest property value. This use, the Highest and Best Use, may or may not be the current use of the property.” (my emphasis applied)

This affects a LOT of inns.  Some inn properties may have a higher property value as an alternate use.  A smaller property may have a higher value as a residential property…and many small inns have sold recently as homes.
Some inns are restricted by codes (typically zoning and special use permitting) to provide all of the services they would like to offer…thus restricting revenue and profitability growth.  These inns may have higher property value as another use…perhaps an office building or assisted living facility.

Many inns are currently enjoying the highest and best use of the property. It is reasonably likely that these viable inns have the highest property value as currenlty being used as an inn.  Their value, therefore, can be established by a properly detailed valuation as a going concern as an inn.

Most innkeepers do not want to hear that their “baby” is worth more with an alternate use.  But these economic times are clearing the air about value, and what level of loan to value (LTV) the lenders will support, and a clearer understanding of highest and best use.      Scott

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The Bed & Breakfast Inn Life Cycle-A Primary Care Consultant’s View

Wednesday, March 18th, 2009

Vitamins and Medications for an Inn’s

Age-Related Conditions

An Inn, like any retail product or industry, goes through a Life Cycle from infancy to death. It starts as a glimmer in its parents’ eyes, a dream of a lifestyle healthy and productive. It grows with careful nurturing, education, and aspirations, matures into a productive adult, capable of self-sufficiency and satisfaction. Physical and financial ailments will emerge someday, some sooner than later, but eminently all will experience the pain and, without exception, a slow (or sometimes cancerous) downhill slide (or plummet) to demise.

Doctor: “Which do you want to hear first…

the good news or the bad news?”

How cold and ugly a picture…how uncaring to express such a prognosis without apparent feelings or emotions! But without a continued regimen of properly prescribed vitamins, medications, and regular health check-ups, an inn’s health WILL decline. That’s the bad news.

The good news is that there are fountain-of-youth-like medications that can extend an inn’s life expectancy well into the future…perhaps to immortality!

Let’s examine each stage of the Life Cycle to see where YOUR INN resides…

Bed & Breakfast Inn Consulting, Life Cycle (more…)

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Posted in Financial Health of an Inn, Inn Operations, Innkeeping Consulting, Marketing, PAII, Viability of an Inn, Websites | 1 Comment »

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