Quantum Hospitality Group, Inc. a Blog for Bed and Breakfast Inns

Follow our New Blog

2009-04-29T06:18:00.001-07:00

Hi Everyone!

Our Blog has moved. If you would like to continue reading our Blog and hearing our thoughts, please visit our new blog at http://blog.quantumhospitality.com.

We look forward to having you follow us there!

Rebecca & Howard Levitan

Twitter for Bed and Breakfasts 3.0

2009-04-27T10:01:00.000-07:00

Here is the third installment of my exploration of the world of Twitter (the “Twitterverse”). My Twitter ID is @InnConsultant. Follow me if you like what I am saying.

In Part I and Part II, I discussed how I first got into Social Media, and how I got hooked on it. I found it a really good way to get good returns marketing small businesses like Bed and Breakfast Inns. It truly compliments all of the time and effort that you put into having a really good blog, by providing effective advertising for all of your new blog posts. Here are my thoughts after a few months on Twitter.

First, as I stated in earlier posts, there is a real etiquette to Twitter. People will stop following you if your tweets are just ho hum! This is an information sharing concept, so if all you are doing is trying to sell, sell, sell, they will turn you off. What people want to know is who you are and what you really think about things. In other words, why are you “interesting” enough to follow? At the present time, I am amazed to find that I have over 230 really diverse people who follow me, and I am following more than that. I am not really trying to drum up followers now, they seem to just find me. Most of them are interested in travel and hospitality, which of course is what I am all about. So I seem to be getting people to follow me that share my interests. And that is the whole purpose of this effort.

So, I don’t try to sell anything to anyone. I am also very careful about my on-line reputation, so I don’t rant and rave (even when I feel like doing so!). I comment frequently about other people’s tweets, either retweeting (“RT”) or replying (“@” ____). Sometimes, I send someone a private message (“DM”) where what I have to say is either personal or not something of interest to the world of followers. What I try to do is to share information about things that I am interested in and provoke thoughtful conversations about those things. What I am really doing is trying to show people who I am and why they should listen to what I am saying. I am learning about other people who I follow and who both share my interests and are interesting people. One thing is for sure. I have come to really admire some of the people that I have “met” on Twitter, without really ever seeing or hearing them. What an amazing thing!

Another interesting thing is the local nature of Twitter. Following people in your community or state is a good way to build up a reputation or persona on Twitter. This translates into a whole new world of networking, especially in the on-line community of people who are practicing Social Media on a daily basis as part of their jobs. I have found a whole group of people twittering away in and around Portland, Maine, who are great sharers of information about social media and how it works best.

Now the business part of the equation. People who are interested in who you are also are interested in what you do. Your followers want to know what differentiates what you do from what others do, and why that makes you interesting? So if you have the best Bed and Breakfast Inn in the World, Country, State or even just your local city or town, you can show people (like your guests or prospective guests) why they should come to stay at your Inn as opposed to going elsewhere. Now how do you do this?

Like all marketing advice, the main idea of differentiation is to tell who you are clearly and convincingly, and what makes you different than all of the others. The tough part in Twitter is that you only have 140 characters to provoke an image to the readers (i.e. the World). While this requires some thought, not all images need big and long trains of words. A quick pop about those amazing thick and tangy, fresh Maine blueberry pancakes you served at breakfast may be enough to tweet a great image to your followers. If you have fantastic restaurants and wine nearby, tell people about the great meal you had there (i.e. what you had not just that it was good). Tell them about all of the festivals and doings in your local area, so that they get a feel about why they should come. Convey a thought image in just a few words. This is quite different that just announcing a reduction in price to try to get people to come. What is happening is that you are describing what your Inn is all about, and why they should come to see you as the Innkeeper. You are really invoking a feeling in the reader. If they get the sense that you are a good and interesting person, then that is most of the battle right there.

So, give it a try. We keep hearing about all of the success stories of Inns on Twitter. If you don’t believe me yet, try following @HoptonHouseBnB. Karen Thorne, from Shropshire, UK, is probably the most Social Media savvy Innkeeper I have ever seen (or is that “heard”). Look at what she does on Twitter, and you will find a perfect role model for your Tweets. What are you waiting for?

Reputation Management for Bed and Breakfast Inns

2009-04-09T12:07:00.000-07:00

There is a new concept in the world of Internet Social Media. “Reputation Management” is essentially the ability to deal with the consumer generated reviews and comments about your Inn business posted throughout the Internet. There are now hundreds of web sites allowing consumers (i.e. your guests) to post comments about how they perceive your Inn and the experience that they had while there. How many Innkeepers have been hurt, embarrassed, upset, angry, and just plain pissed-off about an unfair review on TripAdvisor? Well, now is the time to think about how you best can deal with these issues. They are not going to go away, and the comments on TripAdvisor and the other review sites can have a dramatic impact on future web-based reservations. This means business, and you need to treat this as a serious concern.

The first issue is really the essential one. How can you prevent a bad review from happening? Not possible is what most will say; eventually it will happen to you. However, perhaps prevention is the best advice. That gets us back to good old hospitality and superior service. The people at TripAdvisor told us at PAII that most adverse comments are really about the Innkeepers. Either they were grouchy, touchy, angry, or the like, or they were not present when guests had issues that were important to them. If it is all about the Innkeepers, then perhaps prevention can happen before a complaint is broadcast to the universe. Also, many bad reviews are about Innkeepers rigidly sticking to their policies, particularly their cancellation policies. In this connected world, it just may be good business to waive a cancellation penalty rather than go through the difficulties surrounding a bad review. We know of one very smart Innkeeper who has been at it for over 20 years without any kind of policies (no deposits, no cancellation fees, and money back for whatever reason if the guest is not happy with the Inn). In the long run, this may be the best policy for an Inn.

The next step is to make sure that you have the opportunity to intervene if there is a problem before the guest leaves. It just may not be sufficient to ask the guest at check-out if everything was OK with their stay. That question is better said the other way around, such as “Is there anything we could have done to make your stay better?” It is hard to get guests to tell you what you need to hear, especially when they are trying to check-out and anxious to get home. Comment cards no longer seem to work, because the guest perceives that it may be a waste of their time. Those guests that had a bad experience often find the anonymity of the Internet the perfect setting to wail away at the perceived treatment that they got at the Inn. Intervening at check-out, or better yet at breakfast before they leave, may be the better choice. At that point, if they are unhappy, you can take direct action to explain your side, and to try to resolve the issue before it becomes everyone’s issue. Also, you need to have a clear policy as to what to do with a guest who just did not have a good experience. It may not matter whose fault that was, but you need to do something about it. This may mean that you may have to give that guest something of value, particularly if it was the fault of the Inn and it was a serious issue.

Here is another suggestion that was a topic of discussion at PAII. Some really thoughtful Innkeepers mentioned that a follow-up email to all of the guests a week or so after they left was a really good opportunity to communicate. One Innkeeper even stated that they do two email follow-ups, one on check-out asking if they could have done anything better for the guest, and the second answering any responses to the first one. If the response is good, the Innkeeper will suggest a few websites like TripAdvisor where the guest could leave a hopefully positive comment. Where the response is bad, the Innkeeper would then take prompt action to try to remedy the problem before an adverse review is posted.

The next step is for Innkeepers to constantly monitor what the world is saying about them and their Inn. This is not as difficult as it seems. TripAdvisor has a service to email al reviews to the Innkeeper. There are meta search websites like Google Alerts and Technorati, which will also constantly search the web for mentions of keywords and advise you if there are any mentions. It is absolutely essential that you know immediately when a bad review occurs so that you can deal with it right away.

Finally, sites like TripAdvisor provide Innkeepers the opportunity to respond directly to a review by posting a management response. This is a really critical aspect of Reputation Management which should be done promptly and dispassionately. In other words, tell it like it is from the Inn’s standpoint, and hopefully the public will understand that not all issues reflect badly on the Inn. TripAdvisor stated at PAII that often a management response is very helpful to the Inn and can overcome a bad review with reason and particularly with a warm and frank answer. This is the hard part, because we all know how hurtful a bad review can feel to an Innkeeper.

This is a brand new world that will take time away from Innkeepers who do not really have time to spare. Our thought is that this area is going to become very important to all types of businesses, especially those in the hospitality world. It is not going to go away, and you need to gear up to handle these issues. We are currently developing an internet based consulting service to assist Bed and Breakfast Inns to handle the many issues present in Reputation Management. Let us have your thoughts about what type of service may be helpful to you.

Twitter for Bed and Breakfasts 2.0

2009-03-25T09:18:00.000-07:00

Here is Part II of my exploration of the world of Twitter. I have been tweeting now for about two weeks, and have about 120 people actually following what I am saying on this incredible social media. It amazes me how fast this has grown for me from a peek at a new marketing channel to a full blown way to spread the word about what we do at Quantum Hospitality. More important, I have found so many really interesting people in the Twitterverse to follow. They are writing short notes (140 characters only) about anything and everything of interest to them. Here are my continuing observations about this exploding device.

In last weeks blog article, I described in general how Twitter works, but the simplicity of sending out very short messages belies the fact that a tremendous amount of information is being spiraled around the Internet in this fashion. By using one of many free services to shorten URLs, Tweeters are including references to blog articles and other websites within their Tweets. Once received, each person, if the information is deemed worthy, can then “Retweet” this information to his or her list of followers with a comment. It is this Retweet phenomenon which is the essence of viral marketing. It keeps the message circulating, growing and growing the number of people who ultimately see it. Just think of the possibilities. Imagine your Special Package description gets Tweeted to your friends (presumably your guests) who then spread the word to all their friends, who then send it to all of their friends, and so on. . . . This is the essence of the concept of Repeats and Referral, the two most important kinds of guests and prospective guests a Bed and Breakfast can have. In essence, the marketing potential of Twitter is endless.

Now, does it work? First, there is an etiquette happening as well. If all that you talk about on Twitter is your business, your Twitter followers (i.e. your “friends”) will likely stop listening to what you say. This is a social media after all! They want to know you as a person as well as a business. Here is where all your Innkeeper hospitality comes into play. You can spend a good deal of time on Twitter talking about what is going on at the Inn. It can be as simple as a description of that fabulous breakfast that you just fed to your guests, a description of one of your best guest rooms, or a short note about what is happening in your neck of the woods this weekend. Pictures work great on Twitter, with a Flicr account and a shortened URL, you can include great photos in your Tweets. Again the marketing potential is limitless. The key is to convey the wonderful ambiance of your Inn in 140 characters. That is the Zen of it all.

So the overall answer to the question “does it work?” is a resounding yes! What amazes me is that there are so many bed and breakfasts out there, but only a relative few have caught on to Twitter. This is a missed opportunity. Right now, it appears that the overwhelming number of people on the Twitter channel are people who are into social media as a business. The bloggers and web developers are all there. Also, you will find every form of self help and technical gurus there, as well as some really smart people who just want to learn about the anything and everything of it all. These people are basically your guests or prospective guests.

So what is the first step after signing up for Twitter? You need to get a following that wants to hear your messages. What better way than to put out the word to your guest list that you are now on Twitter. Put the Twitter link on your website, and send an email notice to your guest list with your Twitter ID. Ask them to follow you. Make sure you have the link in all your marketing pieces and newsletters. Set a goal to get a good number of your guest list into following you on Twitter.

Once you have guests following you on Twitter, you can then have a look at who they are following and who is following them. You can elect to follow anyone who is interesting to you (i.e. a potential guest). If you follow someone, they get an email from Twitter advising them that you are now following them. Usually, they will look you up on Twitter, and if it interests them, they can elect to follow you back. This is the social networking feature of Twitter, and it allows you to expand your friends and make new ones. Many, many Tweople have thousands and thousands of followers on Twitter. It is word of mouth at its highest level.

So my advice is “what are you waiting for?” Get going and Twitter on. . . .

Twitter 1.0 for Bed and Breakfasts

2009-03-12T07:13:00.000-07:00

This is my first week as part of the Tweople in the Twitterverse. I am trying to discover if Twitter, the new explosion in the Social Media World, is worthy of the time. Is it something that can help Innkeepers connect to their guests and build loyal travelers? My initial conclusion is a resounding Tweet YES!

First, let’s define the process. Twitter is a free Social Media website that asks the simple question “what are you doing?” You have 140 characters to describe anything that you want. Sort of a brief haiku of what is going on in your head. A posting is called a “tweet,” and it goes out to all of the people who have signed up to follow your postings (they are called “followers”). You, in turn, receive tweets from all of the persons that you are following (i.e. your friends), hence the social nature of this new media. That is pretty simple in concept. What it is in reality is like a nuclear bomb on the web. Millions of people are all atwitter about themselves. Here is my own experience over the last week or so.

After I set up the account a few months ago, I shot off a couple of tweets about things that were bothering me, like the new LL Bean credit card. I stopped after a bit, because I wasn’t sure whether anyone was listening to my rants. I just did not get what this was all about. Well in fact, there were at least 8 people in the Twitterverse that must have felt the same way about LL Bean, because they signed up to follow the stuff that I was putting out. I didn’t do anything else, but they seemed to hang in there with me.

Last week, after the mighty Wall Street Journal said that Twitter was hot stuff, I decided to explore this further. What I found just staggered me! First, there are an absolutely amazing number of very interesting people who are talking to the world on Twitter. By doing a search of interests or subjects or anything else you can think of, you start to see the profiles (picture, website, and short bio) of vast numbers of people. By clicking a button, you add them to your “following” list, and, low and behold, some of them look at your profile and decide that you might be worthy of following. Basic networking is then happening, and the more you follow, the more that follow you in return. Then comes a daily stream of tweets about anything and everything, but you can look at what comes in and cull the interesting from those that you really don’t want to read. There is an etiquette to Twitter as well, and clearly if you tweet too much during the day without a whole lot of content and interesting stuff, then your followers are going to turn you off (remove you from their following list). Sort of like immediate feedback about your worthiness. The most “interesting people” are tweeting about things that they have found on the web, and include a URL in their tweet. Other software companies have even set up websites to compress the URL’s into tiny links so that they fit into the rest of the 140 characters that you have to tweet with. So, what is happening is that Twitter becomes an amazing information sharing tool that starts from a very simple premise, but unleashes the power of the Internet to get worthy information to you.

Yesterday, I added a tool called Twhirl that sits on my desktop and monitors the tweets that come in from those who I am following. It has all of the functionality of the Twitter website, and even some great tools like compressing URLs and filtering tweets. It signals each tweet as it arrives. There are numerous tools for Twitter, and I haven’t even scratched the surface of the amazing world of add-ons to make the process better. While the search feature in Twitter is good, there are third market search engines that are incredible in their ability to dig out of the Twitterverse those people who might be relevant to you and your business.

Now let’s talk about electronic marketing for Innkeepers. What most of these interesting people are doing on Twitter is promoting themselves or their products or their blogs or their websites. By creating a group of people who follow them, they are engaging their customers and those people who might be interested in their products or services. So they are setting up a network of people to talk with who might be their customers in the future. Now the tough part. Since this is a social media, the pitch may not be as direct as “I would like you to buy my product.” This is about people, and remember the premise is “what are you doing?” Perhaps you are writing a blog article about a great event to take place near your Inn. You could then tweet what you are doing along with a link to that blog posting. Or you could simply tweet about what his going on at the Inn or anything that makes you more human and likable to your guests and potential future guests. The subjects are unlimited. There are a huge contingent of people on Twitter interested in travel. That is because they first are interesting, very savvy, and literate people. These interesting people like to travel. How do I know this? It is simply because you selected them yourself to follow, and, by their selection, your followers are interested in some of the same things you are. It is elementary, but very, very powerful.

