Michigan State University Extension
Tourism Educational Materials - 33420136
06/06/02
Developing a B&b Business Plan Part 2
STEP FIVE
Forecast Sales Revenue
After determining the market potential, you should make a
monthly estimate of the room revenue for the first year. A
good forecast estimates sales revenues over a three-year
period broken down as follows: first year - weekly; second
year - monthly; and third year - quarterly. The room sales
forecast is very important to the profit planning process-
--it is also very difficult to estimate with certainty.
Review your estimate repeatedly for accuracy, then develop
strategies to increase revenue and profit. Without good
sales forecasts, you cannot realistically plan expenses
and make financial commitments.
Sales are calculated by multiplying the number of rooms
rented during a given period (days of operation) by the
average room race. Occupancy measures the percentage of
available rooms rented at a given time. Area B&B
operators, the American Bed and Breakfast Association, and
reservation service organizations may supply important
information concerning occupancy. Keep in mind that
factors such as the season of the year, time of week, and
weather conditions affect occupancy.
The major variables affecting occupancy during your first
year of operation will probably be your location, the
amount of travel through your area, the attractive
qualities of your B&B, and the amount of promotion and
exposure you have received.
A few B&Bs have had all the business they wanted the first
year, while others did not have a single customer during
their first six months to a year. But, there are no hard,
first-year occupancy figures available. Informal reports
from operators in different locations suggest that an
average occupancy ranges from 10 to 25 percent the first
year. B&Bs in rural areas usually have a relatively high
occupancy rate because hotel/motel construction is not
feasible in rural areas. Promotion, favorable
word-of-mouth, and repeat customers may increase occupancy
by perhaps 10 to 15 percent each year for the first three
years.
To project income you need to:
* Determine preliminary room rates.
* Investigate your situation carefully. Use judgment and
knowledge of the area gathered from hotels and motels, the
chamber of commerce, a reservation service, national,
state and regional B&B associations, etc. Talk with
several B&B operators in similar situations about their
occupancy/marketing experience.
* A nine-state survey of B&B establishments conducted in
May, 1990 by CenStates Chapter, Travel and Tourism
Research Association and the Department of Hotel,
Restaurant and Institutional Management, Iowa State
University, showed that the occupancy ranges during the
slowest month and the busiest month varied widely by
state. Mean occupancy during the slowest month ranged from
5 to 13 percent, and during the busiest month ranged from
24 to 48 percent.
* A realistic occupancy percentage during the first year
for many rural B&B locations without resort or major
attractions has been 10 to 25 percent. With advertising,
repeat guests, moderate competition, and favorable self
and word-of-mouth promotion, occupancy should increase to
about 25 percent the second year and perhaps by another 5
to 10 percent the third year.
TABLE 5-1.
Example of Income for a 5-room B&B Inn
1st Year 2nd Year 3rd Year
Average Room Rate $60. $60. $70.
Yearly Occupancy 15% 25% 40%
Days Open 365 365 365
Yearly Room Income $16,425 $27,375. $51,000.
* Annual revenue is projected by multiplying the number of
rooms by the room rate times the number of days open,
times the occupancy rate plus additional sales. (See Table
5-1).
* Additional Sales
Services, such as:
- transportation
- guided tours
- child care
- laundry
- mending
- meeting/banquet rental space
Retail sales, such as:
- catering extra meals, luncheons, or off-premise (if in a
licensed kitchen)
- baked goods
- crafts
- antiques
- books
The sales revenue is based on room rate, occupancy, and
the number of days open. It is a key estimate because it
serves as the basis for almost all other estimates you
make. It is vital, therefore, that occupancy and income be
proJected in a realistic way---not just picked out of the
air. Revenue projections must be based on facts and
well-thought-out assumptions. It is critical that you know
the anticipated time between start-up and the time you
reach occupancy break-even. You may need to refer to a
book about break-even analysis, a hospitality accounting
book, or an accountant.
Goals of Step Five:
1. Apply your knowledge from researching the market; and
make realistic assumptions, taking into account the travel
volume to your area and your competitor's occupancy
percentage. Make goals for:
* first year - weekly
* second year - monthly
* third year - quarterly
2. Make assumptions based on everything going right.
3. Determine how much lower revenue would go if everything
went wrong.
4. Determine how sales could be increased, and by how
much:
- promotion and advertising
- personal selling
- word-of-mouth
- quality services
- retail sales
- other
5. Project the time between start-up and reaching
break-even occupancy.
STEP SIX
Choose a Location and a Building(1)
A common saying in the hospitality industry is that the
three most important factors for a successful operation
are "location, location, and location." Ideally you would
select a location by geographical region, a city within
that region, an area within that city, and a specific site
within that area. However, few prospective B&B hosts go
through that process of site selection. Most B&B operators
already have a location in mind based on personal
preference for a certain climate or a hometown where
long-time friends could help raise money and draw
customers. However, prospective B&B hosts should balance
personal preference with business sense. Because the two
do not always coincide, it may be necessary to compromise.
In selecting a location and building, ask yourself why you
prefer a particular area. Does the home match your
expected customer profile? To select the best building and
location, list the items that require minimal time and
expense and those that require extensive time and expense.
The ideal location of your B&B would be close to main
traffic routes and year-around, high tourist destinations.
Find out where tourists like to go, and locate there. An
attractive country setting with little competition is also
ideal. Unique features are valuable (but not compulsory),
such as a historic building with antique furnishings.
An important criterion for selecting your location is that
the environment meet your needs and those of your family.
Consider factors such as climate, the size of the city,
the recreational, social educational, and cultural aspects
of the community, availability of health care services,
employment for your spouse, and distance from relatives.
Before you commit yourself to a particular location and
building, you should examine the zoning, fire, and health
requirements that pertain to them. The cost of coming into
compliance with such requirements may preclude the
possibility of operating a B&B business there. See
"Inspection Checklist, A Guide for Buyers and Owners of
Vintage Houses" for questions to consider in the selection
of a building and its location.(2)
Buying Considerations
If, after answering the questions in Appendix K, you are
seriously considering buying property to start a B&B,
there are a number of factors to consider and verify.
Hillestad points out in his paper "B&B Acquisition and
Opening Costs," that your initial building will likely
range between $50 and $150 per square foot, and that you
will need 4,000 to 7,000 square feet for a typical
10-bedroom inn. Renovation by a licensed contractor will
cost approximately $20 to $70 per square foot.
Additionally, Hillestad suggests, "If you are going to
restore a historic structure, you should obtain the
services of a special architect and contractor experienced
with preservation techniques, which are vastly different
from new construction techniques." References and the
Better Business Bureau should be checked also. To be
eligible for tax credit, you need to follow the Secretary
of Interior standards for a historic building used for
commercial purposes.
In his paper "Preventative Law For Innkeepers -
Contracts," Hillestad suggests that you include several
contingencies in any contract such as availability of
financing, approval from all government entities, and
condition of house such as mechanical systems and
structural components. It would be worthwhile to pay
someone and get a written report to make sure everything
is in working condition and that you have adequate
utilities. Other items to check for are back taxes, title,
and a property survey.
