Wednesday, July 4, 2018

What about buying an inn that USED to be in operation some years ago?



 The former inn - which is really just a house now without any business vs. an existing inn or going concern


This is a question buyers ask me regularly. And the appeal understandable...the home likely already has the private ensuite baths you want, has the owner's quarters, there wouldn't be much in terms of renovations required (unless it's in a state of disrepair) to start back up, other than maybe decor, linens, kitchen wares, guest soaps, shampoos, dry goods, food, cleaning supplies, etc? What about the expense of a new website, reservation system and the marketing costs? And then the insurance, real estate taxes, business license? And what about the mortgage? And utilities? Landscaping and snow removal? These are fixed costs that you'll have from the start, without any revenue coming in. And don't forget about the attorney fees and accounting fees in the initial stages related to forming your business entities, etc. You can see how it can quickly add up.

After some time, you hope to have revenue coming in, but will the revenue in the early stages cover the expenses AND mortgage?

That's what the bank is going to ask. The bank isn't in the game of risk. They're also not in the game of innkeeping, should you fail. They'll look to you, the buyer, to put a greater amount down and have quite the stock of cash reserves at the ready.



But as a buyer, you aren't without risk either, even if you have the cash required. Although it once was an existing B&B, who can guarantee if it can pick up where it left off? Or if it can get back in the game and compete with the others in the area who never closed their operations? It may take a while to grow your guest database and keep them coming back as your new repeat guests. And you may assume that you'll attract the guests who used to stay at the inn back when. But they may have found new places that became their new go-to inns. 

And what IF you aren't able to get the business up enough to cover your expenses for a few years? 

Doesn't it seem that unless you have the finances required for what we really consider a startup business, isn't it less risky to buy an existing inn with a long financial history that you've reviewed with your advisors? On the other hand, often with high risk can come high reward. It just takes the funds to back such an acquisition. It's only money!

If you want to discuss the financials a bit further, don't hesitate to contact me.

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