So, that’s all for this post. I will continue to update this subject as I get further into the Twitterverse. If you want to follow my tweets, check out InnConsultant on Twitter.

Recession Reality for Bed and Breakfast Inns.

2009-03-02T07:54:00.000-08:00

1. The Numbers Don’t Lie? Once again we are faced with an incredible array of numbers coming out of respected professionals who are trying to figure out the impact of the National recession. The problem is that the numbers can be made to say anything, but a careful review will show that no matter whose numbers are used, the picture is not rosy. Take for example the Gross Domestic Product (“GDP”). The Government released figures in January showing a decline in GDP for 2008 of 3.1 %, the worst in over a decade, clearly signaling the fact that the recession was worse than most economists had predicted. On February 27th, after the markets closed, the Government revised the GDP loss to a whopping 6.2 %. Stocks world-wide are tumbling on that piece of bad news, in fear of a longer recovery period. The downward spiral seems to continue with the report that even revered investor Warren Buffet lost $11.5 billion in the net worth of his Berkshire-Hathaway Corporation.

2. What is the impact on the Inn Business. First, it is hard to get numbers for the Bed and Breakfast Inn business separately. Smith Travel Research (“STR”) is the most respected source of historical numbers for the Hospitality Business, but does not collect data from small properties (under 50 rooms). One data release from STR shows that New England seemed to be holding its own relative to the US National data. For example, December, 2008 results for New England included a drop in occupancy rate of -2.1%, while Average Daily Rate (“ADR”) decreased by -3.6%. This resulted in a huge decrease in Revenue Per Available Room (“REVPAR”) of -5.7%. The National figures during the same December period showed larger decreases in Occupancy of -6.8%, in ADR of -3.2%, and a REVPAR decrease of -6.6%.

For the Year 2008 as a whole the figures are also instructive. New England showed a decrease in occupancy of -2.8%, but an increase in ADR of 1.9%, resulting in a miniscule decrease in REVPAR of -0.9%. The National figures for 2008 were far worse, with a decrease in occupancy of -4.2%, but an increase in ADR of +2.4%, resulting in a decrease of -1.9% in REVPAR.

The numbers from STR show that, until about September, 2008 was a growth year with higher occupancies that dropped precipitously in the 4th Quarter. Rates were still climbing in December, as the Hospitality Business seemed to lag in discounting. Overall, 2008 would be a down year, but only in comparison to the strong growth in the prior three years.

3. New England is not the same. One interesting thing that jumps out of the results shown by STR is that the New England States are not homogeneous. In fact, it was clear in both the December and National results for 2008 that Northern New England (Maine, New Hampshire, and Vermont) fared much better individually than the Nation or their Southern New England counterparts. For example, for 2008 as a whole, Vermont showed an increase in occupancy of +1.9%, an increase in ADR of 4.8% along with a REVPAR increase of +6.8%. While the results in Maine and New Hampshire were more consistent, they were slightly worse than New England as a whole. The bottom line was that overall, 2008 was a non-growth year, with a really cloudy picture for 2009.

4. The Real Data comes from Sales Tax Revenues. Another well respected source of industry research comes from Atlanta-based PKF Hospitality Research (“PKF”). Utilizing results of sales tax collections in Maine, PKF reported that September lodging sales in that state dropped by -12% from 2007, and continued to drop by -2.6% in October on a year-to-year basis. While Maine finished the year 2008 slightly ahead of 2007 (+0.7% growth in revenue), this came after 6% annual growth in the preceding three year period. PKF is projecting as a whole a -7.8% decline in REVPAR for Maine in 2009, which would make it one of the steepest declines in recorded history since the 1930’s. PKF also predicts that Maine will not fare as worse as others, because of its relative low cost and its rural location which fosters escape from the big cities. Presumably this would apply to all of Northern New England with similar characteristics prevalent throughout the region.

5. Summary: Batten Down the Hatches! No one likes to consistently hear bad news, but there is little about the economy that seems to be saying that things are going to get better soon. Predictions for a recovery in late 2009 and early 2010 are all that we have to go on, but most economists are hedging on those dates. Similar to the broad-based declines in 4th Quarter, 2008, retail spending, the American consumer seems to have switched to a survival mode, and this does not bode well for discretionary spending at least until there is some better news on the horizon. We have advised our consulting clients of the following:

a. Budget for a decrease in revenue of about 10% for 2009, adjusting expenses as much as possible to that revenue;

b. Increase spending in Marketing, particularly electronic marketing to capture market share;

c. Neither increase or decrease overall rack room rates. Develop packages with adventure travel features which show good overall value. Up-sell rooms whenever possible, and include value-added options with all room rates. Partner with local businesses and cross-market as much as you can.

d. Hold discretionary spending to a minimum and build cash wherever possible in the event that this recession lasts longer than expected. Do not defer necessary repairs and maintenance, but this is not the year to spend money on capital improvements.

e. Remember why you came into the Hospitality Business. It is all about the guests and not the Innkeepers!

f. This too shall pass. Look to the future, because the past is gone forever.

Blogging - A Must for Bed & Breakfasts Inns

2009-02-11T11:17:00.000-08:00

So you may ask, how does Blogging affect my Bed & Breakfast? The bottom line is that now is the time to get on the social media bandwagon and start Blogging your Bed & Breakfast. Blogging is one of the most cost effective ways to market, but it does take time, energy, and CONSISTENCY! Marketing has always been a challenge for Innkeepers, and we believe that it will remain that way. There are only so many hours in the day, but this does need to get done. If you can not commit to the time, you need to hire someone to do it for you and we would be happy to assist. So, here are the basics:

Blogging adds fresh content to your website and this is the key to search engines;
Blogs provides the public with the current "happenings" in your area/Inn;
Blogs need to be hosted on your website, so that the fresh content is associated with YOUR website and not Blogger or WordPress;
Blogs need to be written with key word rich content;
Blogs need to be updated at least once per week, and more is better.

Not sure what to do next? Call us and we can guide you through the process. We can assist with developing the Blog, working with your web host to install the Blog on your website, and work as a "ghost" Blogger to make sure that your content is fresh and up-to-date.

Bed & Breakfast Inns vs. Hotels: We Win, Hands Down!

2009-01-21T12:00:00.000-08:00

We spent some time over the Holidays with our family outside of Boston. Rather than displace some of my nephews, we tried the closest hotel. This was a large chain hotel on a major route west of Boston with a huge shopping center across the street. While there were several small (3 room) bed and breakfasts nearby, we thought we should see what the hotel industry was up to. What a mistake!

First of all, we should say that the room itself was newly redecorated, fairly large and well furnished. The bed was a new pillow-top king-size, and the furnishings were standard up-scale hotel furniture. There was a very large, new flat-screen TV with Hi-Def capabilities. There was also free wi-fi and good desk space with plenty of lights and a.c. outlets. It contained the typical business set up with desk and swivel office chair in addition to two other upholstered seats. The heat was the ubiquitous through the wall air conditioning/heat unit, but with a more modern temperature control on one of the walls. The bathroom was standard size, but upgraded with a stone countertop, tile floor, and bowed shower curtain rod, giving the appearance and feel of a larger bathtub. In short, this was a fairly up-scale hotel room, the same to be found in most cities of the Country. What it lacked in charm, it made up with functionality; or so we thought.

We were using reward points left over from the corporate world for one of the two nights of our stay. This is where the trouble started. We had paid for our second night as a deposit, with the first to be paid for by the reward. The cost of the room was quoted as $99 plus tax. When we checked in, however, the desk clerk advised us that we would need to check-out and then check-in again on the next day. They said that they could not guarantee that we would be able to stay in the room, as room assignments for check-ins are made each morning. We advised them that they needed to figure it out, but we were not moving rooms. The next day we did, in fact have to check-out and then check-in again, but somehow they managed to keep us in the room. We then went to breakfast in the dining room. This was a holiday, so they were not serving a buffet. We were seated, and then waited about a half-hour for a server to bring the menus and coffee. Overall, the breakfast was sub-par and the service very poor. When we finally checked out, the desk clerk told us that since we stayed in the same room, which apparently was a higher level than the rate quoted us, we had to pay an additional $50, despite the fact that our written confirmation was clear. We, of course, refused to pay, and the desk clerk said she would discuss it with the manager. After we left, they just charged the difference to our card anyway. We are still waiting for the credit that they promised, but the credit card company will reverse the charge if the hotel does not do so.

The long and short is that in the battle between hotels and bed and breakfast inns, we win, hands down! It is not about luxury rooms, amenities, or discounted rates. It remains true that personal service, quaintness, and charm will win out every time. It is not just about the room. While our room was perfectly adequate, and in fact, in some respects a clear upgrade, it was sterile, lacking any “charm” or individuality. This room could have been found anywhere in the United States. Close your eyes, and you may not know where you are for a minute. One of the things about old house syndrome at bed and breakfast inns, particularly those in older, historical buildings, is that the sounds of the Inn at night, the groans of the boiler or creaks and pops of the radiators, can impact your sleep, at least on the first night. Well try those hotel thru-wall heaters which make a huge noise as they cycle on and off all night. I’ll take charm every time.

The most important thing that we have to offer in our small part of the Hospitality Industry is the personal service that our innkeepers give to their guests on a daily basis. This is what clearly sets us apart from the much larger hotel business, and the one thing that will help us survive the tough times to come. The more the economy gets worse, the more respite, peace and good old fashioned hospitality will be needed to provide our guests with a retreat to recharge their batteries. Do not ever underestimate what we have to offer the traveling public. It is something that hotels can never supply, no matter how many concierges they have. The hotels of the world will compete by price to stay alive. The bed and breakfast industry has a magic wand and can better compete with hospitality, charm, and personal service. For all times, this is what differentiates us from the hotel business, and what will continue to make us successful in the years to come. What we need now is to spread the world that we are open for business as usual, and that means “Hospitality” with a capital “H.”

Lease Option Folly for Bed & Breakfasts

2009-01-08T10:54:00.000-08:00

During these difficult times of recession and the credit crisis, we have been thinking more about the use of Lease Options as a method of transferring Inns and Bed and Breakfasts. There clearly are some advantages for both Sellers and Buyers of Inns by allowing a faster closing period without the necessity of finding hard to secure financing. The universe of potential buyers is greater because the down payment (option price) and the closing costs are lower. Yet, I remain troubled about this method for both Sellers and Buyers. Here are the details.

First let’s describe the concept. The Lease Option is an alternative route to Innkeeping. It has been used over the years when financing gets tight or when the Inn in question is underperforming and cannot achieve normal financing. The way it works is that the Seller/Lessor leases the Inn property and business to the Buyer/Lessee for a five year term, keeping in place the existing financing on the Inn. The Buyer/Lessee pays an option price for the option which is less than a normal deposit for a purchase. The Lease is triple net, and the Lessee pays for all taxes, insurance, and maintenance costs. The rent is set at an amount sufficient for the Seller/Lessor to pay its mortgage on the Inn. In some cases the rent is lower at the beginning to enhance the ability of the Buyer/Lessee to improve the Inn’s business and make the Inn more capable of being financed in the future. In most cases a portion of the rent is also set aside as a credit against the ultimate option price, thus allowing the Buyer/Lessee to build up more “equity” in the Inn over the lease term. The Seller/Lessor retains title to the Inn and all tax incidences, including depreciation. Finally, the Option Price set by the Lease is received by the Seller/Lessee, but is not taxable until either the option is exercised or it expires by time or default.

From the Seller’s standpoint, they are able to get out of the active operation of the Inn and retain the tax benefits of ownership. They receive sufficient sums to continue to pay down their mortgage, and all operating costs are paid by the Buyer/Lessee. The Seller receives sufficient funds at the outset of the option to perhaps put a sufficient deposit on a new house or set aside funds for retirement without immediate tax consequences, but will not have a large payout to say buy a new business. One key point for the Sellers is that they still own the property, and thus, in the event of a default, can get back the Inn business faster than if they had to foreclose a mortgage. Overall, for a Seller that does not have immediate needs for the whole sales price, this looks on its face like a viable alternative, particularly where an outright sale is not possible.

From the buyer’s point of view, again, this looks attractive on its face for those Buyers who want to get into Innkeeping immediately, but lack the resources to make an outright purchase. It is clearly a cheaper route, with less of a down payment, and much lower closing costs (no appraisal or bank fees or transfer taxes). It gives the Buyer five years to develop and improve the business of the Inn, at the same time building up the equity under the lease and, hopefully, improving the overall value of the Inn while the option price remains fixed. However, for both Buyers and Sellers alike, this scheme is both illusory and full of risk.

Here is the main reason why this method is folly for both buying and selling Inns. The cash-strapped buyer is likely buying an underperforming Inn which usually requires an additional capital infusion of working capital in order to improve the business. Sweat equity is fine in a start-up situation, but does not necessarily work where real hospitality experience is needed to turn around a poorly performing Inn. Most of the Inns which are using lease options are full service Inns which are even more sensitive to needing qualified restaurant experience to improve the dining room parts of the Inn’s business. A new Innkeeper, even one with some restaurant or hospitality experience still has a huge learning curve just to run an Inn, let alone improve the restaurant business. The facts are clear that 50% of new restaurants in the United States fail after 3 years, with a whopping 90% failure rate after 5 years. This makes a lease option of a full service inn even more daunting when the new Innkeepers lack hands on restaurant experience.

Another issue follows directly from the fact that the costs are lower because no financial institution is involved. Without a bank being utilized for financing, there also is no third-party looking at the historical cash flow and tax returns of the Inn business, no independent appraisal of the Inn, and, in some cases, no real due diligence of such things as the structural integrity of the building and systems of the Inn. The simplicity of the transaction belies the fact that protections for the buyer are sometimes overlooked. For example, since no title insurance is needed for a bank, often this basic protection in a sale is not present in a lease option deal. If a title problem is found later in the process, perhaps when the option is being exercised, the buyer may be at risk after it has paid the option price and all of the lease payments. Thus, in reality, almost all of the normal sale due diligence needs to be done for lease options as well, making the cost saving factors perhaps irrelevant. Finally, in our experience, with this relatively unusual form of Inn transfer, Buyers do not always receive the legal protections that they need. For example, since the lease is subordinate to the Owner’s original mortgage, at closing of the lease, the Buyer/Lessee needs to receive a Non-Disturbance Agreement from the Seller/Lessors’s bank in order to protect the lease and the option from a foreclosure which may occur due to other issues of the Seller/Lessor with that bank. This simple legal protection may not always be included in such a deal.

Let’s not forget about the Sellers as well. If the deal fails, they get the pleasure of taking back their Inn, perhaps a long time after they had stopped being Innkeepers. The failure of the option is a hard thing to keep private from the buying public, and the result may be that they have to take back an Inn at a time when it is worse off from a business standpoint. Also, if the markets are as tight as they are today, the seller may really have lost a part of the value of the Inn, and be unable to sell it after such a failure.

