Michigan State University Extension
Tourism Educational Materials - 33420137
06/06/02
DEVELOPING A B&B BUSINESS PLAN PART 3
List of files and visuals associated with this text.
STEP ELEVEN
Develop an Insurance Plan
Insurance primarily safeguards the liquidity of the B&B
after a catastrophe. Professional help is needed to
make sure the B&B is protected from dangers that the
owner can neither foresee nor control. Protection is
needed because of a population that is quick to sue and
Juries that grant astronomical awards.
Insurance rates are increasing rapidly for certain
types of insurance. It is important to make the B&B as
accident free and secure as possible, i.e., eliminate
causes for falls, enforce swimming pool rules and keep
recreational areas in good repair, use fire retardant
fabrics and furnishings and fire and burglar detectors,
supply long, spring door latches and safety deposit
boxes, equip fireplaces with grates to prevent flying
sparks, etc. There should be a fire evacuation plan
posted in every guest room.
Insurance companies look for:
* Fire risks and preventions
- smoke alarms and fire extinguishers
- structure type
- condition of wiring and heating system
* Food preparation and service
- equipment used
- type of food served
- current food handlers' permit
* Potential guest dangers
- lack of lighting in stairwells
- swimming pools and other recreation areas
The more strict the local or state regulations are
regarding licensing, inspections, minimum equipment,
etc., the more comfortable the insurance company will
feel.
Some two to four bedroom homestay owners have said that
a simple rider on their homeowners' policy provides
them with coverage at a rate of $300 to $400 a year.
This needs to be thoroughly investigated. It is
recommended that you obtain from the carrier (not your
agent or broker) in writing the specific contingencies
and dollar amounts covered. Some B&B innkeepers have
spent from $2,000 to $10,000 for insurance protection.
If you are thinking about joining an RSO or a state B&B
association, you should check to see if the
organization has an exclusive insurance program for
members. Insurance packages are being sponsored by some
of these groups so that individual B&Bs can take
advantage of volume races, but the agency or company
should work with you individually to design coverage to
satisfy your needs.
Systematic insurance planning calls for a complete
insurance survey to
1) determine the property, perils and losses to which
the owner and B&B is exposed,
2) determine the best and least costly way to arrange
the insurance necessary to protect against their
exposure, and
3) study loss prevention to use all avenues of rate
reduction.
Risks can be distinguished as
1) large-endangering the survival of the B&B,
2) medium-forcing the owner to change business plans
considerably without endangering its survival, and
3) small--changing the business plan is not essential.
Risks can also be categorized by what is threatened:
1) Property - such as fire, water, theft.
2) Assets - such as liability when guests and employees
are hurt, business interruptions, etc.
3) Persons - such as sickness (food poisoning,
third-party liquor liability), the consequential loss
of income, and acts of aggression (robbery, rape,
kidnapping).
Gary Ablard and David Lipsky (1), partners in a
Claremont, California law firm specializing in
insurance-related litigation, make the following
insurance suggestions:
* Make sure coverage is for replacement costs, not
actual cash value. Many hotel furnishings and equipment
are old and values decrease with age; therefore, if you
are not covered properly, you will be responsible for
the difference in replacement cost and actual cash
value.
* Get a reputable, up-to-date appraisal of on-premise
artwork, including paintings, prints, antiques, and
unique furnishings. Do not count on insurance
appraisers to offer the current value when you do not
have professional documents to support those values.
Also, photograph all fine art so documents can be
verified. Keep the photos in a safe, fireproof place.
* Make sure your policy includes a rider requiring the
insurance company to pay for mandated code updates.
With new construction, there may also be new building
codes that require new features and more money. Unless
it is outlined in the rider, the insurance company may
not cover the additional expense.
* Negotiate a policy rider for an adjustment allowance.
For a major loss it is advisable to get help from a
public adjuster or other professional, but first make
sure that your insurance company will pay the
adjuster's fees. The public adjuster's charge typically
ranges from 10 percent to 15 percent.
* Obtain realistic estimates of yearly updating
costs--don't rely on automatic inflation clauses in the
policy. If the policy was written several years ago,
all costs should be reviewed to determine what updates
are needed on coverage limits.
* Make sure business-interruption coverage is adequate.
Your business may have grown significantly since you
obtained the original policy outlining your limits for
business interruption.