Be sure to research the site's zoning classification and
those of the surrounding properties. If zoning laws do not
permit accommodation facilities, find out whether a
variance or a change in zoning can be obtained.
Estimate the chances for objectionable future development
such as noise producers, and examine factors that could
limit expansion. Also find out about expected road and
highway development. Review restrictions on the placement
and size of signs. Also be sure to check the asking price
and tax burden because these costs will ultimately be
reflected in the room rates. Analyze the deed to see if
there are site easements or other restrictions.
Goals of Step Six
1. Realistically evaluate your location.
2. Evaluate the location as a place for you and your
family.
3. Determine, if appropriate, the factors to research and
verify in buying your B&B property.
4. Determine, if purchasing property, the specific
contingencies to include in your contract.
5. Integrate the location, building, and concept.
__________________________
(1) Even if you have already selected a location and
building, this step can help you evaluate your choice.
(2) Published by the Old-House Journal, 69A Seventh
Avenue, Brooklyn, New York 11217.
STEP SEVEN
Develop a Marketing Plan
Your marketing plan should derail exactly what you want to
accomplish, factors that may affect marketing efforts,
resources available in the community, specific groups of
potential guests most interested in your B&B and
strategies to attract them, objectives for each market
segment, an implementation plan, a budget, and a method
for evaluation and change. Keep in mind that marketing is
an ongoing process and that promotional activities must be
continuously carried out.(1)
Look upon your property, its architecture, decor, and
pricing as your product package. Think of all the lodging
alternatives in your area as competitive products sitting
on a shelf next to yours. Then imagine travelers as
consumers with a wide range of tastes, incomes, and
interests. You need to examine the market, decide to whom
you are going to sell, and then direct your marketing
toward attracting those consumers. Step Four, "Determine
and Research Your Market" provided the information to
determine what segments of the market offer opportunity.
Design your market strategies so that your market will
notice your B&B. In this step you will determine the best
way to tell your market about your B&B and the best way to
price it right. You need to develop a series of strategies
that satisfies the special needs, desires, and behavior of
your target markets. Then evaluate each strategy in terms
of cost, effectiveness, and benefits (return).
Importance of Image, Name, and Word-of-Mouth
The personal image you project and the reputation of your
B&B can make the difference between success and failure.
You need to promote yourself as well as your B&B. You will
be judged on how you dress, walk, speak, and interact.
Your attitude of caring and ability to make guests feel
special will produce repeat and referral business. A good,
lasting impression can be created by 1) front desk
personal and telephone contact with guests; 2) the name of
your B&B, your logo, slogan, and sign; 3) the design of
your stationery and business cards; and 4) the
eye-catching brochures and confirmation cards.
Coming up with a catchy name, one that sounds good, piques
people's curiosity, and tells something about your B&B--
-is an important marketing consideration. The name alone
can help generate customers. A consumer's decision to
select a B&B may involve actually visualizing or imagining
what it may be like to stay in the B&B. Try to choose a
short name, failing early in the alphabet, with a lot of
imagination associated with it.
B&Bs grow stronger by personal recommendations of
customers and friends. Consumers generally ask trusted
friends where to find a good B&B. It is the quality of the
total B&B experience that makes the customer appreciative
and talkative. Prospective owners/hosts need to be aware
of how critical word-of-mouth public relations are in the
growth of their B&B, thus one of your most important goals
should be that every customer have an enjoyable
experience.
Marketing Strategy (Mix)
The marketing strategy, or mix, should be viewed as a
package of offerings designed to attract and serve the
customer. Both external and internal marketing mixes need
to be developed for different target markets. You need to
develop ways to enhance the quality of the overall trip
experience including 1) trip planning and anticipation; 2)
travel to the B&B area; 3) the experience at the B&B; 4)
travel back home; and 5) recollection. Focus attention on
the experience desired by the guests and also the
facilities, lodging, food services, and events that will
produce these experiences.
Guidelines to External Promotion
Follow these guidelines to receive the best promotion for
your money:
*Promote only to the market segments that are most likely
to find your B&B attractive and satisfying.
*Become a member of the Chamber of Commerce, the Better
Business Bureau, and the nearest Convention and Visitors
Bureau. Find out if you can advertise in their annual or
seasonal mailings. Volunteer to give presentations on the
B&B business at local clubs and community gatherings.
Become active in civic and community groups and offer your
home as a meeting place to build rapport and cooperation.
Provide rooms for charity auctions. Invite the community
to an open house. Consider purchasing advertising space in
local Chamber of Commerce brochures and specialty
publications on local activities such as skiing and
hunting. When buying ad space, compare prices based on
cost per thousands (CPM) of readers reached.
Become the local tourist promoter and expert. Develop a
reputation as an involved member of the community who
provides quality, personal service at a fair price. Help
develop promotional literature on the history, seasonal
events, and unique features of your community.
To objectively evaluate your property and its
architecture, imagine that you are a traveler driving by
looking for a nice place to spend an evening. Through
membership in a national, state, and regional B&B
organization you may have the opportunity for joint
publicity and advertising.
* State and regional directories published by your State
Department of Tourism and Bed and Breakfast Association
are very effective.
* An attractive brochure is an important marketing tool.
Relatively inexpensive brochures need to be developed to
provide information about your type of experience, unique
features, location, bathroom arrangements, getaway
aspects, rules, nearby restaurants and recreational
activities, and sightseeing ideas. Make sure the brochure
fits into a business envelope, is rack size (approximately
4 inches wide by 9 inches long), and has good rack
visibility. Be very careful to select images and words
that will represent your B&B in an accurate and inviting
manner. Unless you are a talented writer and artist, you
will need to hire professionals to write the copy and
create the art work for the brochure. You will also need
to select a typesetter and a printer. Secure bids from
several printers to get the best value for your money.
However, be careful not to sacrifice quality.
Keep in mind that you will have to review the brochure
carefully at each stage of development. Make sure
important information such as room rates and policies on
deposits and credit card usage are clearly stated. The
brochure can be distributed to potential customers; other
B&Bs; lobby areas of restaurants, hotels/motels, and
health care facilities; travel customer locations;
appropriate public events, fairs, and festivals;
recreation and sporting shows; local and regional retail
service business firms and organizations; local funeral
homes, upper level schools, and antique dealers. Estimate
your distribution number based on a six-month supply. Then
obtain a printing cost for that amount, as well as
estimates for additional quantities or reprints.
* Aggressively pursue opportunities for stories in
newspapers(2) and magazines. Media coverage is very
important for new B&Bs. Send regular news releases to
national, state, and local newspapers and radio and
television stations. Guest TV and radio appearances
describing the uniqueness of your B&B can be extremely
effective. Consider contracting with a freelance writer to
develop articles about your B&B for submission to regional
newspapers. Some newspapers have a weekly calendar and
tourism section that lists the area's lodging
accommodations. Finally, develop a press kit including a
photograph, a brief history, and a description of your B&B
to give to newspaper reporters, freelance writers, and
travel writers.