What we have really seen in practice in the last five lease option deals in the New England area is the ultimate inability of the Buyers to turn around the operations, and the failure to either continue to make the lease payments or to achieve financing of the option. In those cases, each Buyer lost their option payments and ultimately lost the Inn. In some of the cases the causes were due to unforeseen maintenance issues arising after the lease commenced which stripped the Inns of needed working capital. In others, the new Innkeepers had transition difficulties and basically had little inability to run complex Inn operations including restaurants. In other cases, the importance of increasing web-based internet marketing eluded the new Innkeepers, making profit margins even more difficult to achieve. In some cases, the new Innkeepers just realized after a few years that the Innkeeping life was not to their liking, and they were willing to just walk away with nothing since they had no basic personal liability like what they would have for a mortgage in a purchase scenario. The likelihood, in most cases, is that the failure was a combination of all of the above, plus the post 9/11 weakening of the hospitality market that did them in. While all of these things can affect new Innkeepers who purchased Inns the normal way through financed sales, the fact that the financial institution utilized some independent review of the transaction seems to have had a moderating impact on the risk of failure. Most Buyers when facing the failure of their business will fight hard, and perhaps use other resources (such as a part of retirement funds) to make the Inn successful. In practice, we just do not seem to see that willingness to sacrifice all in a lease option situation.

With today’s tight financing and really slow real estate markets, there will be a lot of pressure on Inn Sellers to utilize lease options to achieve their goals. Likewise, Buyers may be convinced to go forward using these methods where they cannot put down sufficient deposits to achieve normal financing or where such financing is totally unavailable due to the performance of the Inn or the credit crisis. In either case, for the reasons stated above, we feel that using this method is both folly and very risky for both sides. It is highly unlikely that we will be recommending its continued use in our consulting practice.

Are you Ready to be an Innkeeper?

2009-01-07T09:24:00.000-08:00

Timing is everything. The following questions are meant to make you think about the realities of becoming an Innkeeper and the implications of this lifestyle change for you and your family. Innkeeping is a rewarding profession when it is done at the right time. Here are some things to consider:

Does your partner share the same interest in Innkeeping?
How will th is affect your family?
Social life with friends and family is usually on weekends and holidays. These are the busiest times for an Innkeeper. Will this be an issue for you?
Are you ready for a lifestyle change?
Do you have the financial resources to purchase an Inn?
Are you aware of the time commitment it takes to be an Innkeeper?
Are you ready to leave the safety net of a weekly pay check?

These questions make for a good conversation with you partner. Keep an open mind and hear what your partner is really saying. If you are both in agreement, go forward and have fun!

Characteristics of a Successful Innkeeper

2008-12-16T10:00:00.000-08:00

We are frequently asked, “What are the characteristics of a successful Innkeeper?” This is an important question to ask. It takes the right kind of person to be a successful Innkeeper. The following are six personal traits a successful Innkeeper should possess.

Ability to Serve Others
Multi-tasking as everything always happens at once
Ability to make it all look easy!
A Sense of Humor because if you can't laugh, you will cry!
Commitment to being an Innkeeper, not just a whim
Organized, organized, organized...

So do you have what it takes to be a successful Innkeeper? If not, just sit back and enjoy visiting Inns instead! We would rather that you find this out BEFORE you purchase a Bed and Breakfast. Remember, it is much easier to "buy a Bed & Breakfast" versus "selling a Bed & Breakfast".

Owning a Bed & Breakfast...Is it in Your Future?

2008-12-09T07:08:00.000-08:00

Many people decide to become an Innkeeper before they really understand what innkeeping is really about. Innkeeping is a satisfying career. However, if this major decision is not approached honestly, your dream of becoming an Innkeeper can easily become a nightmare! We consider the following the basic five questions a Future Innkeeper should be asking themselves BEFORE they make the commitment to purchase an Inn. These questions cover the who, what, when, where, and how of Innkeeping. We will explore the following questions during the next four week period. Be sure not to miss out!

Who makes the best Innkeeper?
What is the typical day at an Inn?
When is the best time to purchase an Inn?
Where is the best location?
How do you go forward with an Inn once it is identified?

If you would like to join our e-mail list, we can send these all to you today, otherwise...stay tuned!

Thanksgiving at the Inn

2008-11-26T07:41:00.000-08:00

Thanksgiving is perhaps the best Holiday at a Country Inn. It is the one time that the Innkeepers get to really share their Holiday time with the guests and neighbors and to show their thanks for both a bountiful season and the joys of Innkeeping. I know that we looked forward to this Holiday every year at our Inn.

It is a great time to share an amazing, traditional Thanksgiving meal with the community. Often we welcomed both lodging and dinner guests to the Inn whose families were far away. This gave us all a chance to celebrate a great Holiday as a kind of substitute family. The spirit of Thanksgiving permeated the air as the fantastic smells from the kitchen provided a welcoming touch to the Fall decorations at the Inn. A moment to stop to give thanks for all that has been given to us, and then a traditional meal served family style with seconds passed until no one could ever want more. Good cheer, great food, good music, and the laughter around the dining room was reward enough for this very special day. For those guests staying over at the Inn, we always brought out the leftovers that night for home-style sandwiches and pie. This was always a very special treat for our guests.

In this year of changing times, we give thanks to what we have, and renew our energies for the work to come.

Happy Thanksgiving to all!

Operating a Bed & Breakfast - Complacency Spells Trouble!

2008-11-19T08:57:00.001-08:00

The most recent news from the Hospitality Industry is not good for Innkeepers. Hotel REIT giant, LaSalle Properties announced it was cutting 20% from its hotel staffing (mostly run by large hotel management companies) and has rescinded its 2008 guidance to the stock market. LaSalle reported that its Revpar (revenue per available room) decreased by 11.4 % in October; a huge drop! While the Innkeeping Business does not use Revpar as a measurement, it is fundamentally the same as saying that average daily rate and occupancy combined dropped by that amount. LaSalle is an important bell- weather for Inns because it is comprised of mostly luxury and higher-priced hotel properties. For the full story, please see: LaSalle Orders 20% Cut in Hotel Staffing - WSJ.com.

We hear anecdotally that many Inns and Bed and Breakfasts across the Country have had good years in 2008, at least until the end of October. Now is not the time for Innkeepers to rest on their laurels. A sea change is coming, in the form of a recession, the likes of which we have not seen in our lifetimes. This is also not the time to just burrow in fear of what is to come. As we have said many times before, when there is a downturn, those Inns at the top of their game can improve market share as against the competition. A bigger piece of a smaller pie may save the day after all.

So this is the time to be countercyclical and increase your spending on marketing, especially electronic marketing through your website, blog, and by email. Create attractive packages rather than discount, and spend all of that extra time you have due to declining occupancies to come up with creative and imaginative ways to get your repeat and referral guests to the Inn. Most of all, just lowering the price will not work, and may make things worse in the long run (see previous article on Discounting).

Most of all, have heart. The biggest reason that they come back to the Inn is because your have created a refuge and a respite from all of the problems the guests face at home and in the real world. Remember that this is exactly what the guests need in these troubled times, and they will pay you for this experience.

Buying A Bed And Breakfast? SBA Loans In Trouble

2008-11-17T10:53:00.000-08:00

The SBA Loan Programs in 2008 have shriveled up, and that has caused both buyers and sellers of Inns real problems in making deals happen. The SBA has this week taken steps to make loans available again. Now we have to wait and see if these very important changes will solve this problem. Without this solution, and SBA loans once again being made, the purchase and sale of Bed and Breakfast Inns will continue to be slow and difficult for buyers and sellers alike. Here are the details:

The SBA 7(a) and 504 Loan Programs have for many years provided an excellent source of mortgage lending for the acquisition of Bed and Breakfast Inns across the Country. In fact, these are the programs of choice for many Inn buyers. The SBA 7(a) Program provides a bank or other lender a loan guaranty of 75% of the overall loan. While costs are high and paperwork detailed, this is a good way for banks to be more secure in their lending, especially to borrowers who have not been in the bed and breakfast business before.

The SBA 504 Program, on the other hand, can provide below market interest rates on a portion of the overall secured mortgage loan to acquire an Inn or Bed and Breakfast. The 504 loans between 30% to 40% of the overall package on a second mortgage basis, and a bank or other lender provide takes the top 50%, leaving the buyer putting up 10%-20% equity (most bed and breakfast inn acquisitions will require 20% equity). The SBA portion of the loan is done on a fixed rate 20-year amortization basis, and because certain expenses are included in the interest rate, it actually decreases a bit every five years to maturity. There are some prepayment penalties involved in the SBA portion of the loan, and the costs of securitization and sales of the loans on the market are high (but includable in the loan). However, overall, this financing vehicle has in the past worked very well for Inn buyers. Until now . . . .

Last month we learned in the Wall Street Journal that overall SBA lending was significantly down in Fiscal Year ending 9/30/2008 over FY 2007. The 7(a) loan program was down over 30% from FY 2007, while the 504 Program dropped almost 17%. The reason was two-fold. First, related to the overall Economic Financial Crisis, the interest rate on SBA loans was based on the prime lending rate which has been decreasing as the Fed has sought to reinvigorate the credit markets. Most bank lending today has been based on the LIBOR which is much higher, thus making the SBA loans difficult to sell. Second, there were many issues for packagers of the securities to deal with based on the SBA rules. For more information see the full article SBA-Backed Loans Dry Up - WSJ.com.

Now we learn that the SBA has finally taken action to solve some of these problems. As of November 13, 2008, the SBA lending programs will now be pegged to LIBOR, and the SBA has also by regulation fixed other technical issues in the securitization and sale of the SBA loans. For the full story, please see: Independent Street : SBA Amends Lending Program to Help Small-Business Borrowers.

Running a Bed & Breakfast Inn: Discounting Room Rates Does Not Work!

2008-11-04T07:40:00.000-08:00

In troubled times like today, Bed and Breakfast Innkeepers have an overwhelming feeling that the best way through this downturn (say recession!) is to put their room rates on sale. Isn’t that just what the retailers do at Christmas time to survive a bad season? The answer is that discounting in the travel business not only does not work, it creates a pattern of customer behavior that will last for years, even when times are better. Let’s look at the specifics.

Following 9/11, the Hotel Industry reacted to the basic loss of corporate business by deeply discounting their rates and putting large blocks of unused inventory on third-party web sites. The result was $50 a night rooms on sites like hotels.com which set up a huge expectation with consumers that this was the right price to pay for hotel rooms, no matter what the differences were in quality between each hotel. Many subsequent studies showed that the hotels basically killed their business for several years after the original reason for the discounting had gone away. The PAII Industry Study for 2002 and 2004 shows clearly that while occupancy at bed and breakfast and country inns decreased somewhat over the same period, rates did not go down significantly. Innkeepers knew the value of their product and held their rates. The result was that the Inn Industry basically avoided the meltdown that the Hotels suffered during that time.

By the end of 2007, rates for both Hotels and Inns were higher than in 2001, and occupancy rates had climbed back for the most part to 2000 levels (the best year to date in the Inn business). It is hard to tell where we will end up in 2008, but it clearly will not be a growth year. More important, where will we be in 2009?

Let’s put this into perspective. What would be the impact of your Inn business if revenues declined by say 10%? For an Inn grossing $400,000, that would mean a decrease in sales of $40,000. If the Gross Margin for that Inn (net cash flow/gross revenue) was an efficient 46%, then the net cash flow will also go down by 10%. In this example, the net cash flow would decrease by $18,400 from $184,000 to $165,600. The expenses also have to decrease, and there clearly can be cost reductions since many of the Inn’s expenses are variable and related to occupancy. In other words, as occupancy decreases, certain expenses like housekeeping, amenities and other costs related to occupancy levels will decrease as well. Added to this are the discretionary spending that can be reduced or deferred, all of which leads to the conclusion that even a 10% decrease in revenue will not result in a calamity for a well-run Inn business. It is more like something that needs to be weathered.

Most Innkeepers have a good sense of what the true expenses of operating the Inn are, and can find the ways to reduce costs. More important, most of your personal expenses seem to be interwoven in the Inn’s finances as well, providing a really sound way of reducing expenses. Knowing what is the real cost of the Inn gives you a better way of knowing how much you have to charge in rates to make an adequate return on investment (i.e. to pay the mortgage and have some for yourself) at any level of occupancy. Once you do this, you do not have to discount, you need only charge a fair price to achieve a fair rate of return on investment.

The real concern then remains this nagging feeling among Innkeepers that the only way out of a downturn is to discount. This should be avoided at any cost, because, as described above, once it is done, your guests will never again feel like paying your full rates. It will take many years to climb out of that hole. A better approach is to sell well priced packages and have value-added specials to supplement your rates. This has always worked well for our Industry, and will work again.

Finally, a word about cutting costs. Marketing and maintenance are the two areas that are easy to cut, but have the longest negative affect on your Inn business. This is the time to do what you can to increase marketing, because while the overall travel business may be decreasing, by great marketing you can stabilize or even increase your market share of the business that exists. Deferring maintenance is also something that comes back to bite you, since the cost of making repairs will always be more in the future if something is deferred.

The long and short is that you can favorably impact your results, even in bad economic times. Have faith that this too will pass, but in the interim, cut costs and market, market, market!

Buying a Bed and Breakfast in Uncertain Times

2008-10-09T10:43:00.000-07:00

In several previous postings on our Blog, we have looked at various ways that Sellers can improve the performance of Country Inns and Bed and Breakfast Inns. All of this was done from the Sellers’ standpoint in order to add value to the sales price. In this Article, we are going to look at these issues from the Buyers’ standpoint. The central question is whether the economic meltdown of recent days provides real opportunities for Inn Buyers to obtain significant bargains? In other words, is the timing right for Buyers to buy Inns?

Here is the gloom: Clearly the Global Economic Crisis has been severely impacted by the lack of available credit. It is likewise certain that real estate prices will take a long period to recover. If banks are unable or unwilling to loan money to businesses, how can Inn purchases be financed in the near term? If Buyers are unable to sell their primary asset, their homes, they are just not going to be able to purchase an Inn.

Yet these are generalizations about the National and Global economy that are not always specifically true in every location in the Country. While we continually hear how much trouble the National and Regional Banks are in, many local banks which have been conservative in their lending practices seem to be weathering the storm. They continue to say that they have money to loan to creditworthy borrowers for good projects. This is especially true when Banks utilize the various SBA Programs which provide them with even greater security for lending to small businesses.

Thus, the immediate answer is that we believe the times may be right for Buyers who are ready and able to purchase Inns, provided that they buy at the right price. While the bottom of the Inn market has not yet been reached, some Sellers have recognized that they either have to wait for a long time to sell or they need to make significant price reductions in order to attract Buyers. Sellers may also have to offer some degree of subordinated seller financing if they want to achieve the highest value for their Inns. The key answer for both Sellers and Buyers is to find a way to price Inns fairly based on reasonable and objective business standards in order to be able to attract lenders to provide reasonable financing.

Credit standards at most banks have tightened considerably. It is clear that borrowers need to have squeaky clean credit records and high personal credit scores in order just to get the banks to talk to them. Likewise, the availability of SBA loans is entirely dependant on the credit worthiness of the particular Inn business. This means that (1) the loan-to-value ratio will be more in the 70% to 75% range today (requiring more money down by Buyers), and (2) the historic Net Cash Flow (earnings before interest, taxes, depreciation, amortization and owners’ salaries) of the Inn must be able to cover the principle and interest payments of the new loan by at least 1.25 to 1.30 times (the “Debt Coverage Ratio”).

With those very conservative lending criteria in mind, we are basically talking about Buyers buying only Inns that are performing well in today’s business climate as opposed to those Inns that have struggled in the past to achieve profitability. While many Buyers fall in love with the beautiful Country Inn or Bed and Breakfast which could be turned around to reach profitability by their hard efforts, most banks today are not going to lend on potential earnings. The banks only want to look at the past profitability, and what are the risks that, if the economy continues to slow even more than at present, how will the Buyers be able to keep the loans current?