The insurance industry is composed of many different
types of carriers. Factors that should be considered in
selecting a carrier are its financial condition, its
service, and its rates. Competition tends to reduce the
points of distinction among carriers. In purchasing
insurance, you will want to determine the cost and
exactly what the insurance contract will do. To
determine exact coverage and limitations on coverage,
it is necessary to find the answers to several
clear-cut questions:
* What perils are covered? Some contracts cover only
one or more named perils, and others use "all risk"
contracts which cover every peril except those
specifically excluded.
* What property is covered? Be sure that the insurance
contract describes the property that is covered, and
indicate the property specifically excluded. You can
establish insurable value by hiring a professional
appraisal service, having the insurance company or
agent do it, or doing it yourself.
* What losses are covered? Some insurance contracts
cover direct losses only, whereas others may extend to
indirect or consequential losses on a limited basis.
* What persons are covered? Some policies cover only
the named insured and his legal representatives, but
others extend to several additional people. The
extension may be automatic or at the option of the
insured. Also, notification to or consent from the
insurance company may be required.
* What factors limit or restrict the amount of recovery
on the insurance contract? Consider actual cash value,
replacement costs, deductibles, etc.
Comprehensive and all-risk policies come closest to
insuring against all possible losses. B&B innkeepers
should probably carry a $5,000,000 minimum excess
liability policy, because of the trend of more frequent
suits and high court awards. Look out for exclusion
clauses and check with your insurance agent to review
punitive damage coverage. (Some states do not allow
this coverage while other states have no restrictions).
Be sure you understand coinsurance and the reduced
premium to cover a portion of the insurable value. and
the deductibles based on per occurrence or per claim.
Premiums are adjusted to the loss record. Evaluate the
direct costs of losses as they are often as high or
higher than the direct cost paid by the insurer for
small to medium size claims.
The fields of insurance coverage that you need to
consider are:
* Fire insurance lines and forms that (a) add
descriptive material (such as forms describing the
physical nature of the property and forms providing
floating coverage), (b) extend standard forms to cover
additional perils (such as extended coverage
endorsements), (c) forms covering additional losses,
(such as business interruption, living expense,
personal property, personal belongings of customers,
rental insurance, replacement cost), and (d) allied
lines (such as earthquakes, floods, sprinkler
leakages).
* Casualty insurance lines and forms include
third-party liability forms (such as business liability
of owners, landlords, and tenants and professional
liability), and host liquor liability, and automobile
(person and business).
* Crime coverage for business firms.
* Social insurance such as temporary disability
benefits, and workmen's compensation.
* Accident and illness insurance.
* Life insurance ("key-man" and partnership),
annuities, and pension plans for retirement income.
You will want to explore the cost of items that reduce
premiums, factors that increase customer safety, and
premium reductions for such items as: fire
extinguishers, smoke alarms, sprinklers, burglar
alarms, double-lock systems, hand-wired telephones,
covered fire alarms, outside stairs, fire doors,
emergency generators and lights, guest disclaimers,
etc.
How do you locate a good agent? A well-informed banker
or lawyer should be a good source of information about
insurance agents. Check the B&B network and your state
association. The insurance buying executive of local
retail businesses, or a local motel owner may be
well-informed on the comparative abilities of agencies
as they apply to their business. Learn enough to
communicate with agents and to ask the right questions.
Then, contact at least three brokers or direct writer
company agents, asking for the best coverage at the
lowest possible cost. Work only with the brokers who
can provide the answers. The buyer needs to feel he/she
can trust and can discuss the financial details of the
B&B business with this person. Look for someone who
will be accessible when you need help.
Best Key Rating Guide classifies 1,970 licensed
insurance carriers by six rating classifications and by
financial size. A company is reliable if licensed in
your state and rated high in the Best Guide.
Some companies write policies for groups of B&B hosts.
A broker might be able to get group coverage if there
are several in your area.
Goals of Step Eleven:
1. Determine the perils and losses to which you and the
B&B are exposed.
2. Divide your risks into large, medium, and small.
3. Determine the best and least costly way to arrange
for the necessary insurance.
4. Examine all avenues to reduce premiums.
5. Determine insurance for special risks.
6. Learn the services an insurance agent can bring to
you, and how accessible he/she is.