* Work on getting listed in B&B guidebooks.(3) There are
B&B critic" guidebooks with independent opinions on B&Bs
based on the author's standard, and usually there is no
fee. Some guidebooks have someone inspect the B&B. Another
type is a "listing" B&B guidebook which is useful in
locating B&Bs in an area or alternative B&Bs in an area or
city.
Listing your B&B in guidebooks is a relatively simple and
inexpensive (the majority do not charge a fee, others
charge about $50 to $75) way to attract guests,
particularly distant customers. To decide which books you
would like to be listed in, browse through the travel
section of a bookstore. (See Appendix A for a listing of
B&B guidebooks.) Select a reasonable number of guidebooks
that look attractive and compare them based on the
following factors: cost, circulation, market, updating
frequency, membership requirements, type of B&B
description, exclusivity stipulations, certain standards
that must be met, and inspection policies. You may also
want to inquire about liability and group life insurance
policies. Also ask about newsletters and other benefits.
Because it may be one to two years before a new or updated
guidebook reaches the bookstores, contact the guidebook's
writers before you open.
* Incorporating the name and logo of your B&B on business
cards, fact sheets, stationery, and policy sheets is a
relatively inexpensive way to promote your B&B.
Professional-looking business cards can help establish
credibility and raise interest. Attractive, well written
fact sheers can gain exposure and promote the image you
have created for your business. Fact sheets can be posted
on bulletin boards, handed out to guests, included in
mailings, and sent to other B&Bs in your region.
Policy sheets should be posted in each room to outline the
rules of your establishment while reminding guests of your
business's name and logo.
Also consider incorporating the name and logo of your B&B
on inhouse items such as informational posters, placemats,
stationery, and complimentary gifts such as matchbooks,
pens, and postcards. Making your name and logo as visible
as possible will make guests more likely to remember your
particular B&B.
* If the advertising price to value ratio is appropriate,
plan to attract travelers by advertising in state and
association magazines for businesspeople, health care
professionals, educators, engineers, and computer
technologists.
* Cultivate and encourage good word-of-mouth through
discounts and complimentary services.
* Follow up on contacts with the business firms of guests
by offering midweek price reductions and small, corporate
meeting packages. Encourage guests staying during vacation
and pleasure times to take advantage of B&Bs for business
trips.
* Provide discounts for customers who refer a guest to
your B&B.
* Look into the cost/value relationship of accepting
credit cards.
*Promote your name and logo on a sign in your yard if the
zoning allows; or display a B&B flag or banner.
Other Relatively Low-Cost Promotional Programs
After weighing the time, cost, and benefits, you may find
it advantageous to become involved in other promotional
and community programs that may include:
- Cooperating with area businesses and competitors. Make
personal sales calls on area business people, especially
restaurant managers, personnel directors, purchasing
agents, hotel and motel managers, real estate salespeople,
and taxi drivers. Give them brochures and other
promotional material and follow up each visit with a
personal letter. Local referrals are a very solid way to
attract guests at little or no cost. Cooperate with area
hotels and motels to jointly promote facilities. Develop a
referral network with area and regional B&Bs.
- Contacting private citizens and community leaders. Read
the local newspaper carefully and make personal calls to
local people holding family reunions, weddings, funerals,
confirmations, bar mitzvahs, and other events where
out-of-town guests may be involved. Send out
congratulatory letters concerning awards, promotions, and
accomplishments to keep your business profile high among
community leaders.
- Answering inquiries promptly. People who make inquiries
are your most promising potential customers. Such
inquiries should be answered promptly, and with the
information requested. You should make it easy for those
who inquire to make a reservation by including a phone
number they can call collect or a self-addressed, stamped
reservation form and envelope. Develop direct mail "thank
yous."
- Creating special promotions. Consider offering holiday
and weekend packages that include activities such as
cross-country skiing, snowmobiling, ice fishing, autumn
hiking tours, Elizabethan Christmas themes, and
international gourmet holidays. Create events such as art
classes, writing seminars, chess tournaments, mystery
weekends, sweetheart escapes, and international and
harvest fests. Promote your B&B's uniqueness to wedding
consultants, town wholesalers, and meeting planners.
Develop walking tours, and provide free rooms and a free
packet to travel writers. During the off-season, advertise
special rates in newsletters, newspapers, and regional
magazines for families and senior citizens. Offer family
and friend promotions to regular guests. Special events
and package deals such as these will create interest in
and generate publicity for your B&B.
Try to plan special events for each season of the year and
encourage local merchants to co-sponsor and promote the
events. Nonprofit sponsorship entitles you to free public
service announcements on radio and television.
- Listing in the Yellow Pages. There are now separate B&B
sections. If you have a business phone number you are
entitled to one free listing (name, address, and telephone
number) in the Yellow Pages. Because B&Bs are still a less
common form of lodging, your listing may be most visible
in the motel section. The majority of people who consult
the Yellow Pages are passing through town and calling at
the last minute to find a place to stay. Various Yellow
Page advertisements can be purchased in addition, through
the telephone sales representative.
- Developing a newsletter. An important tool for
reminding former guests about your B&B and generating
repeat business is the newsletter. Ideally, a newsletter
will contain information on the accommodations offered by
your B&B, a history of the home, promotional events and
package deals, special community attractions, and
announcements of improvements or additions to the B&B. You
might also consider sending out Christmas cards and other
appropriate seasonal greetings.
- Advertising on the radio. Radio is one of the most
expensive forms of advertising. However, you might
consider using it to announce your opening and to promote
your B&B early in the busy season. Select a station that
more or less shares your target market segment. For radio
promotion to be effective, listeners should hear the name
of your B&B several times a day during a period of a week.
Seek professional advice in writing copy and choosing
background music so that you project the image you want.
- Listing with a Reservation Service Organization (RSO).
B&B Reservation Service Organizations maintain and publish
listings of B&Bs in various locations that travellers may
consult when deciding on lodging. The B&B host pays a
listing fee from $5 to $200-most fees are in the $25 to
$75 range. RSOs do charge a commission, usually 20 percent
of the guest's lodging fee and commission is charged for
repeat guests as well. In exchange for the fees and
commission, the RSO screens guests, handles deposits, and
provides some publicity. Most arrangements between B&B
hosts and an RSO are clearly described in the form of a
signed contract. Some RSOs require that your B&B conform
to certain standards and may have exclusive contracts.
There are many B&B reservation organizations to choose
from, so you will want to shop around in selecting the RSO
that best suits your needs.(4) When selecting an RSO, ask
about the following: experience, type of operation, fee
structure, advertising scope, exclusivity restrictions,
special standards, and membership benefits.
- Considering other options. There are now national B&B
magazines, travel agent publications, travel clubs like
AAA, and video brochures. Other potential advertising
methods are outdoor advertising on main highways
(billboards), directional signs, and signs in front of the
B&B. Consider cost and potential problems with zoning and
neighbors.
- Using an internal mix. Provide quality personal service
and if possible, a full breakfast, nicely decorated
bedroom, thick towels, and a large bar of soap. Your
internal marketing strategy needs to reflect:
1) hospitality and good guest relations (the central focus
of the host and employees' thinking and actions is to
satisfy customers and their needs)-treat each guest as a
B&B critic, continually think of ways to make the
experience memorable, call people by their names, etc.