Whether the economic slow-down will impact tourism in the long run is a key factor in all of this decision-making as to timing. It is clear that it will have an impact in the short-term, but what will next summer bring? Predicting flat or somewhat decreased sales seems too optimistic in today’s economy. We believe that sales may decrease next year by a factor of 5% to 10% as against the current year. This must be factored into the Buyers’ pricing and business plan.

In conclusion, ready and able Buyers may find this is an opportune time to buy historically well performing Inns and Bed and Breakfasts at realistic prices. The need is to search out the good opportunities from the very many non-performing Inns on the market today, negotiate the right price along with credit enhancements such as Seller financing, and take advantage of local banks with help from the SBA programs.

Optimizing your Bed & Breakfast Inn Business With Metrics

2008-06-30T12:26:00.000-07:00

With a clear downturn in the economy facing us, it is really time to put your Inn’s business practices in order. Metrics is the study of measuring past performance so that you can improve your business. The basic concept is that you cannot improve the future without looking at what happened in the past. Simply put, “you can’t control what you can’t measure”(Wikipedia definition of “metrics”).

Probably the most important information that you need to have to improve your business is the detailed results from prior years’ room sales. But not just your occupancy and average daily rate for the prior year! You need to know on a daily basis what your room sales were for prior years. Only through detailed record keeping are you able to compare year to year changes in your Inn’s sales performance in time to do something about it. For example, if you are being impacted by discounting from neighboring Inns, it will likely be too late to do anything about it if you only look at sales data on a monthly basis.

Daily record keeping is not hard, but you have to be organized to do this. Most PMS systems now have a Quickbooks interface which allows you to post room sales on a daily basis. Even if you don’t do this automatically, you can develop a simple Excel Spreadsheet for daily posting, allowing you to balance your sales and payment accounts and then post them in Quickbooks every day. Quickbooks then allows you to run either Year-to-date or Month-to-Date comparison reports with last year. If after the first few days of the month you are falling behind last year’s sales, then you at least are warned that you may have to do something about it to catch up or exceed last year. Even better would be if you had a complete budget for the current year by month showing where you expected to be at that point in time (Quickbooks averages each day within a month for daily analysis). This would help to analyze the data based on past results but having factored in changes in plan made for the current year (such as a rate increase).

Now let’s take the sales analysis one step further. You also should be tracking advanced deposits and advanced reservations on a daily basis. In this way, you can tell a few months out, then a month out and then two weeks out from a given date how your reservations are progressing against the same period last year. Again, this gives you much more ability to change your sales practices to overcome deficits in advanced sales well before it is too late to make a difference. At that point you can decide whether to run rate favorable packages or specials to catch up to last year’s advanced reservations or your current year’s budget plan. In other words, you can attempt to control your own destiny, rather than waiting and watching what happens. Tie this into a program of aggressive email marketing and yield management for rate changes, and you are doing your best to maximize sales.

This is just one example of how you need to use financial data (Metrics) to improve and impact results. Another example is making sure that you are tracking source data for your guests. You need to know income by source (what are the sources of your room sales), but also where are your guests coming from and why are they coming. A lot of this is just asking the right questions when they call (the old “how did you hear about us?” still works well). But in this age of Internet reservations, you must also carefully analyze your web site tracking data and also make sure to analyze the data that is available to you as a subscriber to the various web inn directories. This is all critical information to know who your guest is and then to determine among the many, many options available to reach that exact guest. Why, for example, advertise in the August edition of a popular tourism magazine, when you have 90% occupancy for that month. Likewise, why continue on with certain web directories when your returns from them are below average. Unless you are tracking results you can never answer these questions and improve your bottom line.

In sum, tracking financial results will always be the best way to optimize your Inn business. This is the quickest way to improve your results and to add long-term, sustainable value to your business.

Inns-for-Sale.com Website Launched

2008-06-24T13:11:00.000-07:00

Quantum Hospitality Group is please to announce that we have launched our new national Inns-for-Sale website. As consultants to the Hospitality Industry, we saw the need for a website with cutting edge features for Inns which are for sale. Our new features are easy to use and include a “Compare” feature which allows a side-by-side comparison of multiple Inns. Additionally, we can support up to ten photos of an Inn, versus the normal one photo. Videos are easily uploaded to allow a birds’ eye view of an Inn for those that thrive on instant gratification. And, of course, Google Mapping! Need we say more!

There are three levels which are available. Bronze level allows a free listing with an overview of the Inn. Silver level allows for one photo and many of the features of the website. Gold level gets it all, including ten photos and video!

Owners who are listing their Inns have many exciting features as well. There is no longer the need to wait for a third party to input your listing. This can be performed directly by the individual. Or, if you prefer, there is “Valet Listing Service” where we can input the listing for you. There are over twenty easily identifiable icons which are available that provide a quick reference for an Inn such as Water View, Outdoor Activities, Wine Spectator, and more. One of the features that we like best is the ability for a Broker/listing agent to have a complete database of inquires received on an Inn including date, name, e-mail address, telephone number, and the complete e-mail message. We are sure these features will work well for everyone.

We invite you to visit our website at http://www.inns-for-sale.com/ and either shop for an Inn, or list your current Inn which you are selling!

Buyers' To Do List

2008-05-06T07:40:00.000-07:00

When purchasing a Bed and Breakfast, there are many items which need to be done by the buyer prior to closing. If a buyer does not have the time to do these items, a consultant like Quantum Hospitality can execute the list for you. Have fun!

INN BUYER’S TO DO LIST[1]

1. New Corporation: (Your lawyer should do this)

a. Incorporate new company. If you are taking on the corporate name of the present innkeeper “XYZ Inn, Inc.” then you will need a temporary name to begin with;
b. Obtain Employer Identification Number (EIN) from IRS;
c. Obtain Sales Tax Reseller Number from the State Department of Revenue;

2. License Applications:

a. Local Municipal Licenses. Obtain all local license applications and find out process and timing. Pay particular attention to sequencing and public hearing notice time periods, if any. In some states, if a liquor license is required, the local board must sign off prior to the State, and they will usually bundle the hearing on the local license along with the liquor license hearing.

b. State of Department of Health. Lodging and Eating Establishment License. Each state will have a different name on this license and different requirements. In Maine, for example, the license application is made to the Department of Health Engineering and will likely trigger a health code examination by the State if one has not been done recently.

In another state, for example, the process involves several departments and issues, most of which are encompassed in the inspection by Labor and Industries. The issues involved include a review of the compliance of the property with various environmental and safety code issues, including the status of the septic and water systems ( if public water and sewer are not available to the property), and the compliance of the property with the life and safety codes under the control of the State Fire Marshall’s Office. To confound things further, most inns had to register in the past with the State Department of Health which has a record of the number of allowed rooms (actually the number of “pillows” allowed) and the number of allowed seats in the dining room, in each case as it relates to the water/septic systems that existed at that date. This registration then provides sufficient evidence to “grandfather” the inn from having to comply with current standards at least insofar as the inn remains limited to the amount of pillows and seats as originally registered. If the Inn has changed configuration or you intend to expand the number of rooms seats, then you may be required to comply with modern standards as to the entire inn. This may include a requirement to add a sprinkler system to the inn, which is a very expensive addition, and may have a clear cosmetic impact on the inn.

All said, this is an area that needs immediate attention and may require professional assistance in order to make sure that all of the licenses needed to operate the inn can be received in a timely fashion without undue additional expense. Since you may be dealing with issues of “grand-fathering,” the current innkeeper has concerns that if the deal does not happen (for example due to difficulties in obtaining the total financing required), then what you have done with the various State licensing or inspection agencies may trigger expenses that the innkeeper otherwise would not have had to bear. Thus, the present innkeeper will have some concerns as to how you go about the process, and it may be best to work together to achieve the correct result.

c. Liquor License Application.

If you need a liquor license, in some States the liquor license application must first be approved by the local municipality after newspaper notice to the public and a public hearing. Then the application moves to the State Liquor Licensing Board which conducts its own background investigation, and usually comes out to the site to review the license requirements and liquor laws with the new owners. Since this process can be time consuming and difficult, so start the process as soon as possible. The need is to have the license prior to closing, and usually what the Liquor Licensing Board will do is to take back the current owners’ license and issue a temporary license expiring on the day before the closing, and issue the new license starting on the date of closing.

d. U.S. Bureau of Alcohol, Tobacco and Firearms: If you are going to sell liquor, you will need a Liquor Revenue Stamp Permit which costs $250 per year. You can obtain the form on the Web and it should be sent in as soon as possible as it takes a significant amount of time to get the license back. Most State Liquor Boards will not hold up the State License as long as you can show them a copy of the Permit Application which you sent to BATF.

e. State Unemployment Insurance. This is not a license, however you will need to apply for an employer number with State Unemployment Division, which is usually in the State Labor Department. In most states, they do a very complicated formula each year for each company setting the unemployment tax rate for payroll. While you get a new employer number, in some instances you can take over the unemployment history and balances in the prior innkeeper’s “account.” This may be very favorable for you depending on the number of prior claims that the inn has on its records. In some states, there is a considerable range in contribution rates depending on the prior history, and this investigation should be a part of your due diligence. You will need to supply this information to your payroll processor once your account number and contribution rate have been set.

3. Insurance.

a. Liability and Casualty Insurance and Umbrella Coverage. This is a real source of concern because of the relatively tight insurance market today. The first line of inquiry is to find out who writes the existing policies on the inn, as that may be the quickest source of insurance. These policies are complex, and you need to get a really good insurance professional to analyze the coverage and to advise you as to the correct types of coverage and amounts. If you are going to go out for bid on a policy or switch to another company or agent, you should start working on this as soon as possible. For full service inns, the liquor liability coverage is particularly difficult to obtain, especially if you have no hospitality industry experience. Pay particular attention to Business Interruption Insurance to provide adequate cash flow of continuing expenses (like the debt service) if you are out of business for any length of time due to a casualty. This is essential coverage for an inn.

b. Workers Compensation. Unfortunately, there is little competition in this area in most states, and the rates are usually pretty fixed. You will have to arrange for a new policy effective when you take over.

c. Health Insurance. This is important because you and your family need to obtain this coverage as part of the group that your new company will set up. This insurance is usually available (albeit from a dwindling number of sources) and is very expensive in most states. The important things to remember are that not all of your employees will be covered. For example, you can set the plan up to cover only full time employees or part time employees with over say 30 hours of work a week. This will usually eliminate most of the employees except for an assistant innkeeper and the chef (if you are full service), and probably can exclude any seasonal workers. The plan usually requires you to offer it to all qualified employees, but does not require that you pay for all of the coverage. For example you could offer to pay for single coverage to your employees (or a set percentage of this) and they can pay for the balance of the cost of family coverage). You need to talk directly to the health insurance company to get all of the options available.

4. Banks.

a. Bank Accounts. You should set up a main business account as soon as possible with the bank you are getting financing from. You should get a book of checks (using the temporary name of the new corporation if you are doing it this way) so that you have checks in the correct name to cover license applications and other expenses necessary prior to closing. Usually, you will be setting up your banking relationship with the bank providing your financing. Remember that as a part of the negotiations for obtaining a loan, you should also look into the bank’s costs regarding bank accounts and other charges. Business accounts are usually non-interest bearing, and you will be charged a certain amount on each item deposited and each check written, plus a monthly reporting charge. These bank charges may be reduced by the amount of money you leave in the accounts. Since you will be taking deposit money into the account, and the balances will build up during your busy season, you may want to also set up a money market or sweep account to enable you to earn interest on these balances. Some banks have Web Banking which will allow you to manage this process by enabling transfers from accounts to be handled instantly on the web. This is an area that you need to investigate.

b. Order Pre-Printed Checks. If you are going to use Quickbooks, you should order pre-printed checks and envelopes from them using your new bank account number and routing information for that bank.

c. Merchant Accounts. This is the credit card processing for the inn. Usually your financing bank will want this business, but you need to make sure they are competitive. Talk to the processor about obtaining a hotel software application on the credit card machine for the inn. This allows you to swipe the card on check-in and get a pre-authorization of the card for the estimated final bill. Most processors have a three tiered system of rates based on the rates charged them by VISA and Mastercard. The first tier rate (usually under 2%) is charged for swiped cards. The middle tier is for credit transactions where you do not have the card present, i.e. telephone charges for deposits (usually about 2.5-2.75%) which may make up a substantial part of your business. The third tier is for business cards and is usually above 3%. Some banks have a blended rate for all tiers at around 1.95%. This is the most favorable and should be sought after. Watch out for hidden charges like monthly fees, per item charges, and chargeback charges. Also, most banks will give you the supplies (tapes and ink ribbons) for free, but some processors charge you for this.

In any event, you may want to shop around for the best processor package for you. Sometimes the state or national innkeeper associations like Maine Innkeepers, PAII and Select Registry have credit card processing deals which are offered by so-called preferred providers. You need to do your homework on this one, since the cost is significant each year (around 2.5% of gross income). Mastercard and VISA are the real culprits, as they set the rates charged to the Banks, so there isn’t a whole lot of competition. Also, make sure you find out if the existing machines are owned or leased by the innkeepers. If they are leased then they will go back to the processor, and you will have to buy or lease your own machines. This is an additional expense.

The real timing problem is that the prior owner’s credit card accounts will cease on the morning that you close, usually after they have batched out the bills for the previous evening. You need to arrange for someone from the bank or credit card processing company to reprogram the credit card machines for your new merchant accounts on the afternoon of the closing so that you can start processing deposits and sales for your company that day. Otherwise you will be unable to take any credit cards until you do. If you are buying or leasing new machines, get them programmed in advance so that all you have to do is plug them in and you are set to go.

d. American Express/Discover. If you want to accept either AMEX or Discover Cards you need to set up accounts separately with those companies. The bank or processor can also arrange this and will then program your credit card machines to accept them, but the money flows into your bank accounts on separate schedules and reporting is done to you separately than from the MC/VISA deposits that your bank or processor will be handling for you. The discount rates charged by AMEX are based on volume, and most inns will fall in the base category of 3.50%, although some of the larger inns will only have to pay 3.25%. Since this is a significant amount, you probably should consider accepting AMEX only if you are full service (a lot of people charge dinners on AMEX ). This is not a real hardship since most people with AMEX also have MC or VISA cards.

5. Software Programs/Computer Systems.

a. Computer. You will need to have a really good computer system available. We recommend that you bring this with you during the training period and set it up side-by-side the existing system for that period. That way you can mirror the reservation software inputs and you can set up your bookkeeping system in a similar fashion as the existing systems. Of course, this is only true if you like what the current management is doing. On the date of closing, if you are using the same reservation software, you simply take the updated file and copy it to your system.

We recommend a very fast Pentium 4 with a lot of RAM and storage capacity. WI-FI networks may work, but a hard-wired network is better if you are going to have multiple access points to the reservation software. We would also recommend a really good laser printer with a high capacity output. There is a lot of printing to be done each day. Finally, your office should have a good fax machine on a dedicated line and a good copier. Sometimes the all-in-one machines may be adequate, but you may need flat bed copying which you can’t do on such machines. Finally, a good DSL hookup or other broadband internet access is very important.

b. Software. You should buy Quickbooks Pro[2] if you are going to use this for accounting, and we recommend that you use MS Office Pro as your basic software. The small business package for this also has MS Access included, which is a great data base program which can be used in conjunction with Guest Tracker. Wed also recommend MS Front Page to create HTML for uploading to your website.