7. Evaluate the benefits and liability of a good agent
compared to a B&B group insurance policy.
______________________________________
(1) Quoted from Hotel and Motel Management, May 30,
1988.
STEP TWELVE
Develop a Financial Plan
If you do not have any accounting background, this step
may be difficult. You may want to obtain some
hospitality accounting books, take a course in
accounting, or tap the expertise of a small business
accountant to help manage the financial aspects of your
business. Finances need to be a primary issue when you
borrow large amounts of money. You will have an
advantage in borrowing with a well prepared business
plan showing projections for cash budget, pro forma
statements, and how and when the loan will be repaid.
Financial considerations were not the primary reason
many people gave for opening a B&B business according
to a Wisconsin study.(1) The most common responses had
to do with meeting people (69 percent), adding to
income (66 percent), and sharing the house to relieve
loneliness (42 percent). However, a smaller group
indicated reasons for starting that probably required
greater concern for financial consideration such as
helping to finance their home (36 percent), finding tax
advantages (26 percent), restoring an old building (15
percent), owning their own business (15 percent), and
earning primary income (9 percent). Both groups tend to
have much greater concern for financial matters after
they open and these need to be a major consideration in
your Business Plan and in your decision to open a B&B.
Budgeting - Profit Planning
A business budget (profit plan) is a management plan
covering all phases of operations--usually for one
year. It is a formal expression of policies, plans,
objectives, and goals. A business budget is the best
means for 1) analyzing alternative courses of action
and investment opportunities, 2) forcing the potential
owner to examine alternatives prior to adopting
particular courses of action, 3) examining the facts
necessary to achieve particular profit levels, 4)
carrying out a self-evaluation of the operation and its
progress toward its financial objectives, and 5)
providing reasonable estimates to assist in the setting
of room prices.
Before you start to budget you must spell out your
operating plans and define your goals and objectives
for marketing, staffing, insurance, accounting, and
legal requirements. Note that these are all big parts
of the business plan. Your budget can be no better than
your well-researched projections.
Forecasting Expenses
Your expenses for the first year of operation can be
divided into two categories: start-up costs and
ongoing/ operating expenses. You should plan for these
expenses carefully, making sure that you have taken all
possible costs into account. The following guidelines
for determining start-up and ongoing costs will help
you develop a realistic and comprehensive forecast of
expenses.
Start-up Costs
When determining start-up costs, separate expenses into
the following categories: one-time starting expenses,
start-up costs that can be gradually written off or
"amortized" over time, and ongoing expenses of
operating the B&B. Use the B&B Start-Up Costs in
Appendix P to determine which costs apply to your B&B,
additional start-up costs particular to your situation,
and the overhead costs of doing business. You may also
want to consider the spread between optimistic and
pessimistic projections.
Create a table similar to the one above that includes
all your start-up costs. The table will help estimate
the total cost of getting started; the cost and
proportion of one-time costs; the cost and proportion
of operating expenses for your B&B during the first
year; and the amount and proportion of the costs spread
over five to ten years of operation. You will be able
to recognize the impact of long-term overhead and took
at major capital expenditures as "fixed."
Operating or Ongoing Expenses
Next, you should examine the total expenses incurred
during the first year of operation. Start by
determining the direct costs of running the business,
then add the cost of overhead items. These figures
should be reviewed monthly.
See Appendix Q for the Professional Association of
Innkeepers International chart of accounts. Be as
thorough as possible in your efforts to prepare
accurate projections for these expense categories.
When figuring ongoing expenses, take into account
relatively stable items such as rent, mortgage
payments, insurance, loan payments, and interest on
loans. Some ongoing expenses increase slightly with
greater occupancy, such as the cost of hourly wages,
utilities, telephone use, and office supplies. Other
expenses will vary directly with the occupancy rate,
such as the cost of food, commissions, and operating
supplies. You will want to cut back on controllable
items during slow periods. Also take into account
periodic expenses, such as maintenance and repairs,
professional services, and advertising and promotion. A
sample projected profit and loss statement is provided
in Appendix 0. (Vis. O1)
(Vis. O2)
Frequently, prospective B&B owners believe they can do
all of the work. They do not budget salaries for
employees for busy periods, illnesses, some evenings,
and vacation times. You also need to budget for
personal costs such as the value of your time, new
clothes, food, entertainment, etc.