2) quality control service, cleanliness, food, safety,
dependability, etc., and
3) personal selling---additional items, longer stay, more
frequent return visits, referrals, higher priced rooms,
etc.
Marketing Budget
Money and time should be spent during different times of
the year for each Marketing Mix strategy. Decisions should
be based on costs, projected revenues, and desired
profitability of different activities.
A 1988 Facility Analysis of Minnesota Bed and Breakfast
Industry revealed that in 1987, B&B operators spent an
average of $1,261 (several spent more than $2,000) on
marketing and related activities, but over half spent $800
or less, which tends to reflect smaller, more rural B&Bs.
The 1988 Professional Association of Innkeepers Bed and
Breakfast/Country Inn Industry Survey and Analysis (of 72
inns in eight states) showed the average marketing expense
to be $2,738 for two to four rooms, $4,975 for five to ten
rooms, $13,921 for 11 to 20 rooms, and $9,498 for 21 plus
rooms and an overall average of $6,408. This study tended
to reflect larger B&B inns located in higher priced areas.
Consumer Data Collection and Evaluation
Develop a formal and informal method to collect data about
your guests such as where they are from, their party size,
their trip purpose, how they found out about your B&B, and
their evaluation of your B&B. Keep track of your occupancy
rate and referrals sent and received from other
accommodations. Promotions can be evaluated by money off
coupons, post office box numbers, or department numbers.
It is important that marketing efforts be continually
evaluated to improve effectiveness.
Pricing Factors
Deciding the room rate is complex. Most B&B Inn owners
with a large investment cannot survive many years unless
they take in more than they pay out. It is important to
realize that cost and profit estimates hinge on income
from sales---and sales hinge on the right price, among
other things.
Your price strategies should reflect the perceived value
of the experience you are selling, your business costs,
and your profit goals (not someone else's). Your income
(before tax) is the revenue less variable and fixed costs.
PRICE = Guest experience + Image + Service + B&B Product +
Overhead + Profit(6)
Let's take a quick took at the meaning of these terms:
1. Guest Experience is the psychological value of the
experience you are selling to your guests such as:
hospitality and personal touches, charm of building,
romance, privacy, luxury, view, location, local
attractions, etc. Is the experience unique enough to
command a premium price?
2. Image involves the personal image you project and the
reputation of your B&B. The goal of image-building is to
create a good and lasting impression.
3. Service is a philosophy, a thought process, a set of
values and attitudes that differentiates your B&B from
competitors. The service-oriented host makes the
customer's needs and expectations the central focus of the
business. All aspects of the B&B are structured to make it
easy for the customer to do business with you, and to give
each guest a memorable experience.
4. B&B Product is the location, the design and condition
of the facilities, quality of food and service, price, and
the total guest experience.
5. Overhead expenses in the hospitality service industries
are controllable, by the manager, for example,
administrative and general; advertising and promotion;
heat, light, and power; and repairs and maintenance.
Non-controllable expenses, or non-operating expenses
include rent, taxes, insurance, interest, depreciation,
and amortization.
6. The profit formula is: revenue less expenses equals
profit. However, a better view of the profit Is expressed
by the formula: revenue less required profit equals
allowable expenses. This promotes the belief that you must
know profit requirements (not what's left) and factor them
into your pricing and operating plans. Owners need to
consider the amount of return to cover their original
investment plus a return on their investment. The investor
must determine "what the money is worth" so more accurate
profit requirements can be established.
These are the factors that influence pricing:
* Price Sensitivity. The hotel/motel industry is
considered to be price sensitive. There is some evidence
that indicates a $1 increase in room rates will reduce
occupancy by one-half percent. Possibly B&Bs are not as
price sensitive as hotels and motels because of the high
average income of B&B guests and the selling of a total
B&B experience. Results of a 1983 Laventhol & Horwath
study support this assumption. The study showed that B&Bs
charging $70 a night had higher occupancy than those
charging $60. However, it cannot be assumed that higher
prices automatically cause an increase in occupancy.
Popular areas and higher cost-of-living areas such as
California charge higher rates and have higher occupancy.
* Quality. Commit yourself to providing quality to
establish and maintain credibility with your customers. If
your B&B provides a great deal of luxury, personal touches
and charm, historic value, private bathrooms, and full
breakfasts, higher prices should reflect this. High
quality and high prices often go together.
* B&B Differentiation. A differentiated B&B is
sufficiently unique for customers to develop a preference
for it. High differentiation, uniqueness, or
distinctiveness and higher rates often go together. The
more differentiated the B&B, the less price sensitive it
is.
* Competition. Competitive markets stimulate lower prices.
* Service. The more service you provide, the higher the
price may be. A B&B that focuses on the customer's needs
and expectations can charge more because of a high
perceived value(5) and will probably also receive more
repeat and referral business. Do everything to ensure that
your customers are satisfied. If you do not please them
and listen to them, you are less likely to succeed.
Service builds credibility and reputation.
* Location. Urban, tourist intense, nearby attractions,
and high cost of living areas can charge more than remote
or low cost of living areas.
* Target Markets. Higher prices will tend to limit or
attract high income and more prestige-conscious travelers.
Lower prices will encourage more family and budget travel
business.
* Size of B&B. Larger inns may have some economy based on
size and greater possibilities of exceeding the break-even
point. The financial survey of inns completed in 1988 by
the Professional Association of Innkeepers International
and published in Innkeeping showed that two to four room
properties did not make money, but with six to seven rooms
the owner/innkeeper started making a profit, and an 11 to
20 room inn averaged an 8.23 percent return on initial
investment including owner time (which excludes property
appreciation). By 25 plus rooms, owners realized a 28.7
percent return.
* Marketing Goals. If you want to increase occupancy to
cover operating costs during low occupancy periods,
reducing rates may be considered to attract specific
markets such as commercial and high frequency business.
You may also want to encourage meetings, packages
(confirmation of room and an event), and promotions to
boost weekday or off-season periods.
* Your Business Cost. (See Appendix Q.)
Factors that may increase room rates are estimated to be:
- Private baths ($10 to $25)
- Historic value ($ 10 to $20)
- Amenities ($.50 to $6) for each amenity based on the
time and materials involved and on the customer-perceived
value. The following guidelines may be helpful:
modest, ($.60 to $ 1)
average, ($1 to $2)
above-average, ($2 to $4)
luxury, ($4 to $6)
- Third adult in room ($7 to $10)
- Child under 12 ($5 to $10)
- Pets ($5)
- Breakfast, based on cost of food and labor:
continental ($1 to $2)
continental plus ($1.50 to $3)
full ($2.50 to $6)
* Unusual features such as a pool, spectacular view, hot
tub, access to a lake or river, fireplace, antiques,
gardens, gift shop, etc.
* Equipment such as air conditioning, TVs in rooms, fax
service, etc.