With respect to reservation software, we are presently still recommending Guest Tracker. This is an incredibly easy to use system with good capabilities and lots of built-in reports. The BedandBreakfast.com company has just bought Rezovation Software and now also owns Munsenware, the company which developed Guest Tracker. They initially announced that they were going to eventually switch all of the business to their own product “Rezovation” and just let Guest Tracker continue without new updates. The market of happy Guest Tracker users may have convinced them that this is still the preferred product, and hopefully they will continue to support and upgrade this software. We have analyzed Rezovation, and while it has few more bells and whistles, it is not as easy to use as Guest Tracker, and for now is not being recommended by us. Finally, you will need to obtain a license from Guest Tracker or whatever reservation software you choose, and a copy of their software in order to load it on your computer. If you buy Guest Tracker you should also obtain their web module for uploading availability to the web and their annual support.

6. Payroll Processing.

a. ADP. There are several payroll processing companies on a local and national basis. We recommend ADP because they are responsive and you may be able to get a discount through membership in a state or national innkeeper association. We also like the fact that they have a web-based input system which allows you to process the payroll directly to them over the internet and not have to call it in by phone. You should think about having ADP do all of your payroll reporting for Federal and State purposes. You can also elect to do this all yourself through the services provided by Quickbooks, but this is very complicated and usually an innkeeper’s time is best spent on other matters. This is, of course, your choice. You will need to get your employees all set up on your new payroll system, and decide what your pay period will be. We recommend a 2-week pay period which ends on Sundays every other week, and the pay check for that period to be distributed the following Friday. You have to find out what rules apply in your state, as some states require weekly payrolls for certain employees, particularly restaurant workers and housekeepers.

b. On transfer, you will probably have to do new W-4’s and I-9 Forms for all of the employees that are continuing for your company. The forms are down-loadable from the IRS and Justice Department websites. If the inn has foreign workers, remember that they are technically supposed to only work for the applicant, which is the prior innkeeper. You should talk to your lawyer and the foreign employment agency about this.

7. Vendors/Suppliers. Once you have signed the purchase and sales agreement, you should obtain from the innkeeper a listing of all of the vendors/suppliers to the inn, and you will have to make arrangements for new accounts with those of them that require new information. Most of them do not need new account applications, and you will likely just fall right into the account status and terms that have already been negotiated for the inn. The Vendor/Supplier list should include the food suppliers, grocery store accounts, local store accounts, wine, beer and liquor vendors, amenities suppliers, utilities providers, web site provider, telephone service providers, Cable TV, internet providers, and contractors for landscaping, snowplowing, and repairs.

As part of the acquisition, you will be reviewing all of the various pre-paid services and expenses of the Inn for reimbursement on a pro-rata basis to the existing innkeepers. Most of these are marketing expenses that are paid for a particular period of time in the future, and thus need to be adjusted at closing. You should pay attention here to the various providers of these services and make sure that you are aware of when they renew each year so that you can manage this process on an on-going basis.

8. Website and Internet Directories. You should get in contact with the webmaster for the inns website and discuss those changes necessary due to your purchase of the inn (removing the pictures of the old innkeepers is highly recommended!). At that time you can discuss the overall quality of the website and get his ideas on what can be done to improve the site. If the site is an older one, you may just consider building a whole new site with all of the modern capabilities and with up-to-date photography. What you ultimately need is an attractive, easy to navigate site with lots of pictures and information, all of which you should be able to change or modify right from your own computer. The cost of such a site is presently running about $10,000 depending on the level of photography and the glitz factor of the site.

You will need to make certain that you can get full ownership of the existing website and the e-mail addresses which direct e-mail to the inn. They should then be redirected from your website directly to your own internet mail provider.

As to all of the various web directories that the inn currently belongs to, like bedandbreakfast.com, bbonline.com., The Innkeeper.com, Select Registry, etc., you will need to obtain from the current innkeeper the log in names and passwords so that you can access the sites and make appropriate changes to the information on these sites following the purchase of the Inn. Without the passwords, you will not be able to do this easily.

Finally, you should engage a competent professional to review the web-based marketing strategy of the inn, particularly the key words in the website, the web directories that the inn belongs to, and any pay-for-play advertising that the inn is doing. This is an important part of your overall marketing strategy, so pay attention here!

As you can see there is a significant amount of things which need to be done once the P&S is agreed to and before you close. Quantum Hospitality has a program available for purchasers to assist you in the transition planning and start-up of your new business. Give us a call for more information.

[1] This is a generic listing of the typical things that Buyers need to attend to before the acquisition is completed. The hiring of competent professionals (lawyer and accountant) are critical first steps and should be done immediately on acceptance of the Letter of Intent. Each State will have different requirements so have your professionals look at this To Do List and make appropriate changes. Many of these items will have to wait until you have a signed Purchase and Sales Agreement, rather than just a letter of intent, because the current owner will not want you talking to the government, its suppliers and other parties until a written contract for sale has been signed.
[2] If you are using Quickbooks, you will need to finalize with your accountant the chart of accounts to run the business. We can give you a copy of our Chart of Accounts which we highly recommend. Do not under any circumstances use a Chart of Accounts where the expenses are listed alphabetically. You need to list your expenses in categories that make sense from a business standpoint so that you can manage them consistently from year to year.

Blogging Your Way to a Successful Bed and Breakfast

2008-04-24T08:25:00.000-07:00

At a recent meeting of Innkeepers, we had a discussion of Blogs, and, particularly, why would an Innkeeper spend the time to create and keep up a good blog? The answer is kind of simple. Do you want to have a successful website or do you want to continue to struggle for visibility on the search engines?

One key to success with Google, Yahoo, and the other search engines is to continually have fresh content on your Inn’s website. Having a Blog on your website allows you to constantly change the content, and particularly the links to and from the site, with new and relevant material. Remember, that for Google and the other search engines, the more relevant the material is to your website, the better. Thus, writing about all of the things to do and see in your Inn’s area, about the great restaurants, about the special events happening around you, all contribute to higher visibility in the eyes of the search engines. They also contribute directly to heads in beds!

At the PAII Conference this March, we heard many really great presentations on Web 2.0 and, particularly, Consumer Generated Media like TripAdvisor. You can play games with TripAdvisor to try to bury bad reviews or create your own reviews, but this will eventually come back to haunt you. Most Inns urge their guests to write their own reviews on TripAdvisor. Better than this is to open a dialogue with your guests via your own Blog. You can clearly respond to TripAdvisor via a Managers Comment, but why not explain yourself in detail on your own Blog. Ask for and respond to your guests’ concerns directly. It is much more powerful for your own website to be the place that guest concerns and critiques can be dealt with openly and without defensiveness on your part.

Finally, remember that hospitality and service is still the basic component of our Bed and Breakfast Industry. Having a Blog creates a new, electronic media to provide this hospitality and service to your guests and prospective guests. What better place than your Blog to show the world what a terrific concierge you are? You know your area better than anyone, and need to be its best ambassador. Don’t wait for the guest to arrive to provide this service. Make it an active part of your web marketing by putting it all on the Blog. Your Inn’s success will depend on it.

Bed and Breakfast Expense/ Income Tracking

2008-04-03T06:15:00.000-07:00

The only way to improve your Bed and Breakfast or Inn business is to effectively track where you are today and to make realistic goals for the future of your business. At the 2008 PAII Conference Howard Levitan of Quantum Hospitality Group will be discussing the best methods to track where your business is today and how to increase your profits using metrics and the PAII Industry Study. We hope to see you at the Conference! If you cannot attend, we have provided our slide show presentation:

Bed and Breakfast Expense/ Income Tracking

Marketing Bed and Breakfast With Food

2008-04-03T05:56:00.000-07:00

We are pleased to again be speaking at the PAII Conference this year. In one of our presentations Howard Levitan of Quantum Hospitality Group will be discussing how to best market your Inn with food. We hope you will be able to attend the conference, however, if you cannot attend we wanted to be sure to share our slide show presentation with you. We hope to see you at the Conference!

Marketing Your Bed and Breakfast With Food

PAII 2008: "Crisis in the Mortgage Industry and How it affects your Inn"

2008-04-02T07:35:00.000-07:00

The Buyer’s Side

Presentation by Howard J. Levitan

1. Are Buyers Ready to Buy? The simple answer is that the majority of the assets available to Buyers when they are seeking to buy their “ideal” Inn are tied up in the equity (?) of their principal residence. If they can’t sell the house at a price that is sufficient, then they aren’t really able to buy an Inn. There are too many horror stories of people buying Inns with bridge loans on their houses who are unable to sell them for love or money.

It seems that the national averages on home sales are broadcast by the media every day. What this data seems to be showing is that the average sales are down by about 30% in most markets. Yet prices are down only by about 10% at the same time. What the pundits seem to take from this is that it is very hard for people to lower the price of the home that they have lived in, taken care of, and improved over the years. It is simply too personal a thing. Home prices simply will not drop significantly unless and until people have their backs to the wall of foreclosure or bankruptcy.

Those people who understand the dynamic are either reducing their prices to the market and getting out at whatever level they can, or, if they are able to, are simply holding on for the market to turn. Buyers of houses on the other hand are bargaining hard and clearly they are winning. The long and short of it is that unless and until the general real estate market recovers, there are going to be less people out there buying Inns.

2. Are Sellers ready to Sell? Arden Dale writes in a compelling article published in the Wall Street Journal on January 8, 2008 that “Want to Sell a Business? You May Not Be Ready.” Ms. Dale goes on to state quite cogently that many small business owners are relying on the ultimate sale of their business for their own personal retirement funds. The author’s thesis is that many small business owners do not have proper financial records, detailed operational documentation, and may not have a very realistic idea about the price for their businesses. He goes on to point out that buyers are much more sophisticated than in the past and are insisting on receiving extensive due diligence materials before agreeing to any purchase. The author’s solution is to start getting the business ready to sell several years in advance, to keep proper books and records, and to improve the operating profitability as much as possible.

Are Inn Sellers any different than home sellers about pricing of their Inns? The simple answer may be that they are unrealistic in what they should expect from the sale of their Inns. The real estate market should not have a tremendous impact on the “value” of an Inn, because if the business is viable and self-sustaining, then the value should be driven by the cash flow of the business rather than by the sales price of the underlying real estate. However, in better times we saw that this was not true about Inns located in strong real estate markets. The sales prices of many Inns were driven up by the strong real estate values around them (particularly in California and other locations like Nantucket where the historic Inns were being converted back to homes or torn down to built fancier houses). So what is happening in weaker real estate markets? The answer is that without strong net cash flows, Inns with marginal businesses are languishing on the market, but asking prices are not coming down. Basically, the same thing is occurring as in the housing market; namely, that sellers are loath to reduce their prices to the market. It is just too personal!

3. What about the National Economy or Recession? Clearly, this is going to have an impact on Inn sales as Innkeepers across the country are going to be dealing with a weak tourism market. The “bears” around say that people will not spend as much disposable money for vacations and travel if they are having to pay much more for everything they buy. As most of what people have to purchase is being impacted by the weak dollar and corresponding high oil and gas prices, the squeeze is clearly being felt. Those more bullish say that people will take vacations anyway and that all that a poor economy means is that they will stay a bit closer to home and drive to their holiday spot. National Retail Sales figures do not seem to be going along with the bulls here. Retail sales are down significantly and are shifting again to the discount side. Watching WalMart, the number one retailer, you will see that its sales have grown recently, but in their food and lower cost clothing lines, rather than in the areas of higher fashion that they were trying to grow. The chain restaurants, particularly those which sell non-necessities (like Starbucks) have been particularly hit hard by this “recession.” It is only a matter of time for this to hit the tourism market.

For buyers, this does create somewhat of an opportunity, with the Federal Reserve pushing interest rates back to the really low levels of the past several years. However the real key is to make certain that there is sufficient cushion in the net cash flow of the Inn to weather the likely fall off in the hospitality business caused by an economic recession. So buyers need to be very careful that they look at the reality of the financial performance of an Inn opportunity, that they make absolutely certain that there is sufficient cash flow to get by if things go bad, and that they have good working capital at the outset. Making an emotional “lifestyle” decision is not a very good idea in the immediate future (or perhaps ever!). The best performing and operating Inns will likely still be very attractive at the right price with such low interest rates, but marginal operations simply will not sell at any price.

4. Is Now the Right Time to Buy? Here the answer is clearly a strong “maybe.” For those buyers that have liquidated their homes, they may be able to negotiate good deals for Inns at the right prices, and will clearly benefit from the lower interest rates. As will be shown in other parts of this presentation, they will have some difficulties in securing mortgage financing, as the banks retrench, however, buyers with strong credit and good sized deposits should still be able to secure financing where the cash flow provides good debt service coverage. Many banks will look very hard at the hospitality industry as to whether it is going to be severely impacted by a recession. If the answer is yes, then it will remain harder to get financing.

The bottom line for buyers in regards to timing is that it may not be possible to determine when the market turns. If buyers can find a really good opportunity now, at a good price, then they should go ahead and not look back to see if the market falls even more. Buyers need to remain ever vigilant and always cautious to make sure the Inn business is strong and will weather these difficult times.

Innkeepers Responding to Trip Advisor

2008-02-05T09:14:00.000-08:00

We all know about Trip Advisor and what it can do to the travel industry. The ability for guests to post their honest opinions about a property can be valuable. We also have to keep in mind that it is very difficult to please 100% of the people, 100% of the time. However, it seems that Trip Advisor is all too often being manipulated by the owners of the properties to try to bury bad reviews. It is always painful to receive a bad review, but owners have to sit back and “listen” to what your guests are saying.

We went strolling amidst Trip Advisor and started reading reviews. A true telltale sign of an owner trying to bury a bad review is when you see five glowing remarks about the property followed by an unhappy guest rating their experience a “1” or a “2”. This trend continued as we read reviews, five glowing, one bad. All of this being done to push the bad comments below the fold with the hopes that the next potential guest coming to the inn wouldn’t see it. One inn in New England had a review which was written in November. It raved about the wrap around porch with flower baskets and spoke of having breakfast outside. I don’t know about you, but I live in New England and my flowering annuals are long gone and there is no eating breakfast on the porch until next Spring! This was obviously written by the owner of the property who happened to forget what month it was. Another example that I really loved was when the property was referred to by its initials. Guest don’t refer to an inn by its initials, they call it by name.

My only word of advice is to listen to your guests and try to adjust accordingly. By writing contradicting reviews to bury a bad review only reflects badly on you, the owner, as it is easily identified. The service industry is one of the hardest jobs to perform, so do it to the best of your abilities.

ARE YOU READY TO MAXIMIZE YOUR PROFITABILITY?

2008-01-28T12:50:00.000-08:00

Arden Dale writes in a compelling article published in the Wall Street Journal on January 8, 2008 that “Want to Sell a Business? You May Not Be Ready.” Ms. Dale goes on to state quite cogently that many small business owners are relying on the ultimate sale of their business for their own personal retirement funds. The author’s thesis is that many small business owners do not have proper financial records, detailed operational documentation, and may not have a very realistic idea about the price for their businesses. She goes on to point out that buyers are much more sophisticated than in the past and are insisting on receiving extensive due diligence materials before agreeing to any purchase. The author’s solution is to start getting the business ready to sell several years in advance, to keep proper books and records, and to improve the operating profitability as much as possible.

