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!
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5 comments:
I disagree with your blog. Having been in real estate for 15 years and having considerable experience in buying and selling businesses, it is NOT unreasonable to request some financials on a B&B before taking time and expense traveling to tour or view the property. Due diligence demands requesting the information. You would not buy a car without a test drive, pruchase a diamond without an appraisal, buy a home or a building without touring and inspecting the property.
Although I can appreciate your position, as a representative of the seller, to try and secure as much information about a propsective buyer it puts the buyer in an unfair position of disadvantage.
You never invest money in a mutual fund or a stock or with a company without first reading and examining the prospectus!
Hi! Thank you for your view. However, even in realestate they won't show you a house unless they know your are qualified and can afford it!
I don't think the books should be the only reason to buy the property. The new owner might have totally something else in mind what they would like to do with the property. They might even charge more for all their facilities. They might run it more like a business and less as just a way to communicate with strangers. They might even run it down the drain. Everybody does not bank all the cash as banking charges is very expensive. Cheques are made out in cash for other uses and foreign monies are kept for future travels.
I appreciate this information, as an aspiring first-time innkeeper. I've identified a potential property I'm actually quite interested in. I plan to visit the inn for several days for a personal assessment, but it is at least a 10-hour drive away and would require at least 5 days for a 3-day visit to evaluate the property and surrounding area.
Before I commit to that time and expense I would like to be able to analyze some basic information, such as gross income and expenses and occupancy rate by month as a minimum. The B&B is in an area where occupancy is mostly seasonal, so I will need to know if operations during the busy part of the year will provide enough income to cover the lean months when current occupancy is, as far as I can tell, almost zero. There is opportunity to increase off-season occupancy that is not being pursued by the current owners.
The response was the occupancy rate is approximately 50%, but no occupancy by month and the "full" months only account for 1/3 of the year, short of 50% even if there were partial occupancy during the "shoulder" months. I have gross income and expenses for 2006, gross income and estimated expenses for 2005.
I don't feel this is enough information to allow me to calculate the numbers needed to be confident in expending the time and effort for a site visit, much less developing a business plan and seeking financial aid, which is going to require a very detailed plan and probably some creative financing.
What do I need to do or what questions do I need to ask the broker to get him to provide me with this information so I can be more confident in committing the time and expense to make a site visit?
Thank you.
Hi Mike,
You are correct, 50% tells you nothing. This is a gentle juggle and it's not the gross income that is important. It is really the net income.
Also, you really have to know what you can afford to purchase. A bank will want you to invest a minimum of 25% and then it has to cash flow. A very well run B&B should allow 45-48% of gross to hit the bottom line. But size will also affect this. How large is the inn?
I would be happy to speak to you personally and please feel free to call us at 866-563-2772. Happy Holidays!
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