Factors that may decrease room rate and by how much:
* Over two rooms per bath or more than four persons per
bath ($5 to $20)
* Single room (10 to 20 percent less than double)
* Weekly rates
* Special rates for families occupying two or more rooms
* Special rates for seniors (10 to 15 percent less)
* Special rates for a second night with no fresh sheets or
towels ($2 to $4)
* Special off-season rates (20 to 25 percent less)
* Poor location ($2 to $4)
* Package deal
* Lack of sound insulation in floor, walls or ceiling ($5
to $ 10)
* Small room ($5 to $25)
* No closets, poor lighting ($2 to $5)
Some B&B Homestay operators are only trying to supplement
their income with a few room sales a month to help pay
utilities, taxes, and insurance. However, if you are
opening a B&B Inn or Country Inn for profit and have high
fixed expenses, such as loan payments, property taxes, and
insurance premiums, you will want to cover all your costs
and get a good return on your investment and a fair return
on your time.
Pricing It Right
There are several avenues to try that might provide some
help for price setting:
1. Learn the pricing strategies of several B&Bs in your
area, particularly ones with similar location, quality,
and service.
2. Seek insight from state, national, and regional B&B
associations.
3. Obtain the recommendations of several reservation
service organizations.
4. Charge one dollar for each thousand dollars of
construction cost as a pricing rule of thumb. See Table
7-1 for how the pricing formula works.
Cost Recovery and Return on Investment Plus Value of
Special B&B Experience
Profits are the target. Revenue and expense projections
are used to determine the average room rate that will
fulfill investment and profitability goals. It takes more
time and knowledge than pricing based on intuition,
competition, and trial and error methods. A brief example
follows:
Desired after tax dollar return (say 15 percent return on
equity).
+ overhead (taxes, interest, insurance, depreciation,
wages, telephone marketing, maintenance, etc.)
+ operating expenses (laundry, cleaning, guest supplies,
food, office supplies, utilities, etc.)
= required room revenue
TABLE 7-1.
Pricing Formula
Turn Key/Total Cost (land, building, furniture, fixtures,
and equipment) DIVIDED BY number of rooms EQUALS Average
Room Construction and Furnishing Cost MULTIPLIED by 1/10
of 1 percent of average room cost EQUALS Room Rate
* EXAMPLE - Motel
$5,000,000 (Total Cost) DIVIDED BY 100 rooms EQUALS
$50,000/Room
$50,000 x .001 = $50 Room Rate
* EXAMPLE - B&B
$300,000 (B&B value) DIVIDED BY 5 rooms EQUALS
$60,000/Room
$60,000 x .001 = $60 Room Rate
Required room revenue divided by projected number of
occupied room nights equals average net rate ($) per
occupied room night. See Table 7-2 for an example of how a
5-room B&B inn arrived at a room charge.
Now evaluate your room rate structure based on the
psychological perceived value of the unique experience,
entertainment value, and special services you are
providing.
Can You Meet Your Expenses?
The important question to answer is whether or not you are
able to obtain your anticipated (or necessary) occupancy
at a room rate that will allow you to 1) pay back your
total financing expenses, (2) receive a salary, and 3)
receive a return for your time and money? If not, analyze
strategies to increase revenue and reduce expenses.
Perhaps there are more profitable uses for your building,
location, time, and money.
Goals of Step Seven:
1. Specifically determine your business image.
2. Determine the marketing goals for the first three
years:
- list what you want your marketing plan to accomplish
- estimate sales, occupancy, and profit goals
3. Identify the community resources to use.
4. List and describe target markets that offer the best
opportunity.
5. Determine reasonable modification of facilities,
policies, and rules to attract more of each target market
sited.
6. Establish market strategies to attract each target
market group.
7. Project the market potential of each target market and
potential sales and advantage of each segment.
8. Determine the best way to attain your goals for:
overall marketing and promotional strategies
competitiveness promoting areas of strength attacking weak
areas of competition pricing goals based on projected
sales, experience, desired return, image, target marked,
competition, customer sensitivity, perceived value of the
unique experience offered, etc.
9. Make room rate check by confirming that:
- the rate makes sense competitors rates make sense
compared to yours
- your B&B experience justifies a better, or poorer value
than the results of the cost and recovery and return on
investment formula
- you can meet your expenses
- you can live with the time period between start-up and
break-even
10. Briefly describe potential problems and proposed
solutions.
11. Create an implementation plan---assignment of
responsibility, goals, (objectives or steps), and
timetable for completion of each segment.
12. Establish a marketing budget by a certain time of
year.
13. Establish a short schedule of important review methods
by a specified time of year.
TABLE 7-2
Example of a 5-room B&B Inn
$7,000 desired return + $17,000 overhead = $24,000
required gross operating income + $26,000 operating
expense = $50,000 required room revenue
$50,000 divided by 274 Room Nights = $182.48
$50,000 divided by 548 Room Nights = $91.24
$50,000 divided by 821 Room Nights = $60.90
_______________________________
(1) Adapted from Tourism Marketing, Tourism Information
Series No. 4, Edward M. Mahoney and Gary R. Warnell,
Cooperative Extension Service, Michigan State University,
East Lansing, Michigan, 1986.
http://www.msue.msu.edu/msue/imp/modtd/33700082.html
(2) For $20, you can purchase an updated list of 350
pressure-sensitive labels for major newspapers, magazine
travel editors and writers, and freelance writers from Inn
Review, P.O. Box 1789, Kankakee, Illinois 60901.
(3) Innkeeping Newsletters 1988 Industry Survey showed
that an average of 23 percent of inn business came from
books and travel guides. Professional Association of
Innkeepers International (P.O. Box 90718, Santa Barbara,
California 93190) has an excellent Guide to the Inn
Guidebooks. It contains a list of about 160 guidebooks,
and information on fees, getting the author's attention,
and responding to questionnaires.
(4) You can obtain a current listing of RSOs from: The
American Bed and Breakfast Association, 16 Village Green,
Suite 203A, Crofton, Maryland 21114 (as part of a kit), or
from Ellie Chast, Sweet Dreams and Toast Inn, P.O. Box
4835-0035, Washington, D.C. 20008.
(5) Perceived values are the customer's interpretation of
his/her experience in relation to value received and the
price charged. It is based on 1) lodging facility and food
presentation (image); 2) service, and intangible personal
touch of host and staff, agreement with house rules, etc.;
3) charm, atmosphere, historic value; 4) entertainment
value; and 5) safety, cleanliness, sanitation value.
(6) Adapted from The Market Planning Guide, David H.
Bangs, Jr., Upstart Publishing Company, Inc., Portsmith,
New Hampshire.
STEP EIGHT
Furnishing Your B&B
Your B&B should always be clean, comfortable, distinctive,
and should exude a sense of warmth. Your B&B should also
be unique and reflect your family interests and tastes.
You will want to increase the personal experience a guest
will have at your B&B by considering the preferences of
your market segments, enhancement of the style of your
home and its interior architecture, and the geographical
area.
Furniture and Furnishings
Furniture and furnishings include such items as: beds,
chairs, side tables, dressers, special pieces, lamps,
pictures, draperies, fabrics, linens, dinnerware, and
plants. Purchasing should be done on the basis of
investigation and comparison of several sources of supply.