Sound familiar? This is what we have been talking about this for years now with our program to Achieve Maximum Profitability at your Inn well before it goes to the market. Looking at the financial condition of an Inn as compared to Inns across the Country is achieved by looking at results compared to other similar Inns. In this regard, one source of information for the smaller Inns would be the PAII Industry Study (2007-2008 utilizing 2006 financial results is the most recent version). Other sources includes our own Quantum Hospitality/Oates & Bredfeldt, LLC Standard Cost Analysis Study. In either case, the concept is to conform your own Inn’s financial performance to the Chart of Accounts set forth in the appropriate study, and to determine on an account-by-account basis whether or not your income and expenses are in line with the average Inns in each such study. I can state, without any doubt, that each time we do such analysis for an Inn, we are able to come up with potential cost savings well in excess of our charges for doing this work. We do in depth reviews of the operations of 30-50 Inns across the Country each year, and there are very few that stand up to this type of rigorous, detailed study. The result is that we are then in a position to suggest operational and expense cost savings which will improve the financial results prior to selling the Inn, irrespective of the process used to market the Inn. This is especially true about the “personal” costs and expenses that seem to always be present in the Profit and Loss Statement of the Inn. A good couple of years before any contemplated sale is a really good time to eliminate these additional costs and show some real profitability and net cash flow in the Inn.

Dale’s point about researching the price for the Inn is also well taken. Most Innkeepers look at what they think another Inn has sold for without first hand knowledge of the financial condition of that Inn. They think that if that Inn down the street sold for $X then their Inn has got to be worth more since it is “better” or “more popular,” etc. Another practice is simply to utilize the various rules of thumb like Gross Revenue Multiplier (see previous Article dated May 17, 2007 called “Best Methods for Finding the Ideal Inn”). Often Innkeepers are told to price their Bed and Breakfast Inns at 5-6 times gross sales, even though the business results do not justify such lofty pricing. The solution is to obtain professional advice as to what your Inn Business is really worth compared to other similar Inns before going to the market.

The point about written operational policies and procedures is another really important one. Two or three weeks training from the prior keepers of the Inn can not teach new Innkeepers what they really need to know in order to maintain the value of their new Inn Business in the first year. Those Inns which have written checklists and policies, training manuals, job descriptions, recipes, and stated practices for all of their operational tasks are simply worth more than Inns that do not have this documentation. Buyers will quickly figure this out in the due diligence process, and may walk or run away from a poorly managed Inn notwithstanding the price.

Finally, a word about where we seem to be on the National economic front, as it may impact the ability of Innkeepers to achieve their goals of selling the Inn. Some commentators have downplayed the impact of the Sub-Prime Mortgage Crisis on business. This, of course, is pure foolishness, and a disservice to those whose dreams can be destroyed by buying Inns at the wrong time or at the wrong price. It is now clear from the daily economic news, the plummeting real estate markets, and the rapidly falling stock market that the Country is at grave risk of a real recession, if we are not already there. This will clearly be felt in the tourism market, and all forms of accommodations across the Nation will be feeling this pinch. The Inn business survived the fall off after 911 by not falling prey to the discounting that the hotel business jumped on. We hope that the greater hospitality business has learned its lesson, but for Innkeepers, this year will clearly be a real challenge.

For Sellers, this is not good news. It will clearly have an impact on the prices that will be achievable for their Inns, especially if results take a down turn for them. It already has impacted time on the market for Inns, especially full service Inns with restaurants. Most Inns are staying on the market for 1-2 years before they are sold, even if they are at the right price. For buyers, this does created somewhat of an opportunity, with the Federal Reserve pushing interest rates back to the really low levels of the past several years, however the real key is to make certain that there is sufficient cushion in the net cash flow of the Inn to weather the likely fall off in the hospitality business caused by an economic recession. So buyers need to be very careful that they look at the reality of the financial performance of an Inn opportunity, that they make absolutely certain that there is sufficient cash flow to get by if things go bad, and that they have good working capital at the outset. Making an emotional “lifestyle” decision is not a very good idea in the immediate future (or perhaps ever!). The best performing and operating Inns will likely still be very attractive at the right price with such low interest rates, but marginal operations simply will not sell at any price. In any event, we will be there to offer help when and where needed.

Time to Refinance?

2008-01-23T06:31:00.000-08:00

I think that everyone is aware of what is happening in the mortgage industry. The reporters are delivering the news everyday of how home sales are falling and that lenders are tightening their belts on providing loans. Interest rates are falling and their looms the possibility of a recession. What should we do with this news and what is next?

We take this news and it gets everyone a little nervous. However, this is still the time for Innkeepers which are running a good, clean business to step up to the plate and take advantage of interest rates. Let me give you an example. We are in the process of assisting a buyer purchase a property in Maine. When we started this process back in November, we were hoping that we could find an interest rate around 7 ½%. So, we developed the business plan and in December we submitted it to four banks, two being national lenders. The results were interesting. The two national banks didn’t want to get involved, even though there was about 1.5 debt ratio. However, the two local banks reacted very differently. They are competing strongly against each other for the opportunity to finance this purchase. We now have an offer for a loan for twenty-five years, fixed for five years, at 3.28% above the treasury rate. As of January 22nd, this will provide us with a rate of 5.82%! This is astonishing!

So, if you have your financial house in order, it may be time to shop for a new interest rate. If you don’t have your finances in good shape, take steps to get them in line and use this time of interest rates being lowered to the best of your advantage!

Bed & Breakfast Seminar

2007-11-07T07:13:00.000-08:00

We wanted to thank everyone for joining us at the Manor on Golden Pond this past weekend for our Seminar on becoming an Innkeeper! The group was very lively and the interaction made it educational and fun for everyone. We had the opportunity to work with specific properties that attendees were considering purchasing and it really brought the seminar to another level! It quickly pointed out to participants which inns were viable and which were not!

Now in keeping with the Manor's standards, they even provided us with a special surprise celebrity. We don't really just want to give away their name, but they happened to be one of the lead stars of the Sopranos...yes, James Gandolfini himself! I think that he really came for the Seminar, but got so wound up with the comforts of the Inn that he decided to relax and be pampered instead. Maybe next time he'll attend!

Some of our comments included:

"Absolutely necessary if even remotely serious - amazingly insightful and enlightening" - K. O'Connor

"If you are thinking about becoming innkeepers, you HAVE to know if it is possible financially, emotionally, etc." - M. Winter

"You get so much more out of a Seminar than you would an "how to be an innkeeper" book" - R. Slavinski

"A good dose of realism" - K.M. O'Connor

The Inn Goes Green

2007-11-05T09:24:00.000-08:00

We are seeing it everywhere, and know it’s time to take it to the inn. Going green…is it for you and your inn? The first thing that we think of is asking the guests not to have us change their towels. In reality it goes much further than this. We are talking about organic food, specialty products for the inn, marketing to guests that want to be green, enjoying nature, recycling, light bulbs, and much more. We started our investigation and were surprised by the facts.

The hospitality industry spends around $3.7 billion each year on energy, much of it going to waste, as stated by the American Hotel and Lodging Association (AHLA). According to data from GreenTreks Network, Inc., a distributor of environmental education, compact fluorescent bulbs use 75 percent less energy and last 10 times longer then incandescent bulbs. Not replacing towels and linens each day saves 13.5 gallons of water daily. These facts in themselves are amazing!

We welcome your comments to share with other innkeepers!

Changes From Within

2007-09-04T10:49:00.000-07:00

Our new look has arrived! We invite you to take a look at our new website format and see the changes as they begin to occur. You can utilize either http://www.quantumhospitality.com/ or you can always use http://www.oatesbredfeldt.com/ to see the new look and feel for our website!

As many of you know, as of April, 2007 Oates & Bredfeldt, LLC is now owned by Quantum Hospitality Group, Inc. This was part of a five year transition that was finalized as of April of this year. Quantum Hospitality Group is owned and operated by Howard and Rebecca Levitan, and is located in Damariscotta, Maine. As we move forward, many changes will happen, but the quality of the work will always remain consistent. As we expand the role of the Company to provide business consulting services to the broader hospitality Industry, including larger size hotels and restaurants, we will have all consulting and educational programs become a part of Quantum Hospitality Group, Inc. At this time, you will begin to see the transition between utilization of Quantum Hospitality Group and Oates & Bredfeldt names. Oates & Bredfeldt will continue to be utilized, but will be focused and limited to the transfer of Inn properties.

For many years, our Mission Statement has been to provide premier consulting, education, and management services to Innkeepers and future Innkeepers. With that in mind, our product lines have been expanded for both future and current Innkeepers and invite you to visit our website and check them out. We value your comments and would be happy to hear from you.

Regards,
Rebecca & Howard

Is It a Front Desk or Sales Position?

2007-07-20T11:37:00.000-07:00

When a call reaches the front desk of an Inn, many times it is just thought of as a telephone call and a potential guest for the Inn. In reality, the front desk is a full powered sales position. This is nothing to shy away from. The sooner that this is acknowledged and embraced, the results will show in the bottom line.

Prior to owning and operating our own Inn on the coast of Maine, my background was mainly sales and marketing. There is a basic formula for sales, and here is the secret recipe:

1. Qualify the caller – This is basically asking open questions such as who, what, why, when, and how. What is bringing you to the area? Who will be traveling in your party? Do you have any special needs? When are you planning to join us? Is this a special occasion? Why are you coming to the area? How did you hear about us? Are you familiar with our Inn/area? You don’t need to ask the questions as they are briefly stated above, but you need to get to know your potential customer before you can start presenting accommodations to them.

2. Present based upon their needs - Once you have learned about your potential customers’ needs, you can them present to them a room to them that meets their needs. Are they coming for a funeral and they would like a quiet room? Are they on their honeymoon and want the best room you have? Are they visiting colleges with their son/daughter and need twin beds? Do they have trouble with stairs and potentially need a first floor room?

3. Pre-Close – After presenting the room to them, do a pre-close: Would you like us to reserve the room for you? If they say yes, proceed forward. If they said no, then proceed to the next step.

4. Handle the Objection – If they say no, you have to identify the objection. You discover that the rate you quoted is too high. You discovered that they can’t climb the stairs. You discovered that they don’t like Jacuzzis. What ever the objection is identify it and move to the next step.

5. Close – We do have another room at different rate (state rate), would that work for you? We have a lovely first floor room with a deck, should we do that room instead? I completely understand the noise from the jets. We have a suite with a soaking tub, would that be best for you? If you receive another objection, return to step four and keep backing up until you can get a close.

It’s been many years since I’ve been out of the corporate world, but the “steps to successful sales” has been implanted into my brain, and I just have never forgotten them. I hope that this helpful in making your Front Desk into a successful Sales Department!

Inn Start-Up, Is It For You?

2007-06-11T12:52:00.000-07:00

It seems that we are always asked by people considering innkeeping, why not do a start- up? We always express our concern that it is much easier and more cost effective to purchase an up and running business, but that does not suppress the desire by many people to start an inn from the ground up. We are not saying that it can't happen, but one really has to be sufficiently funded and have the ability to succeed even in the difficult situations. Recently we were hired to consult with a nice couple from Europe who were purchasing an inn which was essentially a start-up business. We thought we would share some of the details with you.

The inn which they were purchasing was essentially a start-up. We say this for many reasons. First, it had a first generation website, which means it was totally useless. Nothing that spending $20,000 for a state- of-the-art website couldn't change. The inn wasn't computerized, and therefore had no mailing list which could be utilized. Next, the dining room had not been in operation for many years and it needed to be updated and opened accordingly, with no history of a successful dining business. No marketing had been done to the inn for MANY years, as the owners were going through a divorce and did the minimum amount of work to keep the inn open. So in reality, this inn was a start-up.

Renovations for the inn were projected to be $1,500,000. This was about 50% of the purchase price of $2,900,000. When substantial renovations are being done to a property, the Americans with Disabilities Act (ADA) gets involved. When renovations on a start-up property occur, they demand that 20% of the renovations be dedicated to the needs of handicapped individuals. This includes access to the inn, rooms that can accommodate handicapped people, public bathrooms built to handicapped standards, and oh yes, if you have more than one floor, the ADA requests an elevator be installed! The most amazing thing about their renovation was that the monies were basically geared to the first floor only of the inn, and only one guest room out of nineteen was being redone. This is something to keep in mind.

During renovation of the first floor, many surprises came into play. Old buildings may look fine on the outside of the walls, but just wait until they are opened! Also remember that this inn was inspected by a structural engineer, but he couldn't see within the walls either! Not one, but two steel beams were needed because the main support beams of the inn were damaged. The front of the inn faces the elements of the ocean and this caused the complete rotting of the front of the inn, which needed to be replaced. Windows were removed to upgrade to new windows. In the process, it was found that past construction was done incorrectly, and supports above the windows were non-existent. I could go on and on, but I think you are getting the picture.
Now, let's talk about contractors and deadlines. This inn happens to be located in a very seasonal part of the world. Most cash flow is earned Memorial Day Weekend through Columbus Day Weekend. Projections were made and the contractor promised release of the building by mid-May. It was clear by the first of May that the deadlines would not be met. So to fix this, the contractor started working a six day work week. Isn't that great! Now the new owner has to pay time and one-half to get the work done! Not quite in the budget! Needless to say, they couldn't open for Memorial Day Weekend. The rooms did get released so that the Inn could open the week after, but some business still was lost. I hope that you noticed that I haven't mentioned the dining room. It is currently estimated to be released by the contractor by June 15th, but I wouldn't place any bets yet!

If you want to do a start-up, please do so. However, we want you to be successful!! Please go in with your eyes wide open, pockets deeply lined with money, and be ready to work with delays!

Best Methods for Finding the Ideal Inn

2007-05-17T10:05:00.000-07:00

Written by: Howard J. Levitan, Oates & Bredfeldt, LLC

This is one of the most asked questions at every one of Oates & Bredfeldt’s Innkeeping Seminars. How can I find my ideal Inn? The answer is very easy, but counterintuitive. We say simply to “Stop looking at Inns for sale!” Here is why:

Location, location, location is still the golden rule. Searching for an Inn is not like buying a home (it is a business first!). We often hear, “Well, I have moved all over the United States during my business career, I can live anywhere.” Better yet, we often hear prospective innkeepers say “I will know my ideal Inn when I find it.” In order to take control of the process, every prospective Innkeeper needs to first decide clearly what they are looking for in an Inn, and, most importantly, where that Inn is located. Location will dictate the one clear factor in the Inn’s business model, the occupancy rate. While the occupancy rate at Inns will vary depending on the rate charged, or the amenities, or the size and furnishing of the rooms, or especially the hospitality provided, the key factor is location.

If the Inn is in a destination location (each state has only a few true historical destination locations), the occupancy rate will be significantly higher on average than if it is located in the countryside. Thus, occupancy rates at Inns located in destination areas like Stowe, Manchester, and Woodstock, Vermont, or North Conway, NH, or Bar Harbor, Camden, and Kennebunkport, ME can be almost twice the occupancy rates of their counterparts in non-destination areas of the same states. This is a historical factor. People have been vacationing at these locations since travel was made easy by the Industrial Age. They have a recognition factor, and Inns in these types of locations do not need to sell coming there, only how their Inn is differentiated from the other Inns. The Internet and particularly the Search Engines have heightened this effect. People may enter “Boothbay Harbor bed and breakfast” into Google, but few are going to enter “Newcastle bed and breakfast” (where our Inn was located) even though it is only a few miles away. Thus, Inns in non-destination locations need to be at the very top of their electronic marketing game just to hold their own against the destinations. Location is a critical factor, but what about price? The other side of the equation is that with higher occupancy rates, and, potentially, more net cash flow, the Inns in destination locations tend to be very expensive. You need to decide what factors are your ideals!

