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The Business of Running a Bed and Breakfast
Running a bed and breakfast (“B&B”) in the cold of winter on the streets of Manhattan during the 5pm rush hour feels great. The fact is that it can be a real job. Let me give you a taste of what it’s like in the life of a typical B&B owner.
Imagine an 8pm Friday in the middle of summer at your lovely B&B. You have just cleared the dining room, where your guests recently indulged in some light fare and drinks. you are tired It’s been a long time. You’re about to start doing the dishes, which will take you an hour or so, and the phone rings. This is John Smith, a late arriving guest, who was to check in at 9:00. He tells you that he won’t be there after 10 o’clock.
It’s 9pm, you’ve just done the dishes and now you’re throwing the dirty towels in the laundry and collecting new towels to replace the old ones in the bathroom. It will take you an hour or so. You check your watch. It’s 10pm, not John Smith. “Where could he be?” You have to surprise yourself. You check the phone for any messages, any. The phone rings at 10:30 p.m. This is John Smith. He is at exit 117 on the Garden State Parkway. He should be there in about ½ hour. At 11pm John Smith finally arrives. You check him in, show him to his room and at 11:20pm you rush to your bedroom to pack a sack because you promised early riser, Julie Murphy, fresh coffee and a continental breakfast for her at 6am. If you’re lucky you pass out from exhaustion at 11:45pm and squeeze in just over five hours of sleep.
Welcome to the quiet world of B&Bs. Not your typical day, but you get the idea. My point is, managing a B&B is not as easy as you think. However, it can be anything you imagine as long as your thoughts are anchored in reality.
Your level of attention to detail, including the location of your B&B, can make your B&B a real success or a real nightmare. You’re always on the go during your B&B’s busy season (mainly May-September in the Northeast). Your hours are determined by the hours of your guests. Arriving late may wake you up late and early risers may have to wake you up at 5am.
Frequently Asked Questions
What constitutes a B&B? Generally anything larger than 5 rooms is considered an Inn and less than that is considered a B&B.
How do you know if your B&B is successful? 100 nights, a year out, filled to capacity, is a good year.
Can you make a living running a B&B? In most cases you need about six rooms to make a living at it. Anything less is just supplemental income. If a host wants to live in a B&B he has to open an inn.
What are the biggest problems facing B&B hosts? In general, it’s a well-run B&B and attention to detail avoids last-minute cancellations or guests simply not showing up.
Do you have to list your B&B with a Reservation Service Agency (“RSA”)? If this is your first B&B and you’re just starting out, the answer is a definite yes! Here is the reason. A good RSA provides many valuable services. First and foremost they can drive business in your B&B. Many RSAs provide brochures to state-run reception centres. Some RSAs reach out to local businesses and special-event coordinators. When a potential guest picks up one of those brochures and calls the RSA they will offer the possibility of a B&B that meets their geographic and personal needs. Other benefits of joining the RSA include valuable advice on how to run a B&B. Many RSAs will usually visit your B&B to see if it has the right setup to accommodate guests.
They usually bring a checklist and go through some kind of inspection process. Soon you will discover the strengths and weaknesses of your B&B. Often this service is provided free of charge, as an initial consultation, which the RSA will do as a way of determining whether your B&B meets the minimum standards. This inspection helps to uncover underlying problems in your B&B. If you pass the inspection, the RSA will be willing to list your home. RSA includes, beyond the aforementioned services, answering phones, e-mail/mail inquiries, screening and meeting guests with hosts. They will send confirmations to guests who make reservations. Some send regular newsletters to hosts and help hosts with record keeping and tax preparation. All these services, of course, come at a cost. Typically, RSA’s commission will be between 20-25% of the rental income from the guests they book.
How much should you charge per room per night? Most B&Bs charge a minimum of $100 per night for a double occupancy room. This amount can be significantly higher or lower depending on your geographic location.
What kind of costs/expenses can you expect to spend on your B&B? B&B running costs include food, beverages, coffee filters, soap, shampoo, face/toilet tissue, cleaning supplies, cleaning help, laundry, new sheets, paint, maintenance, linen, bedding, towels, fresh flowers, new mattress, Contains advertising. /promotion, office supplies, dues/memberships, business cards, reading lamps, telephone, internet access, commissions to your RSA, local business organizations (such as chambers of commerce), insurance, utilities, accounting fees, legal fees, income tax, housing Land Tax and Mortgage Interest, .
What kind of accounting or bookkeeping system is needed in a well-run B&B? Accounting for a B&B doesn’t have to be complicated. Your options are manual accounting systems or computer based. A manual accounting system can be as simple as a checkbook, accordion file and some envelopes. An accordion file should have twelve compartments for each month. Include envelopes for your main expenses in each compartment and keep your expense receipts in each expense envelope. For those expenses that don’t fit neatly into one category, include a “Miscellaneous” envelope. At the end of the month, tally your expenses on a control sheet that lists expenses on the left and a column for each month on the right. Subtract the month total from your receipts for the month and you will know how much money you made or lost. A computer-based system should be simple to use. I recommend QuickBooks because it is one of the easiest accounting software programs on the market to learn and use. A few hours with your accountant, learning QuickBooks, can save you many hours of trial and error, not to mention frustration and stress, down the road. If you feel that even a basic accounting system lacks attention to detail, use your checkbook as your accounting system. If you’re not good at keeping receipts, make sure every expense you make is run through your checkbook or that a specific credit card is used only for business purchases.
Should I manage my B&B as a sole proprietorship, partnership, corporation or LLC?
This is not an easy question to answer. Before we get to that answer let me touch on how a B&B should be owned. I recommend that the B&B is personally owned. The reason is that there are tax advantages to owning a B&B personally. A key tax benefit is the personal residence exclusion of any gain on the personal residence portion of your B&B up to $500,000 ($250,000 for single taxpayers). Another reason is that this direct ownership makes it better to use a tax-advantaged sale of B&B using a similar type of exchange, which allows the seller to defer the tax on any gain from the sale of the B&B, as long as the in-kind property (real). Property) is acquired within six months from the date of sale of the B&B. With a direct personal ownership structure you can rent out the B&B to a legal entity that runs the business. In no case would I run a B&B business as a sole proprietorship, as a sole proprietorship has unlimited liability.
My first choice would be a corporation with an S election. An S corporation offers excellent limited liability protection, even better than an LLC or partnership. Here is the reason. Your personal liability in an LLC is limited, in the case of a lawsuit for negligence, but only if you were not personally responsible for the negligence or injury (ie an employee was responsible for the negligence or injury and you did not direct that employee to act). If you do something with careless actions, you and all of your personal assets may be at risk. In a partnership, as a general partner, you can be held personally liable for any negligence or injury, even if caused by an employee. In a corporation, only corporate assets are at risk. Your personal property is safe. Personal liability at the corporate level requires a “piercing of the corporate veil”, which is very difficult to limit due to a long history of prioritizing corporate case law. In an S corporation, any net income or net loss and certain other tax items will flow through on your personal income tax return, because an S corporation is a pass-through entity.
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