Furniture and furnishings need to be visually appealing
(emotional factor) and functional (physical factor).
Colors, lighting, paints, flooring, fabrics, and furniture
need to be balanced and proportional, in good taste, able
to provide long service, able to provide a peaceful, warm,
and cozy feeling, and integrated with the overall B&B
experience.
In selecting furniture, consider strong construction,
upholstery fabrics that are wear and soil resistant, and
compatibility with what is already in the room.
Ways to furnish relatively inexpensively include:
* Developing a display---lease/sell agreement with antique
dealers
* Buying from local auctions and flea markets
* Seeking "Items for Sale" in local and area newspapers
* Shopping at "going out of business sales" throughout
your state
* Using wholesale houses
* Buying from salvage houses
The best way to develop your list of needs is to go
through an imaginary day, beginning with greeting the
guest at the door. Major areas that you need to consider
are: reception, common rooms, other possible gathering
places, eating areas, kitchen, bedrooms (Furniture, linen,
accessories), bathrooms, laundry room and storage areas.
and patio and porch areas.
Equipment and Supplies
Compare quality and prices, then purchase the best product
to suit your needs in your price range. The best way to
find what is on the market is to visit wholesale
hotel/motel and janitorial supply houses, hotel/
restaurant trade shows, or contact national and state B&B
associations, write B&B trade newsletter editors, talk
with nearby B&B innkeepers, and carefully study the
hotel/motel trade journals and B&B newsletters.
A partial list of areas to consider is as follows:
* Housekeeping(1)
- heavy duty---floor machines such as vacuum cleaners,
carpet shampoo machines, steam cleaning machines, etc.
- cleaning---mops, pail and bucket, sponges, etc.
- supplies---cleaning compounds, germicides,
disinfectants, polishes, paper goods, guest supplies
(information packet), etc.
* Kitchen
- large appliances---stoves, ovens, refrigerators,
freezers, ice maker, three-well sink, dishwasher, hot
water heater, air conditioner, etc.
- small appliances---food processor, blender, mixers,
slicers, coffee maker, scale, can opener, fans, etc.
- equipment---cutting boards, mixing bowls, sauce pans,
stockpots, skillets, pans, measuring cups and spoons,
knives, ladles, serving utensils, tongs, etc.
- supplies---silverware, dishes, glassware, cleaning
materials, paper, uniforms, etc.
Other equipment would include such items as smoke
detectors, typewriters, telephone and answering system,
computers and software, keys and security system, lawn
furniture, TV games, repair equipment (for electrical,
plumbing, carpentry, building), fogging machines,
insecticide sprayers, etc. Other office supplies would
include stationery, receipt books, and
bookkeeping/accounting papers.
A budget for furniture, furnishings, and equipment needs
to be developed, and all items should appear on a priority
basis: 1) absolutely essential, 2) adds to value and gives
a fresh look, and 3) certain to be needed in a few years.
Restoration
The preservation of historical landmarks and the
restoration of old homes pose challenges. The owner needs
to 1) define the project, 2) clarify the room rate
structure relative to the grading of the rooms and public
areas (the amount of money spent should be in proportion
to the room rates and expenses), 3) establish a budget, 4)
establish a time line for completion, 5) list the
resources to be acquired, 6) outline the quality of the
products to be restored, and 7) determine the order of
work to be done.
Goals of Step Eight:
1. List the areas of your building that guests will be in
or that B&B work would be performed in for the guest.
2. List the furnishings, equipment, and supplies that are
needed.
3. Develop a suppliers list for items needed.
4. Develop a budget based on first, second, and third
priorities.
_______________________________
(1) You might start by obtaining a catalog of guest room
supplies and amenities from:
American Hotel Register Company,
2775 Shermec Road,
Northbrook, Illinois 60062-7798;
and
The Breckenridge Company,
345 Williams Street,
Huron, Ohio 44839.
The Inn Review,
P.O. Box 1789,
Kankakee, Illinois 60901
publishes the Inn Review Yellow Pages, which is a fairly
complete catalog/directory of resources for the Inn/Bed
and Breakfast Business.
STEP NINE
Develop an Organizational and Operational Plan
To develop an organizational and operational plan, you
should begin by listing the operational activities and who
will carry them out. (This decision is very
important---couples and families should decide who will do
what in advance.) You also need to know what necessary
talents are missing and how any inadequacies will be
handled, the goals of major activities, and the policies
and procedures for reaching them.
In a B&B inn you are both the manager and an employee. As
the manager, you plan, organize, direct policies and
procedures, control, evaluate the effectiveness of the
operation, and implement innovative improvements. Several
important management functions can be performed by the
owner and/or assisted by consultants.
Managerial Functions
Finance and Accounting.
As a B&B owner you are responsible for securing funds to
operate the B&B, conducting feasibility studies, showing
anticipated earnings, coordinating cash flow plans,
interpreting and evaluating profit and loss statements,
etc. (See Step Twelve, "Develop a Financial Plan.")
Marketing.
As a manager, you are responsible for putting together a
plan to attract customers to your B&B based on a desirable
and unique customer experience. The manager also needs to
establish marketing goals, market segments, and a
marketing mix.(See Step Four, "Determine and Research your
Market" and Step Seven, "Develop a Marketing Plan.")
Food Service.
As a food service manager you are responsible for the
menu, purchasing, service standards, enforcing cost
controls, meeting sanitary requirements, and customer
satisfaction.
Maintenance.
As manager of maintenance you are responsible for
maintenance contracts, costs, and schedules; work to be
done by electricians, plumbers, painters, and carpenters;
heating, ventilation, air conditioners, and refrigeration;
security, telephone, water, waste, fire protection, and
smoke control systems; management of sound; and
maintenance of food service and laundry equipment.
Housekeeping.
As a head housekeeper you are responsible for cleaning
techniques, procedures, and schedules for rooms,
bathrooms, and public areas; inspecting all areas;
cleaning materials and supplies, keeping an inventory of
guest room supplies and amenities; cleaning floors and
carpets; supplying clean linens, textiles, bedding,
laundry supplies, and facilities; doing heavy cleaning;
selecting, maintaining, repairing, refurbishing, and
replacing furnishings; maintaining guest relationships;
assuring safety, handling fire prevention; and keeping
records.
As an employee, you will do many of the tasks involved in
the successful running of the B&B business.
Worker-Type Tasks
Front Desk.
As a front desk host you are responsible for developing
credibility, listening to guests, providing information,
finding out about guests' plans, creating a friendly
atmosphere, answering the telephone with courtesy,
registering guests, receiving payments, handling
complaints and correspondence, etc.
Food Service.
As a food service employee you are responsible for food
storage, food preparation and attractive plate
presentation; dishwashing and sanitation of equipment and
utensils, disposal of waste, etc.
Housekeeping.
Housekeepers' duties include airing rooms, making beds,
vacuuming carpet and furniture, dusting, cleaning
bathrooms and furnishings, adjusting shades, arranging
furniture, emptying trash, replacing light bulbs,
replenishing guest supplies, cleaning public areas,
washing linens, etc.