Depending on the amount of loan payments and other
variables, at about 40 percent occupancy, your fixed
monthly and yearly expenses may consume from about 50
to 70 percent of your gross revenue. These expenses
cover relatively fixed mortgages, rent, or building
payments, accounting costs, taxes and licenses, office
and administration costs, and depreciation. As your
occupancy rate increases, the percentage spent for
fixed costs will decline, the percentage spent for
variable expenses will stay about the same, and profits
will increase.
Depreciation
Depreciation is a systematic means by which costs
associated with the acquisition and installation of an
asset are allocated over the estimated, useful life of
that asset. An accountant can explain the various
depreciation methods and possible tax advantages.
Capital expenditures are for assets and improvements
with a useful life of more than one year. Tax
deductibility is spread over the number of years that
represent [heir approximate life expectancy.
TABLE 12-1
Example of Projected Start-Up Expenses:
Item Expected
Investment Expected Annual Monthly
or Cost Life Cost Overhead
__________________________________________________
Renovation $22,200 10 yrs. $2,220 $185
cost of
costruction,
of electrical,
plumbing,
painting,
landscaping
Mattresses, $4,500 5 yrs. $900 $75
sheets,
blankets, etc.
Smoke $500 5 yrs. $100 $8.33
detectors
Kitchen $1,200 10 yrs. $120 $10
Equipment
Directional $1,500 5 yrs. $300 $25
road signs
Front $500 5 yrs. $100 $8.33
entrance
sign
First Year
Costs
Legal fees, $1,200 --- --- ---
permits,
licenses
Promotion, $2,200 --- --- ---
advertising
Supplies $600 --- --- ---
TOTAL $34,400 $3,740 $311.66
Note: This projection assumes that the building is
completely paid for.
Cash Reserve
It is important to project expenses from start-up to
the time you reach break even occupancy level. If there
are no reserves for losses during the period until you
break even, bankruptcy could occur. It is not uncommon
to take two or more years to generate a profit.
Considering the Necessary Investment
After estimating the start-up costs and ongoing
expenses, you need to decide whether investing in a B&B
will pay off. You may want to look at the lost
investment opportunity if your home is paid for.
Determine the value of your home, the cost of a smaller
house, and the financial return on investing the dollar
difference of the two homes.
You may have to take out a loan initially to pay for
all the start-up costs and ongoing expenses during your
first or second year of operation. For example, the
projection of start-up costs, listed earlier in this
step, projected an initial investment of $34,400.
Assuming that you had $4,400 available, you would have
to borrow the remaining $30,000 and pay interest on the
principal.
You should carefully consider the additional financial
burden of such a loan before committing yourself to
starting a B&B operation. By taking a first mortgage on
your home for $30,000, at a 11. 5 percent interest rate
for 20 to 25 years, you would have monthly payments
ranging from $305 to $320 per month. Some new hosts may
have house payments, or payments for the purchase of
property to start a B&B or payments toward buying an
existing B&B. Calculate whether the B&B will bring in
enough income to pay your bills and compensate you for
your time and invested capital.
Prepare the worst case scenario and have access to
twice as much as you think you need. Consider delaying
loan repayment until a period when your projections
show an adequate cash flow. Tap the expertise of a
small business lawyer if you are making a large
investment in a B&B inn, purchasing an existing inn, or
forming a partnership or corporation.
Where You Go for Money(2)
Small business and family business owners may be able
to provide helpful financial information. Planned
financing may be a combination of the following items:
* Borrowing on a note basis from friends and relatives
* Borrowing the cash surrender value of your life
insurance policies and those of your relatives'
* Contacting an insurance company for a long-term loan
* Securing a loan from a local bank if your net worth
is high enough (you will need to locate a cosigner if
you have insufficient assets)
- Loan officers look for borrower's worth with good
credit ratings and sound business plans. Interest rates
and repayment plans vary from bank to bank, so
comparison shop for the loan that is best suited for
your circumstances. You will probably spend from 2 to 5
percent of the total amount of a commercial loan up
front as loan closing costs.
* Contacting the Small Business Administration for a
business loan
- For an SBA loan, you need a good business plan and
cash or collateral. If you are refused by two banks,
SBA will consider guaranteeing the loan. Women and
minorities may qualify for special loan programs.
