When the time comes for you to jump into the hospitality business, I urge you to consider the following before settling in on a final offer price for the inn of your dreams.
1-Hire professionals to conduct your due diligence of the business’ operations: the books, marketing programs, policies and procedures. Ask the sales agent for a spread sheet of what the business has achieved over the past three years, and what conservative projections look like for the next three years. ( 2 – 3% growth targets). You what is their cash flow. Then figure out what the amount of your new monthly commercial loan payment will be, (unless you’re a cash buyer), and determine if the business can support it.
2-Be sure to calculate what expenses could be removed from the existing operations without harming the business or guest’s services. Take out the fat.
3-How strong is the Inn’s occupancy rate and can it be increased in realistic increments? What is your three year business plan for increasing revenues?
4-Be realistic in considering what repairs and refurbishments will be necessary once you take over. Put a fair cost to these items.
5-Here’s something of utmost importance to remember: When the sellers tell you about all the potential income the Inn could generate, ask the question: “Then why hadn’t they already done it themselves?” DO NOT pay for potentials. Potentials’ costs and sweat equity are all on your shoulders. Pay for what exists, not what could be. You should look at potentials as if they were myths.
6-What amenities does the Inn offer its’ guests? For example, since Cape Cod has a cold winter season, if you are considering being open year round, do the rooms offer the kind of luxuries that your clientele demands? Specifically, are there fire places and private baths in each room, and do they have Jacuzzis? The wrong product offering, even in the best of locations, will point to sure failure.
7-What is your exit strategy? Are you in it for the long haul? Do you plan to sell at a certain period of time? Unless you consider where and when you are going to end up, you’ll be relying on dumb luck to maximize the Inn’s value. If you have a clear strategy as to when, and for how much you wish to sell the Inn, you can work backwards from that end and make the wise decisions during your stewardship that will point you to your goals.
8-Are the sellers willing to finance a portion of the sales price? Would they consider a Lease Purchase Option? Either of these measures could alleviate any cash flow stress you might experience in the first few years while you’re busy getting the Inn looking and operating the way you want it.
9-And the most important consideration of all is to make certain that you love your owner’s quarters as much as your guests love your Inn. You need to feel whole when operating this eighteen hour a day business, and you must have a desirable escape where you can pamper yourself too. I can’t emphasize enough the need for spacious owners’ quarters that allow you to live the life you’ve become accustomed to, and to enjoy the same comforts that you offer your guests. A place where you can shut off the world. You’ll feel miserable if you buy a luxurious Inn and don’t take advantage of the amenities yourself. Don’t make the mistake of skimping on yourself and living in a dank basement, just to increase revenues, it will wear on you.
Innkeeping is a wonderful business if you enter into it for the right reasons. Be well prepared, and keep your eyes wide open. It can be a very lucrative venture, be ready to enjoy the great lifestyle that it affords!