Maintenance.
As a maintenance employee you are responsible for routine
oiling, greasing, and repairing; replacing, gardening and
lawn care.
All managerial and employee activities need to be aimed
toward customer satisfaction. Delayed maintenance, lack of
cleanliness and sanitation, and indifferent telephone
reception or an unanswered telephone are the quickest ways
to reduce your B&B's image.
B&B Rules and Policies
When determining your house rules and regulations, keep in
mind that your guests may be overwhelmed by a lengthy
list. Focus on the rules that you feel strongly about and
are most important for a well-run business. State your
rules in a positive manner. A long list of negative rules
is a turn-off to customers, and may reduce your B&B image
and hospitality program. Tell the guest your policies
before reservation confirmation. Post your policies in the
rooms and at the front desk; they will be respected if you
make them clear. Important or unusual items should be
mentioned in your advertising and reservation material.
You may want to consider the following items when
developing your house rules.
* Pets
* Telephone usage
* Children
* Laundry facilities
* Smoking/alcohol
* Tourist information
* Check in/check out times
* Credit cards/personal checks
* Keys
* Reservations/cancellations
* Breakfast hours
* Deposits or advance payments
* Kitchen privileges
* Provisions for handicapped people
* Housekeeping
* Equipment rentals
* Visitors
* Use of house and ground areas
* Use of shared bath
* Emergencies
* Fireplace usage
* Taxi service
* Evening curfews
Food Plan
The objective of the food plan is to provide the guest
with a memorable breakfast. Your menu may be built around
your skills, region, family recipes, or recipes from
guests, famous people, inns, and restaurants. A number of
factors add considerably to the guests' enjoyment of the
breakfast, such as a pleasant atmosphere, attractive food
presentation, stimulating conversation, and special
touches such as good china and flowers. Be sensitive to
restrictive diets. Widen your culinary horizons by
browsing through cookbooks, attending cooking classes, and
developing a B&B breakfast sharing network.
Food poisoning can cause large lawsuits and tremendous
image reduction. Sanitation rules have been developed by
your state to protect the public. It is just good business
practice to carefully study, understand, and follow the
state regulations. Knowing how disease-causing bacteria
grow and spread will help you to prevent potential
problems.
Food safety is enhanced by:
1) understanding and following your state regulations;
2) reviewing your kitchen, food preparation, and
sanitation plans with your health department;
3) verifying safe water;
4) purchasing U.S.D.A. inspected foods;
5) cooking food to 165 degrees F. in center and
maintaining food at 140 degrees F. or refrigerating foods
under 45 degrees F. (chilling food centers to 45 degrees
F. within four hours);
6) properly washing, sanitizing, and storing all dishes,
silver, utensils, etc.;
7) washing hands frequently; and
8) completing the National Restaurant Association
Education Foundation Applied Food Service Sanitation
Program.
State and local health regulations may restrict the kind
of food you may serve for a continental breakfast, which
normally includes rolls, fruit, coffee, and juice.
However, you can make a continental breakfast distinctive
by offering high-quality pastries and fresh fruits that
are attractively garnished and presented. Add a personal
touch by serving it in bed or in a basket. Refer to
Appendix L for suggestions on how to make each portion of
the breakfast memorable.
Estimating Food Cost
To determine the food cost per guest, you should take into
account the following factors:
* Quality of the menu
* Estimated quantity of food items each guest will consume
* Estimated cost of the amount (in ounces) that each guest
will consume--- estimate for all food categories.
* Labor intensive food items
Goals of Step Nine:
1.Develop objectives for:
- front desk (reception, hospitality, and service)
- housekeeping (cleaning, laundry, supplies)
- food service (food preparation, storage, service,
sanitation, safety)
- maintenance (repair, fire, safety, landscape)
- finance and accounting (See Step Twelve)
- marketing (See Step Four and Step Seven)
2. Layout in precise detail the steps (best ways) to
accomplish each objective. Fix the responsibilities and
limit the time.
3. Define and set operating standards for each item in
goal 1.
4. Explain your appraisal methods for each item in goal 1.
5. Review and interrelate goals for:
- return on investment (See Step Twelve)
- owner's lifestyle (See Step Two)
- unique customer experience (See Step Three and Seven) -
neighborhood and community relations (See Step Two and
Four)
STEP TEN
Develop a Plan to Meet Laws and Regulations
Laws and regulations for B&Bs are complicated enough that
you should consult a lawyer at an early stage in
developing your business plan. If you fail to comply with
laws, your B&B could be closed. Attorneys can help with:
- Avoidance of courtroom battles
- Observance of all legal requirements
- Explanation of legal consequences and implications of
actions and alternatives
- Explanation of advantages and disadvantages of the
various types of business organizations
- Representation in court and to regulatory bodies
Charles Hillestad, Denver real estate and small business
law specialist and owner of the award-winning Queen Ann
Inn, offers four tips for innkeepers:
1) Don't sign anything unless you know what it means;
2) Get it in writing;
3) Ask lots of questions; and
4) Do independent investigations.
Look for an attorney with whom you feel comfortable and
who has experience with small businesses (ideally
home businesses and the lodging field). He should be
accessible yet held in high esteem in the business
community. It is important to realize that there are
attorneys that specialize in small business, real estate,
securities, building and construction, insurance, OSHA,
workman's compensation, social security, and other related
specialties. You can check recommended lawyers in the
Martindale and Hubbel Directory.
Find out in detail what the fees are for various legal
services and the different methods for charging fees.
A lawyer's service is usually charged on a time basis, but
it is also possible to set up a retainer fee on an account
basis. This costs an amount agreed upon by the parties and
provides continual advice and service as needed, with
special work such as defending a lawsuit charged
separately. The advantage of having a retained lawyer
available is that the attorney is much like part of
management---he cannot represent the other side and the
fees are generally a business expense.
The judgement of attorneys is by no means flawless, yet
they reduce the odds of making the wrong choice. It is
important to find out if the prospective attorney has
malpractice insurance to cover losses resulting from bad
advice.
One of the first things to discuss with an attorney, tax
consultant (CPA), and banker is the type of business
organization and loan agreement to best protect your
business and personal assets. You do need to know about
home-based business tax law, tax benefits, possible
catastrophic-type losses, consequences, investment tax
credit, legal liability, etc. If you proceed blindly,
without proper advice, you are likely to encounter
trouble.
You need to first consider under which legal form you will
operate:
1) Corporation (regular, sub-chapter S, or 1244),
2) sole proprietorship, or
3) partnership (general, limited, or Family).
See Appendix M for a more detailed explanation of types of
business organization.
A sole proprietorship can be commenced without the
drafting of any legal papers in many states. The limited
partnership offers the more flexible entity to attract
private investments. A corporation seems the best entity
to protect as many of your personal assets as possible
from creditors of a business. An S corporation avoids
double taxation and payment of taxes at higher rates than
personal taxes.
If you are being charged on an hourly basis, advice on
formation of a partnership and drafting the agreement
usually costs $150 or more. The organization of a simple
corporation, from the articles of incorporation through
the first stockholders' and director's meeting, may cost
$250 to $350, plus a filing fee of $50 to $ 100 to the
Secretary of State. These charges normally include certain
rebates, general advice, and counseling. Many attorneys do
not charge for a call requiring only a quick response.