* Obtaining financing from a small business investment
company
- Selling interest in your B&B by forming a partnership
or corporation may produce the capital you need
- You do not have to repay equity money. Investors are
interested in return on their investment.
* Obtaining a long-term lease for the property
- Long-term leases eliminate down payments and mortgage
payments. You would probably have to locate people to
purchase the property to be leased to you.
Obtaining a Bank Loan
To find a suitable bank or lender ask them the
following questions:
* Do you have small business loan officers with whom I
may speak?
* What size small business loans do you handle?
* Do you have innovative, commercial loan programs and
do you handle SBA loan guarantees?
* Are you loaning now for home businesses and B&B-type
projects?
You need to have a good business plan to present a loan
proposal. A SCORE counselor from the Small Business
Administration or the Small Business Development Center
should review it first. Your plain should answer at
least five questions including:
1) How much money is being requested?
2) What is the exact purpose of the loan (Itemized)?
3) For how long a period is the loan wanted?
4) How is the loan going to be repaid (proven by
projections)?
5) What is being offered as collateral?
After presenting your loan proposal to the loan
officer, the last question should be, "How long will it
be before I get an answer?"
Capital Budgeting
Capital budgeting decisions involve the commitment of
large amounts of capital for long periods. Typical
capital budgeting decisions include whether to buy
equipment, whether or not to add rooms and bathrooms,
and whether or when to renovate the kitchen. Capital
budgeting involves planning and measuring the estimated
economic profitability of alternative use of your
resources.
Figuring Net Profit
Once you have determined your estimated revenues and
expenses, you can figure your projected profit. Profit
before taxes is the excess of revenue (sales) over all
costs and expenses incurred over a given period of
operation (see bottom line of income statement in
Appendix 0). When you have determined your after-tax
profit, make sure that it will provide adequate
compensation for your time and effort and a worthwhile
return on your personal investment.
The Profit and Loss Statement in Appendix 0 projects
timing of the incoming revenues, operating expenses,
fixed expenses, and profit or loss before taxes. It
also shows income and expense accounts recommended by
the Professional Association of Innkeepers
International.
Knowing how many guest days (or dollars) are necessary
to cover costs is exceedingly important. The break-even
chart, or profit graph, indicates how sales volume,
selling price, and operating expenses affect profits
and how many room sales are necessary before you begin
to make a profit.
Break-even analyses pinpoint where revenue equals total
costs. To calculate your break-even point, take your
projected income statement and identify each cost as
either fixed or variable.
Fixed costs are those that over the short run (a year
or less) do no vary regardless of revenue fluctuations.
Examples are salaries, rent, property taxes, interest,
fire insurance, depreciation, and the committed cost of
an advertising campaign. Over the long run, all these
costs can, of course, change. But changes are not
directly caused by the number of guests accommodated.
Variable costs vary in direct proportion with sales or
revenues-the higher the occupancy, the higher the cost.
Very few costs are strictly linear, but several that
are (with slight possibility that they will not always
have this strict definition) include the costs of food,
laundry, linen, and guest supplies.
Semi-fixed or semi-variable costs have an element of
fixed expenses (independent of volume) and an element
of variable expenses--and not always variable directly
to sales on a straight-line basis. Such costs would
include payroll, maintenance, and utilities. A B&B
operator needs to separate these semi-fixed or semi-
variable costs. Perhaps a good way to initially analyze
this is to examine the fixed and variable components of
each semi-fixed cost in regard to a low occupancy month
compared to a high occupancy month, and determine a
mid-point between the two.
There may be a relatively high portion of a fixed cost
element for many costs because of the relatively low
number of rooms sold in the first year or two and the
number of units contained in the most economical
purchase container, minimum service charge, or cost.
The break-even formula shown in Table 12-2 shows that
costs will exceed revenue until you have sold $54,237
worth of rooms. Consult hospitality financial and
accounting textbooks for more information on this
important topic.
TABLE 12-2.
Break-Even Formula
BE= F divided by (S-V)
Where BE = break-even sales in dollars
F = fixed costs in dollars
S =sales expenses as 100 percent
V = variable costs as a percent of sales
EXAMPLE:If F=$32,000, S=100 percent, and V=41
percent,(3) BE=$32,000 divided by (100 percent - 41
percent) = $54,237.
