An important question for investors and prospective B&B owners is, "How much income can the property generate?"
While we are indeed B&B owners, we are not professional investors. Nor are we primarily business people. In fact, we are quite sure that we have chosen to run our B&B in ways that would drive an accomplished businessman crazy. We have never instituted policies and practices that make income or cash flow our first priority. Instead, we have balanced our personal preferences with generating "enough" income. As a result, we cannot tell you how much income the property can generate.
The things we can tell you are:
We know that prospective owners will be interested in knowing what our operating expenses have been. At the same time, we are reluctant to make the details of our finances available on a web page. To resolve this potential impass, we have incorporated our intimate knowledge of our B&B operating costs into a small number of scenarios. Each one of the scenarios:
These scenarios gives us a way to provide prospective buyers with useful baselines about the property's ability to pay for itself, while at the same time protecting the details of our personal financial data.
Below, you can find out what our experience tells us.
Summary of Actual and Projected Revenue
We opened the B&B, The Beach House, A Bed & Breakfast by the Sea, in June 1995. In that first year, revenues totalled about $13,000.Revenue has increased every year since then.
We believe that $325,000 is well below the property's potential. Not only have we grown the annual revenues to nearly a third of a million dollars, we have done this without the benefot of using standard business practices. We describe how our policies inhibit income in the sections below.
To understand how and why we have operated at less-than-optimal revenue, it may be helpful to click here to see a Brief History of the B&B.
From a Business Perspective: Things We Have and Have Not Done Well
From a purely business perspective, there are several things we've done right. There are also several things we have done (and continue to do) wrong.
Reaching the actual revenue potential involves maintaining the good things we have done while correcting the shortcomings of our business approach.
Things we've done quite well
Things we have not done well
We know that other hospitality businesses do most, if not all, of these things. But we do not. Why? We don't do them primarily for two reasons:
2. We are comfortable with our established practices and are reluctant to deal with extra complication that "doing things better" would involve.
These may not be good reasons, but they are the real reasons. We are who we are. We're not business-minded, and we've done what we know how to do. It will be for someone else to take revenues to the next level.
Room for Increased Revenue
Revenue is determined by two factors: room rates (how much we charge) and occupancy rate (how full are we).
Early this year, we increased room rates for the first time in nearly a decade. We expected that higher room rates would cause some reduction in our occupancy rate. So far, our occupany rate is comparable to last year. For 5 of the first 7 months, it has been higher than last year. At last year's occupancy rate, a full year at the new room rates will produce gross income of more than $325,000. Based on bookings for this year, we believe it is viable to increase rates further, and we intend to do so for the 2008 season.
The shortcomings of our business practices are most obvious in one important place: the occupancy rate. Last year, the B&B's income was based on:
We know the established 45% occupancy rate is much lower than it can be. Guests who discover our B&B love the place. They routinely tell us that they feel that, in discovering our place, they have found a special jewel. The problem is not that guests don't like us. They do.
The problem is that not enough people know we're here. And, because we don't advertise, this is not surprising.
Friends who are in the hospitality business in other Southern locations are shocked to hear that our occupancy rates are what they are. When they learn what our occupancy rates is, they tell us they had thought it would/should/could be 20-to-25 percentage points higher.
We know that a concerted effort to correct our business and marketing shortcomings would result in substantially higher levels of business. However, because we aren't business-minded people, we do not feel qualified to say with any accuracy what those results might be.
What we can accurately report is the revenue that a given occupancy rate would produce. We can also share our opinions about what is achievable.
As should be clear by now, we are not business-minded people. Nobody knows less about marketing than we do. Nor do we know what the optimal rate structure is. You should be your own judge about the level of occupancy and the rate structure you think might be sustainable.
There's no doubt that it's a rare and special B&B by the Sea. We simply don't know enough to know exactly what the upside is.
For Investors Concerned with the Property's Ability to Service Debt
For Investors who want information about how much debt the business can service, see:
Scenarios for Prospective B&B Owners
For Prospective B&B Ownwers who want information about the B&B's ability to be self-supporting and show a profit, see:
If you want to stop by and view the property, you are welcome to visit...
Please understand that we cannot accommodate unplanned drop-in visits.
Introduction to The Beach Compound