Creating Your Model Inn. This is the key to success. Take control of the process by clearly defining what you want in an Inn; your ideal “model.” What does it look like (style of architecture), is it full service or bed and breakfast, what kind of food service will you serve, how many rooms (dictates the need for and number of staff), is it a mature business or a start-up, and, most of all, where is the location? The model needs to be as detailed as possible; it is not something that you can just dash off in a few minutes. For couples, one of the most interesting exercises is to do this separately and then compare models. Often, there are clear differences that need to be ironed out before commencing to search. Start the process with a very exhaustive list of exactly what you want in an Inn. You may never find your “ideal” Inn, but at least you now have an objective list of what you are looking for. Put it down in a spreadsheet, so that you can compare all of these factors against each of the Inns that you look at.

Inns for Sale? Looking at Inns for sale all over any region, like New England or the Southeast, or any broad location can be an exercise in frustration. Again, it is not like buying a house. The more you see does not necessarily expand your knowledge of Inns, only of Inns that may be overpriced or have problems. The simple answer is that most very good Inns sell without the general buying public ever being aware that they are for sale. This is a confidential process. Most Innkeepers understand that being for sale may be a “four letter” word. It has an impact on the staff and clearly on the guests coming to visit. If the average life of an innkeeper is about 8 to 10 years, this means that about 10-12 percent of all Inns are for sale at any one time. Not all of these are publicly on the “market” with a broker.

Another very important factor in Inns for Sale is how the offering price may be set. What is the justification for the high asking prices we now routinely see in Inns? Does the Innkeeper decide the price based on anecdotal evidence of what other Inns in the area have sold for, or is it based on some kind of simple rule of thumb like a gross revenue multiplier? Can the Inn support normal commercial financing or does it require more equity in order to cash flow? Does the Inn’s business model have potential for growth, or is it stagnant or are revenues/occupancy falling? All of these are important questions in the process of setting the right price. Searching for an Inn which is ready to be sold, but not yet on the open market, may be the real answer to finding your ideal Inn.

The Tell-tale Signs. The Inn is for sale, but only the Innkeepers may know it. There are always clues. Perhaps it is the chipped paint on the stair treads, or the landscaping that just is not as manicured as it should be. The website has not been updated for a while. The Innkeepers are a bit tired, or you only see them occasionally; the staff is running the Inn. They have been keepers of the Inn for 8 or 9 years, and perhaps they are ready to move on. If the Inn meets your ideal model, or is close to it, why isn’t this situation the perfect solution to your Inn search? Approach them before the Inn goes on the market, and you may be able to get a much more reasonable price. The worst thing that can happen is that you are told that the Inn is not for sale. But even then, you may be able to get a first bite when they are ready to sell.

Create a Search Plan. Take your model, and visit your location. You should have a back-up location which you are keeping an eye on, but not actively searching. Visit your location as often as possible, in different seasons, staying at Inns which are high on your list as meeting your model. Network with the Innkeepers, tell them that you are searching and what is your model. Even if they are not really for sale, they can help you with knowledge of who might be thinking about selling. This is the best way to get first hand facts of what is going on in that location. The Innkeepers may not tell you financial information about their Inns (occupancy rate or average daily rate), but most are quite free with giving you everything they may know about other Inns in town. This networking is really the key to success.

Confidentiality. Remember one thing. If an Inn is not actively on the market, whether it is for sale or not, telling other Innkeepers or people in the community that you are trying to buy a particular Inn is the fastest way to lose a deal. You need to get knowledge, but not by breaching the confidentiality of the Innkeepers. Word spreads quickly in small communities and this can impact the business of the Inn that you may be trying to buy. There will be plenty of time to accomplish the due diligence that you need between the time an offer is accepted and the dates set in the purchase and sales agreement. You need to respect this!

Final Thoughts. This is all about taking control of the process. We have taught hundreds of prospective Innkeepers these lessons, and they work. Create a model, create a search plan, and then find your Ideal Inn.

Words of Innkeeping Wisdom

2007-05-10T07:43:00.000-07:00

We are always looking for Innkeeping advice from Innkeepers to feature in our newsletter for Future Innkeepers. Do you have a piece of advice you wish you had known BEFORE you were an Innkeeper? Please share it with us.

We have received some great advice since the inception of our Future Innkeeper Newsletter:

“Plan from day one to have some personal time. The days speed by and before you know it it's been weeks of long days and you haven't even taken a walk. If an activity was important to you before you bought the Inn, keep it a priority after purchase, be it exercise, church or just sitting down and reading. Everyone tells you that you'll be busy, but until you experience it you really have no idea how busy you will be." Sarah & Erik Lindblom, Captain Jefferds Inn, Kennebunkport, Maine

"Many years ago, not long after we opened our own Bed & Breakfast, we learned not to call a guest about having left an item when they departed their stay. It didn't take us long to realize that occasionally we would have a couple stay with us who were married, but not to each other. Today when an item is left behind, we hold it in a lost and found "safe place" awaiting their call to let us know they would like the item returned and where to send it." Bonnie & Joe Masslofsky, The Parsonage Inn, St. Michaels, Maryland

“…now that we're here we have strategically set out to change as many light bulbs to the energy efficient coil style as possible. Oh, stop cringing, we still use the pretty ones where it counts, but when they are destined to be left on 24/7 and covered by a shade, we found that our average suite has 15-17 bulbs, and that each bulb is supposed to save around $50, not to mention they last much longer and have virtually ended our having to drop everything when a bulb goes out to go and change it…” Pam Matthews, Montgomery Inn Bed & Breakfast, Versailles, Kentucky

"Find a place that you love so much that every time you come towards the Inn or when you enter the Inn you say to yourself what a GREAT place this is and how grateful you are to be where you are!" Frank & Julie Hanes, Inn at Manchester, Manchester, Vermont

And one of our personal favorites..."Own a couple of good plungers, know where they are located, and try to avoid carrying one through a public space without masking it in something (a garbage bag works, and it catches drips from hitting the floor post-plunge)." Nancy & Bill White, Sudbury Inn, Bethel, Maine

Do you have some Innkeeping advice that a Future Innkeeper should not proceed without? Please comment on this post or email your advice to kim@oatesbredfeldt.com. We look forward to hearing from you!

PAII Conference

2007-04-18T10:56:00.000-07:00

We recently attended the 2007 PAII Conference in Myrtle Beach, South Carolina. If you are an Innkeeper or want to become an Innkeeper someday, you should make a point to attend these Conferences. The PAII Conferences and trade shows are not only a great opportunity to network, but they are also a source of inspiration. New products, distributors, and ideas abound. We hope to see you at the next Conference!

If you were not able to attend the most recent PAII Conference, we wanted to share our slideshow presentations with you:

Food and Alcohol Safety Issues for Innkeepers

Exit Strategies for Inns with Restaurants

Creative Electronic Marketing

E-Mail Address Are Important!

2007-04-16T13:22:00.000-07:00

Recently we attended a national conference and happened to gather a sizable number of business cards from innkeepers requesting additional information from us. We are always happy to respond and answer questions and to forward additional information. We came back from the conference and started to work on fulfilling the requests. We sat down, separated the requests into piles for similar requests, and then came to a screeching halt! Much to our surprise over 50% of the business cards contained no e-mail addresses! The innkeepers were diligent about furnishing their website addresses, but no e-mail addresses. So off we went to track down the website address and dig through the websites to find their e-mail addresses. Even then, some of the websites didn’t actually list their e-mail address.

So our question today is: do people know how important it is to put an e-mail address on their business cards? By the look of this independent survey, I would say no. In the world of ever changing technology, an e-mail address is as important as a telephone number. So, if you don’t have an e-mail address on your business card, fix it! A guest may just want to drop you an e-mail to say that they had a lovely time at your innor they may have left something that they would like to have forwarded to them. Other situations could include wanting to purchase gift certificates, asking to send a brochure to a friend, asking to share a special recipe, and more! Guests aren’t the only receiver of your business cards. This could include business acquaintances (like us), vendors, local trade people, and more. It is much easier for people to keep a business card versus a brochure.

In closing, we encourage everyone to step back and evaluate your business cards…e-mail addresses are important!

How to Know if the Price of an Inn is Right?

2007-03-16T11:00:00.000-07:00

This article will appear in the next PAII Newsletter for Aspiring Innkeepers.

Of all the questions that we are asked during our Innkeeping Seminars and in our consulting practice, the most important, and most frequent, one is "How can I know if the price for an inn is the right one?"

First, some general background. Most aspiring innkeepers have previous experience in buying real estate, mostly for their own residence. They understand the concept of comparative market analysis (CMA) in which they, or a real estate professional, compare what they want in a home to many, many houses on the market or recently sold. The problem is that inn businesses are really unique combinations of assets, and there may be very few true comparables from which to get price data with respect to recent sales in a given area. An inn is a very different bundle of assets than a house. It is a combination of real estate (i.e., land, buildings and, most importantly, location), furniture, fixtures and equipment (because most inns are sold on a turnkey basis), and, most of all, the financial capabilities of the inn and its good will. Financial capabilities include both the historic cash flow of the inn after expenses, but more importantly, the projected cash flow from operations in the near term. What you are really buying when you purchase an inn is not what it did in the past, but for better or worse, what will it generate in terms of cash flow in the next few years after the purchase. Good will, on the other hand, is a bit more amorphous, and may include some specific assets like the website, URL, phone numbers, guest list, etc., but also its name and the general reputation of the inn to the public.

Financial Analysis: In determining what to pay for your "ideal" inn, the first and most important analysis that has to be done is to review what the historic cash flow of the inn has been, and to compare that data to other similar inns. If you have expressed serious interest in purchasing an inn on the market, you need to see the financial history of the inn for at least the last three years, including occupancy records, detailed profit and loss statements, and in some cases, tax returns for that period. (You may have to sign a confidentiality agreement to get access to this information.)

Once you have the data, you need to develop a reference point for the expenses of the inn to determine which ones will continue in the future and which ones reflect one time occurrences (like specific renovations or maintenance expenses). Some expenses are attributable to lifestyle or personal choices of the current owners (e.g., if they pay for an expensive car through the inn or have decreased their active participation in day-to-day activities, and more staff is hired to cover for them). PAII’s Industry Study of Operations and Finance is an invaluable source of financial data which can be used to compare the financial income and expenses from a given inn to industry-wide data which is broken down by several different categories (e.g., by region, size, average daily rate, location, etc.) By comparing each individual expense account in an inn's financial data against the appropriate industry averages contained in the PAII study, an aspiring innkeeper can identify those areas of expenses as either personal in nature to the owners of the inn or as unexpected and therefore need further explanation. Once this comparison is done, you can then project what this inn might produce in revenue under your management, and more importantly, what the Net Cash Flow (NCF) would be in future years. For purposes of this article, NCF would be the net income of the inn after all expenses but before interest, taxes, depreciation, amortization, and owner compensation (thus an "EBITDA" calculation).

Rules of Thumb: Most aspiring innkeepers who have been out in the market looking at inns have already heard about the so-called "Rules of Thumb" that industry professionals use to track and compare inn sales. These include, specifically, both Price per Guest Room and Gross Revenue Multiplier (GRM). At each PAII Convention (you should absolutely be going to these if you are really serious about becoming an innkeeper) there is a seminar given by inn brokers, inn consultants, and appraisers from around the country called "Valuations From the Four Corners" which details the inns sold during the last year by region, showing the sales price, price per room, gross annual revenue, GRM, and revenue per room. These seminars will be invaluable to you in determining the correct price to pay for an inn.
Here is a look at some Rules of Thumb: Price per Guest Room simply divides the sale price of an inn by the number of guest rooms. This very simple number tells an aspiring innkeeper very little about the nature of the business of the inn. It is only one of many variables that affect price, and likely the least precise and most unreliable of all of the measures of success. In the 2006 PAII Industry Study, the average national price per room was $125,242. Regional data was also available, and varied widely depending on location. Our own Oates & Bredfeldt data for mostly Northeastern U.S. inn sales showed average Price per Room of $126,498 for bed and breakfast inns.

Another Rule of Thumb is the Gross Revenue Multiplier (GRM) which is a calculation of an inn's ability to produce revenue as a factor of its value. Oates & Bredfeldt data (mostly from the Northeast) for the period 2002-2006 showed a GRM of about 4.47 times. Surprisingly, data presented by Michael Yovino-Young, a very knowledgeable appraiser from California, showed GRM approaching, and in some cases exceeding, six times earnings. The most important thing to ask about all of the data behind a GRM is what does the gross income from any business tell you about its profitability and future earnings? This is an interesting statistic to look at or keep in the back of your mind, but it is no substitute for a detailed review of the financial history of an inn.

Capitalization of Income: This approach to valuation is at the heart of most financial analysis of businesses as going concerns, and is one of the three methods used in every real estate appraisal. It basically takes the historic cash flow from the business and projects what it is likely to do over the near term future. This develops a net cash flow (NCF) for the future as a stream of income. The concept is that the value of a business is the present value of the net income that it will generate over the foreseeable future. The present value is represented by a mathematical computation based on a capitalization rate or "Cap Rate" that is a reflection of the relative risk of investing money in that type of business. Thus, the formula is to divide the NCF by the Cap Rate to find the value. By way of example, if the NCF of a business were $500,000 and the Cap Rate were 10%, under a capitalization of income method, the value of the business would be $5,000,000. The lower the Cap Rate, the higher the value. Historically, Cap Rates for inns have ranged from 9% to 11%, but there have been recent data, particularly from California, that seems to indicate that underlying real estate value can impact the Cap Rate by lowering it, and thus creating higher values. The one thing that this approach does not provide is to determine what is the correct Cap Rate for a given area or particular inn. This is a subjective conclusion that must be made based the relative risk of the investment and the present cost of capital. Thus, you would need to look at not only the consistency of the historic NCF of the inn, but also current interest rates on commercial financing, and comparable investment returns on similar businesses. While the ranges help, determining where you fall within such a range is more difficult, and in some cases may require professional assistance.

Debt Coverage Test: This is another way of looking at price and value. This methodology looks at the historic or projected NCF of a business and determines how much of that NCF is necessary each year to pay the debt service on a normal commercial mortgage on the property and how much above the debt service is available for uncertain future events or owner compensation. Most commercial mortgages are offered at a loan/value ratio of 75% (i.e., the borrower is investing 25% equity) with debt service calculated on a 20 year amortization with usually a fixed rate of interest for the first 5 years of the loan. Using the NCF projected from the inn, an aspiring innkeeper can then determine what the annual debt service on the loan would be and to what extent the NCF exceeds that debt service. The ratio is usually given as a percentage with the formula equal to the NCF/Debt Service. Thus, if the NCF was $130,000 and the annual debt service on the loan was $100,000, the Debt Service Coverage Ratio would be $130,000/$100,000 or 1.3 times. Most financial institutions when underwriting a commercial loan will be looking for at least 1.20 to 1.25 times coverage, meaning that there is a cushion in the NCF equal to at least 20% to 25% of the debt service available for unforeseen events or return to the owners. In looking at the Debt Coverage of an inn, you can therefore determine whether the inn "cash flows" or has sufficient earnings to pay a normal mortgage, and if there is excess cash flow, what kind of return does it provide an owner based on the amount of money invested in the inn business (i.e., the down payment, closing costs, renovations, and working capital invested in the inn). This is a method of making sure that you are investing in a sound business that will succeed over the future.

Conclusion: While all of this seems daunting to many aspiring innkeepers, it is very important to understand that an inn is a business that needs to be carefully analyzed before any price negotiation or offer is made. For those who feel uncomfortable doing this type of financial analysis themselves, there are inn professionals (i.e., consultants, brokers, accountants, and appraisers) who can provide fee-based assistance to aspiring innkeepers in reviewing, analyzing, and comparing this financial data in order to come up with the right price to pay for an inn.