Significance of Cash Flow
Net profit is not the same as net cash flow. In
addition to accurate estimates of revenue, expenses,
and profits, you need to estimate the timing of cash
flows. Your profit and loss statement (see Appendix 0)
does not provide accurate information about cash
available for an accounting period.
Probably the most important part of the financial plan
is a solid cash flow projection, which translates an
operating plan into dollars. The statement discloses
cash in (operating and other receipts), cash out
(operating disbursements, fixed charges, and other
disbursements), and their timing. It thereby identifies
the elements that make up net change in the cash
balance between the beginning and end of a period, and
shows fluctuations in cash balances. The cash budget
also predicts future cash flow based on an expected
level of sales volume. It indicates when borrowing will
be necessary and in what amount, and shows when cash
will become available to repay the loan. It is
especially useful during the pre-opening renovation and
furnishing stage and the first months of operation.
Unfortunately, dollars actually received (particularly
cash received from some credit card plans) are not
necessarily received when you need them. Some operators
have seasonal cash flow problems. The negative impact
can be greatly reduced by appropriate advance planning.
The cash budget is usually composed of six parts:
1. beginning cash balance
2. receipts - expected operating and other receipts
3. disbursements operating, fixed, and other such as
food, labor, supplies, investments, owner's draw, house
and other loan payments, and income taxes
4. cash excess or deficiency - the difference between
cash and cash disbursement. If a deficiency exists, you
will need to arrange for borrowed funds
5. financing - a detailed account of the borrowings and
repayments projected to take place during the budget
period - this includes a projection of interest
payments that will be due on money borrowed
6. ending cash balance
The cash budget should be divided into monthly (or
shorter) periods for one year. For more information,
see the latest edition of the Uniform System of
Accounts and Expense Dictionary for Small Hotels and
Motels, American Hotel and Motel Association (see
Appendix A).
Developing a Bookkeeping/System(4)
Accounting An accounting system allows you to plan and
control your business, keep records, compile historical
data, and prevent theft and fraud. For guidance on
setting up a B&B accounting system. refer to The
Professional Association of Innkeepers system(5) and
the Uniform System of Accounts for Hotels.(6) You may
also want to consult an accountant to develop your
system.
Record keeping alternatives include
1) regular family checkbook and accompanying record
book with separate accounts to keep track of expenses,
2) one-write or pegboard system combination checkbook
and record keeping system,
3) duplicate check system - get a carbon copy of each
check written and identifying account, and give to your
accountant each month and the accountant provides you
with a monthly Profit and Lou Statement, and
4) computer record keeping program.
Investigating the Tax Laws(7)
You can make the laws work for you if you are
well-informed and have good counsel. An accountant and
representatives of the Internal Revenue Service, Small
Business Administration and/or a Reservation Service
Organization can assist you in understanding your legal
responsibilities, allowable deductions and options. Be
sure to learn about preparation, possible investment
tax credit for newly purchased items, deductions for
renovating historic homes, business deductions, self-
employment tax, social security tax, state income tax
on home-based businesses, and sales tax. Depending on
your tax bracket, there any be advantages to you or
your spouse discontinuing present employment. There may
also be benefits to having one spouse hold the B&B
business as a separate property.
Overall Analysis
If the results of your budget and tax plan are positive
after comprehensive analysis, have the plan reviewed by
a banker, accountant, and/or a B&B operator. An
independent review of the operating plan, marketing
plan, and budget is advisable to ensure that they are
realistic and attainable. If the financial results are
negative, but you want to persevere, review the B&B
concept for possible changes. Consider choosing another
location, and determine strategies for increasing
revenues and reducing construction, start-up, and
operating expenses.
Goals of Step Twelve:
1. Determine the amount of money you need to carry out
the business plan (to cover land, building, equipment,
start-up, and operational expenses).
* Determine how you expect to finance this debt capital
and when it is needed.
* Determine how the money will be spent.
* Determine how soon it can be repaid. If you are
thinking of restoring a historic home, be sure to check
into possible tax deductions.
2. Determine possible sources of funding.
3. Project start-up costs.
4. Determine the break-even point of your B&B.
5. Determine the time period between start-up and
break-even. Then determine the amount of cash reserve
needed for that period of time.
6. Project a monthly cash budget for one year.
7. Prepare a pro forma profit and loss statement for
three years.