However, there is likely to be a charge for questions
requiring a long response or for several calls.
Regulations or ordinances that can effect the operation of
B&Bs are primarily in the areas of zoning, fire codes, and
public health. To some degree, these regulations may be in
effect at the municipal, county, arid state governmental
levels. When a regulation or ordinance exists at a higher
government level, lower levels will often adopt the same
policy. Keep in mind that ordinances in effect at lower
levels are often more strict than those operating at
higher levels.
You should learn about the regulating details at all
government levels by discussing your situation with the
zoning administrator, fire marshal, and public health
sanitarian. Each state varies in regard to specific
legislation for B&B operations. You may have to consult
legislation pertaining to other types of housing or
lodging to find out which laws apply to you.
Zoning
Normally, there are no zoning laws at the state level that
would affect B&B businesses. At the county level, zoning
laws generally apply to rural areas outside corporate
limits. These laws are usually vague enough to favor the
establishment of a B&B enterprise. Zoning difficulties
usually revolve around operating a B&B in a residential
area.
At the municipal level, zoning ordinances vary, if they
exist at all. In some instances, B&B operators have helped
local zoning administrators write the related ordinance
because the officials were not adequately informed about
the nature of a B&B enterprise. See Appendix R for
examples of B&B related zoning ordinances established in
Galena, Illinois, and Warsaw, Indiana.
When reviewing zoning variance or change requests,
administrators consider factors such as impact on the
neighborhood and benefits and detriments, including any
visual nuisance that might be caused by the enterprise.
You should address these concerns in your request for a
zoning change or variance. Also, try to meet the people in
your neighborhood, as they will be notified of a zoning
change and have an opportunity to appear at a public
hearing on the proposed change. You should explain the
benefits of having a B&B in the neighborhood and try to
alleviate any of your neighbors' misgivings. If some are
unsure about the establishment of a B&B, your neighbors
could easily become polarized on the issue.
Keep in mind that applying for a zoning variance takes
time and will require a public hearing. It may also cost
money and require the help of an attorney.
Fire Safety Local fire codes are often a direct function
of the state fire code and of the area's building and
zoning codes. Additional safety provisions may also be
included in the state building code; these would be
enforced in those communities where the state building
code is in effect.
The language in the codes is very detailed, often with
several options given. All B&Bs should have smoke alarms,
clearly marked exits, floor plans on display, and fire
extinguishers visible and accessible. The fire codes
identify other types of unsafe conditions including
interior surface finishes that allow a quick spread of
flame, improper storage of flammable materials, and
attached garages without fire walls.
The code requirements may differ according to the size of
the operation. It is incumbent upon the B&B operator to
see that the fire codes are met and the safety of the
visitors is ensured.
Licensing and Certificates
Aside from zoning there may be concern with building
codes, historic district regulations, liquor licenses,
(laws and regulations), etc. Changing a home to a B&B in
some states requires a new certificate of occupancy.
Health Regulations
Health regulations will vary from state to state and
according to the size of your B&B and how the operation is
zoned. Some states do not regulate the public health
aspect of a B&B at all, while others have very specific
laws requiring inspection before a license is issued.
Periodic inspections may occur subsequently.
You will need an approved water supply and sewage disposal
system with periodic testing of the water to ensure a pure
water supply. Safe food handling practices must be
observed, and all food used must be obtained from an
approved source. B&Bs should have those employees that
prepare food attend a food handlers' training course. Some
local sanitarians suggest that you simply use common sense
and assume the same health and sanitary requirements you
set for your own family, increasing them somewhat for your
visitor.
There are significant differences in the regulations of
different states regarding food handling, types of food
which may be served, laundering of bed linens and towels,
bathroom facilities, and related items. Before applying
for licensing, you should evaluate the specific
requirements of your state and local jurisdiction with
regard to your proposed operation, and request that the
health inspector conduct a preliminary site investigation
so you can correct any deficiencies before applying.
(Required changes for a separate kitchen could cost more
than $25,000.)
Early in the decision-making process, you should meet with
the health agency in your area to discuss its regulations
and how they will affect your B&B. The health department's
regulations on water supply, use of home-grown food, and
kitchen use may have a major impact on how your B&B
concept is developed.
There are also other laws that need to be considered, such
as those regarding:
1) employee protection (safety and health, equal
employment opportunity, unemployment compensation);
2) copyrights or trademarks;
3) environmental protection (air pollution, water
pollution, solid waste disposal, underground tanks,
asbestos, radon) and historic district regulations;
4) estate protection (will, insurance, contracts);
5) consumer protection (safety of food and accommodations,
truth in menu);
6) acquisitions (purchasing a home, purchasing an existing
B&B, history of property, leasing, rezoning, reviewing
loan); and
7) taxes (use, sales, unemployment, lodging, withholding,
workman's compensation, investment tax credit).
Hillestad also recommends having a plan to avoid financial
catastrophe caused by death, divorce, disability, and/or
disagreements with partners or investors.
Goals of Step Ten:
1. List your objectives for meeting laws and
regulations and for seeking legal advice.
2. Lay out, in precise detail, the steps (best ways) to
accomplish each of the objectives above, and set time
limits and responsibility.
3. Make separate short- and long-run lists.
Developing a Bed and Breakfast Business Plan Part 1
Source: Publishing State: Illinois
ID: NCR273
Authors: Buchanan, Robert; Espeseth, Robert
Year: 1991
Programs and activities of the Cooperative Extension
Service are available to all potential clientele without
regard to race, color, sex, national origin, or handicap.
In cooperation with NCR Educational Materials Project.
Issued in furtherance of Cooperative Extension work, Acts
of May 8 and June 30, 1914, in cooperation with the U.S.
Department of Agriculture. DONALD L. UCHTMANN, Director,
Cooperative Extension Service, University of Illinois at
Urbana-Champaign.
The Cooperative Extension Service provides equal
opportunities in programs and employment.
Published in part by the Illinois-Indiana Sea Grant
Program with funding from the National Oceanic and
Atmospheric Administration, U.S. Department of Commerce.
This work is a result of research sponsored by NOAA,
National Sea Grant College Program, Department of
Commerce, under Grant NA 89AA-D-SGO58. The U.S.
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reprints for governmental purposes notwithstanding any
copyright notation that may appear hereon.
This publication resulted from the activities of the Great
Lakes Sea Grant Network, which is comprised of
university-based programs in Illinois-Indiana, Michigan,
Minnesota. New York, Ohio, and Wisconsin.
Editor: Stephanie Hearn
Designer: Krista Sunderland
Developing a Bed and Breakfast Business Plan
Robert D. Buchanan
Extension Specialist, Restaurant,
Hotel and Institutional Management
Purdue University
Robert D. Espeseth
Coordinator, Illinois-Indiana Sea Grant
Program Recreation Specialist,
University of Illinois Cooperative
Extension Service
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IL-IN-SG-E-91-6
5M April 1991
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