The Art of Obtaining Financial Information

2007-02-12T08:31:00.000-08:00

It always amazes me when dealing with people looking to purchase an inn. The other day I received an e-mail inquiring on a property valued at $1.8M. The e-mail was simple. It said “This is the type of inn we are interested in. So, if you can pass on to me 3-5 years of financials, I can look them over”. So here is the dilemma. I don’t know who this person is. We have only communicated for a brief time via e-mails and I don’t even know his last name. In addition, I can’t contact him via telephone because he hasn’t shared it with me. I’m not sure of his family status and if he has children, there isn’t room within the current owner’s quarters. I’m not sure if he wants to be in a city, country, or mountains. Most importantly, I don’t have a clue as to his finances! Yet, he totally expects me to quickly disclose very personal information when I know nothing about him.

So here is the real question…If you owned an inn worth $1.8M would you want me to send your financial overview to everyone that inquires? The answer should be no!! When you are at the point of being a “serious buyer”, you should act accordingly. My motto is simple: “Show me yours, and I’ll show you mine!” A buyer that is serious should be ready to share their financial overview. If a buyer isn’t capable of doing this, they are not serious. So my message to all of the future buyers is to prepare a financial statement and be ready to share it on any inn in which you are seeking their financial data. You will now be treated as a serious buyer!

Even a Bed & Breakfast Needs Food Safety Training

2007-01-15T12:01:00.000-08:00

It is taken for granted that restaurants have to worry about food service safety, but it doesn’t stop there! Anyone serving any type or quantity of food to the general public should be concerned as well.

It never occurred to me when I owned a bed and breakfast the harm that could be done by simple procedures, such as breaking eggs into a bowl and leaving them on the counter or defrosting frozen food. However, harmful bacteria doesn’t need much time in a warm environment to grow and therefore potentially making your guest sick. Better yet, the proper sanitation of countertops and hands is equally important. We strongly encourage anyone serving food to enroll in a food service safety class, such as ServSafe. This is a nationally recognized organization which is known by all health inspectors nationally. When the health inspector is at your door and things are not going well, you will gain their respect and a few extra points for taking a food service safety class and becoming better informed. So don’t wait! Be proactive and you’ll be surprised by the information you will learn and better understand the goals of health inspectors.

Call or e-mail us and we will assist you in finding a food safety class near you. Just call 207-563-2772 or mailto:rlevitan@oatesbredfeldt.com

2007 New Year's Resolutions

2006-12-18T12:58:00.000-08:00

It is the start of the New Year and this is it! You have decided to finally quit your job in the corporate world and take the plunge into Innkeeping! You are serious, but what to do first? Let’s outline the seven steps to successful Inn ownership in 2007!

1. It is time for a reality check
2. Evaluate your financial situation
3. Define your Inn model and the needs of your family
4. Conduct your search
5. Evaluate the numbers
6. Make an offer
7. Quit the job and close on the Inn!

It is time for a reality check. First, ask yourself if you really want to do it? What impact will it have on the family? Do you really want to work with your significant other 24 hours a day? Can you give up the weekend activities with your friends? Can you adjust to a different lifestyle? Income will be adjusted, can you adapt or will you need a defibrillator? It is okay if you say Innkeeping isn’t for you, but if you are still saying you can deal with these changes, let’s go forward.

Evaluate your financial situation. How much money is in your savings account? What is the capital in your home? How long will it take to liquidate your home? How much money is in your 401K (we don’t really encourage using it, but it is good to have as a back- up plan)? Are there investments that can be liquidated? Will your family be able to assist you in the investment? Finally, look under the mattress and make sure that all monies are accounted for. When this is all tallied, keep in mind that a bank will be asking for about a 25% investment from you when purchasing an Inn. Now you know the price point that you can realistically afford to purchase.

Define your Inn model and the needs of your family. In the Fall, 2005 newsletter (available on our website in newsletter archives), we had an in-depth discussion on building a model. In addition to building a model that works for you, your individual family needs have to be considered as well. Do you have children at home? Are they old enough to be part of the Inn or do you need to have private space away from the Inn? Can you live in a conservative owner’s quarters to begin with and then expand into larger quarters as the time passes? All of these considerations should be incorporated into your model.

Conduct your search. Visit Inns, stay at Inns, speak with Innkeepers, and find an area where you will truly enjoy living. Join Innkeeping associations, network with other people who want to become Innkeepers, and be open to new ideas. This will be a rewarding journey if you approach it with your “eyes wide open”.

Evaluate the numbers! You have found an Inn that meets your needs. The emotions are running high and you need to make an offer before someone else buys it! STOP!! Rein in the emotions and make a logical evaluation of the numbers. Make sure that it all makes sense and hire professionals to assist you. We have been involved with too many Innkeepers who now need assistance because of financial hardships. This could have been avoided if only they had evaluated the Inn prior to purchasing it. SLOW DOWN!

Make an offer. You have poured through the numbers and everything seems to make sense. Make an offer and move forward. This is a stressful time and it is important to have a good working relationship with the Innkeeper who owns the Inn of your dreams. Howard has a saying, “there is a lot between the cup and the lip”, meaning that the offer is only the beginning. There will still be many negotiations as you work through the purchase and sale agreement.

Quit the job and close on The Inn! The offer has been accepted, you have completed the purchase and sale agreement, and the bank has approved your financing. You have waited a long time to do this and have had a good time doing it! Quit the job and don’t look back. It is time for a long overdue lifestyle change. The Inn is in your hands now. Our words of wisdom are to have a good sense of humor, remember that decorating is tax deductible, take at least one full day a week off to enjoy with your partner, and enjoy the new lifestyle. You worked hard to get here and now we want you to enjoy it!

P.S. Burn the suits now because you won't be needing them again! Have Fun!

Yield Management? Not!!

2006-12-06T08:27:00.000-08:00

I was looking at the December edition of PAII's Innkeeping this morning, and had a thought that I wanted to pass on. Clearly this falls in the range of “for what it is worth.”

I have heard Bill Carroll talk several times on Yield Management, including at last year’s PAII Conference. He is clearly a bright and thoughtful professor. However, this discussion turns me off every time I hear it. It seems to be all about the money and not about the guest. It seems to be the antithesis of the kind of hospitality that we strive for as Innkeepers. Even mentioning the possibility of overbooking rooms and having different rates for the same type of rooms on the same days, makes me cringe. Working hard to have a strong Inn business is something we have taught for many years, but the means of achieving this goal also matters. I think, bottom line, that Yield Management is perhaps the opposite of what we should be teaching Innkeepers or Aspiring Innkeepers. Our segment of the Hospitality Industry has always, always differentiated ourselves based on the high level of individual hospitality we provide to the guests. This has helped us considerably in the tough times following 9/11 when the larger hotel industry was killing itself with discounting and hotels.com type distribution channels. In my opinion, the future of our way of Innkeeping seems to depend upon increasing the level of hospitality to the guests, not becoming more institutionalized and impersonal. We need to continue to think about what is the next amenity that we can provide to the guests, not how much money we can get.

Now, Bill Carroll is writing about Demand Management. Once I got past the Yield Management stuff in the article, however, I actually thought that some of it made some sense to me. Analyzing marketing expenses, sources of contacts, and tracking web results (i.e. spending time trying to figure out who the guest is, and why and how he finds the Inn) is all something that most good Innkeepers have been doing for years. Asking the question “How did you hear about us?” is such a standard question that every Innkeeper must ask a prospective guest. Treating “loyal guests” (i.e. repeat guests) as special is one of the essentials of good Innkeeping. I recall an article in Innkeeping many years ago by Maureen McGee from Rabbit Hill Inn in Vermont, on how to answer telephone calls for reservations. This was done before anyone ever heard about the Internet. Some of this article is clearly still relevant. Asking about why the guest was coming and how they heard about the Inn were such basics even at that pre-web time. Tracking sources of contacts has been present from the earliest days of bed and breakfast reservation software.

In sum, let’s get back to basics. If we treat all the guests as very special, they may want to come back. If we treat repeat guests even better, they might clearly refer more business to us. No matter how much the Internet and computers become a part of our lives as Innkeepers, the best, least expensive, and most lasting form of marketing, is and always will be treating the guests to superb hospitality. Modern electronic marketing has become very important, and will succeed if we remember that is all about serving the guest and their needs. If Yield Management is the way of the future, then I have sincere doubts about how we can continue to differentiate ourselves from every chain hotel off the highway.

Held Hostage by your Inn Chef?

2006-09-13T08:18:00.000-07:00

For those in the full service Country Inn world, one of the greatest fears is to be in the middle of dinner service one evening, only to hear shouting from the kitchen as your chef walks out never to return. As this happens not infrequently with "artistic" staff people, it is very important for all Innkeepers to take control of their destiny by planning for this event before it happens. If you are not "held hostage" to your chef, and he or she knows it, you may never have to deal with this issue.

One of the first elements of the plan is to make sure that in the event of any calamity in the kitchen, be it a walk out or simply a work injury, you are able to complete service through other staff members or by your own familiarity with the menu and cooking techniques. Most Innkeepers have some abilities in the kitchen, and by watching and practicing where appropriate, should be able to at least pinch hit for a night or two. At our Inn in Maine, we took that a step further. We had developed the ability to routinely run the kitchen at least once every few weeks to give the chef a needed day off. The chef still prepared all the food prior to actual service, and we learned how to cook and plate it. The result was that the chef knew that we could survive without him if we had to, and this eliminated a lot of ego issues. During the slower Winter seasons, once of us actually became the sous chef, helping with plating and learning his techniques. In a small dining room operation this turned out to be an excellent plan.

In larger Inn restaurant operations, the plan is different. Here, the goal is to make certain that the chef spends as much time as necessary developing the skills of his sous chef, so that in the event of an emergency or a problem, that individual can step up and replace the chef, at least in the short term. In essence the "plan" is similar to what happens in the corporate world, i.e. the chef is required as a part of his job to train his replacement and to have qualified backup at all times. Thus, the care and feeding of the sous chef becomes a very important part of the plan.

The key to proper management of kitchen staff is to be proactive, to make a concrete plan, and to make certain that "hostage" is never a word to be associated with your operations.

Contract Pricing

2006-08-15T06:04:00.000-07:00

When it comes to decorating Innkeepers have a variety of tastes and variations of themes. Whether it is antiques, reproductions or new furniture, it has to be of high quality. There is a way to purchase high quality furniture at lower pricing. It is called "contract pricing". Simply identify a manufacturer of furniture that you like and proceed to their website for information on how to contact them via telephone. When contacting the company, ask to speak with the department that handles contract pricing. When you have arrived at the correct department, advise them that you are an Innkeeper and ask them if they provide contract pricing for Inns. This usually results in purchasing furniture directly from the company at significant savings. This worked for us when we were Innkeepers. The manufacturer we worked with was Hickory Chair. We managed to purchase a $4,800 bedframe at a cost of $1,600. Happy shopping!

Marketing 101: Differentiation and Niche Marketing

2006-08-09T06:00:00.000-07:00

All Innkeepers are concerned with improving the bottom line. No matter how much control over expenses you apply, how can you best increase room sales? Most Innkeepers know that the Internet has a bias in favor of destination locations. These are the historical travel sites in each state that are must sees for travelers. So how do Innkeepers grow their businesses if they are not in one of those “destination” locations that are being Googled more often than other searches? Or, even if the Inn is located in a destination, how can you make your Inn stand out from the pack?

The challenge is called “differentiation.” How can you make your Inn appear different (read that “better”) than the rest? The answer is the same, whether or not you are in a destination location. Niche marketing (called “Segmentation”) is all about making your Inn standout from the rest. The foundation of niche marketing is the development of packages which combine the experience of staying at your Inn and eating your great meals (whether bed and breakfast or full service) with one or more special experiences in your area. Here we are segmenting the market into small niches. We are trying to attract all forms of interests. The packages are easy to put together and can be unlimited in scope. Whatever adventure-type activities you have in your area like whale watching, kayaking, hiking, biking, antiquing, golfing, fishing, or whatever can be combined into a great package along with a stay at the Inn and one or more meals. The key is developing unusual packages that differentiate your Inn and convince your prospective guests that you are special.

This Niche Marketing concept was first developed by Disney to increase sales at their theme parks. It has been adopted by the Cruise lines which now make more money per traveler on experiences off ship than they do on the cruises. Finally, the big resorts have taken this up under the concept of “Cruise Ships on Land.” If you want to really improve the bottom line consider this one of the best ways to stand out from the rest of the Inns in your area.

Article written by Howard Levitan, Oates & Bredfeldt, LLC

Tough Times for Innkeepers

2006-08-01T07:08:00.000-07:00

Over the last few months we have talked to many, many Innkeepers around the country to see what is happening out there. We have heard a lot about the wars around the Globe, the weather, the high gas prices, and the poor economy. The hopes of the Early Spring and the nice advanced bookings for the Summer Season seemed to fade out with the rain, heat, and humidity of late. The so-called real estate boom seems to have burst with the Federal Reserve continually raising interest rates, and everyone is hoping for a soft landing for the economy in general. Yet, despite the doom and gloom, many Inns are having an upturn in business, and are reporting record results. What is this all about? Why is it happening or not happening for you?

Marketing, marketing, marketing. We used to look at location as the bottom line of the Inn business. While the new focus of the Internet is clearly on destination locations in the search engines, the smart Innkeepers who are not blessed with a historical destination location are remaking their Inns into “virtual destinations” on the web. This is a combination of creating interesting packages and exciting itineraries to attract new guests to their area. In essence, these Innkeepers are letting the traveling public know what there is to do and see in their location, and putting together great packages, full of adventures, that will help people make the decision to come to stay with them. This niche marketing is then distributed over their web sites and through electronic marketing (email marketing) to help create the buzz and the overall demand for the Inn. The bottom line is that it works.

In addition, the remarkable ability to portray your image on the web to prospective guests depends totally on creating an interesting, easy to navigate web site with great pictures. At the last PAII Conference in Phoenix, this last point was driven home by a demonstration of before and after web photography. The difference between the sites with great digital photography and just home grown attempts was dramatic. We cannot more strongly recommend professional photography for web sites. It is the essence of success.

Finally, repeat rates seem to be falling off across the board as guests seem to be seeking new experiences for their vacations. It is a whole lot more effective, and less expensive, to coax guests to return to the Inn, as opposed to finding new guests to fill the rooms. That requires not only great service while the guest is staying at the Inn, but “constant contact” once you have wowed them with what you have to offer. That means special programs for returning guests to make them seem even more special. The basic rule on email marketing is to hit the list at least once a quarter with some news about what is happening, great new specials and packages available, and a real and meaningful call to action to make them move the mouse to your reservation page.

So don’t just sit there bemoaning the weather, let’s start to get this all done. For those of you who just don’t think you have the energy or the ability to do this, then find someone who can help or call us and we will help you get it done. This gentle reminder is really an essential component of your success as Innkeepers. No matter how great your Inn is or how incredible your service to the guests, if you can’t differentiate yourself from the rest of your competition, you will have trouble keeping up with those that can. Enough said?

Article written by Howard Levitan, Oates & Bredfeldt, LLC

Welcome to our new Blog!

2006-05-25T13:22:00.000-07:00

Our blog has been developed for Innkeepers on a national basis. It seems that the only people that understand Innkeeping, are other Innkeepers. We hope to assist people on the day-to-day operations of the inn and to offer assistance where necessary! Welcome to our blog!