8. Decide on an accounting/bookkeeping system.
9. Investigate the tax laws for maximum benefits and
records required.
________________________________________
(1) The Wisconsin Bed and Breakfast Industry: An
Enterprise Study, Recreation Resource Center and Small
Business Development Center, University of Wisconsin,
1990.
(2) See The ABCs of Borrowing, Small Business
Administration, FM1.
(3) In a Professional Association of Innkeepers 1988
Bed & Breakfast/Country Inn Industry Survey & Analysis,
5 to 10 room inns' variable expenses were 41.23 percent
and fixed operating expenses were 58.77 percent.
(4) New England Business Service, 500 Main Street,
Groton, Massachusetts 01471 has a onewrite check system
for about $70. It includes 300 checks, a peg board, a
journal, envelopes, and other components. The one-write
receipt and deposit system includes 50 receipts,
deposit slips, journal peg board and envelopes. Also,
Breakfast-n-Bed, provides a B&B accounting system for
about $80. Their address is 2101 Crystal Plaza Arcade,
Suite 246, Arlington, Virginia 22202. Also see
Recordkeeping in Small Business, U.S. Small Business
Administration FM1O.
(5) The Professional Association of Innkeepers, P.O.
Box 90710, Santa Barbara, California 93190.
(6) The American Hotel & Motel Association, 1201 New
York Avenue, N.W., Washington, D.C. 20005-3917.
(7) See Business Use of (Your) Income For Use in
Preparing 1989 Returns, Publication 587, Department of
the Treasury.
STEP THIRTEEN
Complete the Business Plan
Two other items essential to the business plan are the
cover letter and the appendix. The cover letter should
briefly summarize the plan and emphasize its purpose
and premise. It is a selling tool, addressed primarily
to prospective investors, lenders, or partners.
The appendix should provide easy access to supportive
and detailed information that you have gathered for the
business plan. The items in the appendix are best
arranged in the same order as the plan. It is helpful
to use a numbering system for each section of the
appendix for use in making references to the appendix
material. The type of information that might be listed
in the appendix includes:
* Detailed biographical sketches of key people
* Charts, graphs, tables, and statements referred to
specifically in the body of the plan
* Detailed assumptions supporting the financial
projections (like profit and loss projections, pro
forma cash flow analysis, balance sheet, and a
break-even sheet)
* Detailed explanations of occupancy patterns from B&B
operators, local and regional hotel/motel occupancy
trends, and other data upon which B&B revenue is based
* Organizations and individuals providing key services
to B&Bs (e.g., lawyers, bankers, accountants, and
insurance agents)
* B&B competitors
* Specially prepared market surveys and existing local
market surveys
* Sales projections for the first three years
* Advertising and promotion schedule for the first
three years
* Equipment and supplies list
Review, update, confirm for accuracy, and summarize in
a clear, concise fashion each step of this guide.
Carefully review the financial plan and get opinions
from accountants, bankers, and B&B innkeepers before
making a major investment or change in family status,
location, job, etc. This then is your "B&B Business
Plan." It provides you with an initial operating plan
and explains your business to outside parties. Now you
should have a realistic idea of the time and resources
required to operate a B&B business and what you can
expect from that business. You must now decide:
* Is a Bed and Breakfast the best use of this space or
would conversion to apartments, office space, or other
alternatives provide a better yield for my time, money,
and interests?
* Will I attract enough customers at the room rate to
cover expenses?
* Is it worth devoting a large part of your time to the
business?
* Will it be worth investing a great deal of your
assets to the business?
If you answered "YES" to these questions, you are ready
to implement the business plan for your B&B.
Goals of Step Thirteen:
1. Complete the business plan.
2. Determine what specific knowledge you have.
3. Determine how your knowledge, experience, and
abilities transfer to the B&B business.
4. Determine how best to exploit the opportunity.
5. Evaluate all the facts and DECIDE:
- Is it worth a big piece of your time?
- Is it worth a big piece of your assets?
- Do you want to proceed?
Conclusion:
This publication has outlined a systematic method for
developing and analyzing your potential B&B business.
Although a business plan cannot ensure success, careful
completion of the preceding steps should give you a
fairly clear idea of your chances for success or
failure. We hope you have found through your research
that operating a Bed and Breakfast will be a profitable
and rewarding venture.
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
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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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5M April 1991
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