Running a Bed and Breakfast (“B&B”) sounds great at 5:00 pm rush hour on the streets of Manhattan during the cold winter. The fact is that it can be real work. Let me give you an idea of what life is like for a typical B&B owner.
Imagine it’s 8 pm on a Friday in the height of summer at your lovely B&B. You have just finished emptying the dining room, where your guests recently enjoyed light meals and drinks. Are you tired. It has been a long day. You are about to start washing the dishes, which will take an hour or so, and the phone rings. It’s John Smith, a late guest who was due to check in at 9:00 pm. He tells her that he’ll be there no later than 10:00 pm.
It’s now 9:00 pm, you’ve just finished doing the dishes, and now you’re tossing the dirty towels in the laundry room and picking up new towels to replace the old ones in the bathrooms. This takes you an hour or so. You check your watch. It’s 10 pm, there’s no John Smith. “Where could he be?” you ask yourself. You check the phone for messages, none. At 10:30 p.m. the phone rings. It’s John Smith. He’s on the Garden State Parkway at exit 117. He should be there in about a half hour. At 11 pm John Smith finally arrives. You check him in, show him his room and at 11:20 pm you run to your room for bed because you promised the early riser, Julie Murphy, that you would have fresh coffee and a continental breakfast for her at 6 am If she’s lucky , passes out from exhaustion at 11:45 p.m. and sleeps just over five hours.
Welcome to the quiet world of B&Bs. Not your typical day, but you get the idea. My point is this, running a B&B is not as easy as you think. However, it can be everything you thought it would be, as long as your thoughts are grounded in reality.
The level of your attention to detail, coupled with the location of your B&B, can make your B&B a real success or a real nightmare. During your B&B’s peak season (mainly May through September in the Northeast), you’ll always be on the go. His hours are dictated by the hours of his guests. A late arrival can keep you up late and an early riser may require you to wake up at 5 am.
What constitutes a B&B? Generally speaking, anything with more than 5 rooms is considered an inn and anything less is considered a B&B.
How do you know if your B&B is successful? 100 nights a year, full to the max, is a good year.
Can you make a living running a B&B? In most cases, you’ll need about six rooms to make a living. Anything less is just supplemental income. If a host wants to earn a living in a B&B, he must open an inn.
What are the biggest problems that B&B hosts face? Usually it’s the attention to detail that a well-run B&B requires and last-minute cancellations or guests who simply don’t show up.
Should you 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 resounding yes! This is why. A good RSA provides a number of valuable services. First, they can attract business to your B&B. Many RSAs deliver brochures to state-run Welcome Centers. Some RSAs contact local businesses and special event coordinators. When a potential guest picks up one of those brochures and calls the RSA, they will provide B&Bs that meet their geographic and personal needs. Other benefits of joining an RSA include valuable advice on how to run the B&B. Many RSAs will usually come to your B&B to see if you have the right set up to host guests.
They usually bring a checklist with them and go through some type of inspection process. You will soon discover what strengths and weaknesses your B&B has. Often this service is offered free of charge, as an initial consultation. The RSA will do this as a way of determining if your B&B meets their minimum standards. This inspection helps to develop the problems inherent in your B&B. If you pass inspection, the RSA will be interested in listing your home. Typical operational services provided by an RSA, beyond those mentioned, include answering phones, email/mail inquiries, screening and matching of guests with hosts. They will send confirmations to guests who make reservations. Some even send regular newsletters to hosts and help hosts with record keeping and tax preparation. All these services, of course, have a cost. In general, the commission for an RSA will be between 20-25% of the rental income of the booking guests.
How much should you charge per room per night? Most B&Bs charge a minimum of $100 per night for a double occupancy room. Depending on your geographic location, this amount could be significantly higher or lower.
What kind of costs/expenses can you expect to incur at your B&B? B&B operating expenses include food, drinks, coffee filters, soap, shampoo, toilet/facial paper, cleaning supplies, housekeeping help, laundry, new sheets, paint, repairs, linens, towels, fresh flowers , new mattresses, advertising/promotion, office supplies, expiration/subscriptions, business cards, reading lamps, telephone, Internet access, commission to your RSA, membership dues to local business organizations (ie Chamber of Commerce) , insurance, utilities, accounting fees, legal fees, tax income, real estate tax, and mortgage interest.
What kind of accounting or bookkeeping system is needed in a well run B&B? B&B bookkeeping doesn’t have to be so complicated. Your options are a manual accounting system or a computer-based one. A manual bookkeeping system could be as simple as a checkbook, an accordion file, and some envelopes. The accordion file should have twelve compartments for each month. Include envelopes for your major expenses in each compartment and place your expense receipts in each expense envelope. For expenses that don’t fit neatly into any category, include a “miscellaneous” envelope. At the end of the month, record your expenses on a timesheet that lists expenses on the left and a column for each month on the right. Subtract the total for the month from your receipts for the month and you will know how much money you made or how much you lost. A computer based system should be one that is easy to use. I recommend QuickBooks as it is one of the easiest to learn and use accounting software on the market. A few hours with your accountant learning QuickBooks can save you many more hours of trial and error, not to mention frustration and stress, down the road. If you feel you don’t have the attention to detail to maintain a rudimentary bookkeeping system, then use your checkbook as your bookkeeping system. However, make sure that all expenses you incur are recorded in your checkbook or that a specific credit card is used only for business purchases, if you’re not good at keeping receipts.
Should I organize my B&B as a sole proprietorship, partnership, corporation or LLC?
This is not an easy question to answer. Before I get to that answer, let me talk about what a B&B owner should be like. I would recommend that the B&B be personally owned. The reason is that there are tax advantages to owning the B&B personally. An important tax benefit is the personal residential exclusion of any gain up to $500,000 ($250,000 for single filers) on the personal residence portion of your B&B. Another reason is that this direct ownership makes it easier to use a tax-advantaged B&B sale using a like-type exchange, which allows the seller to defer tax on any proceeds from the B&B sale, as long as the like-type property (real estate) real estate) is acquired within six months from the date of sale of the B&B. With a direct personal ownership structure, you could lease the B&B to the legal entity that will run the business. Under no circumstances would I run the B&B business as a sole proprietor, as a sole proprietor has unlimited liability.
My first choice would be a corporation where a Selection is made. The S corporation offers the best limited liability protection, even better than an LLC or partnership. This is why. In an LLC, your personal liability is limited, in the event of a negligence or injury claim, but only if you did not personally cause the negligence or injury (i.e., an employee was responsible for the negligence or injury and you did not order for that to happen). employed to perform that act). If you had something to do with the negligent act, you and all of your personal property may be at risk. In a partnership, as a general partner, you may be personally liable for any negligence or injury, even if caused by an employee. In a corporation, only corporate assets are at risk. Your personal assets are safe. Personal liability at the corporate level would require “piercing the corporate veil”, something that is very difficult to do given the long history of corporate jurisprudence limiting this. In an S corporation, any net income or net loss and certain other tax items will flow to your personal income tax return, since an S corporation is a pass-through entity.