Buying an established B&B versus setting one up from scratch
A question I am often asked by people who come on my courses is; “What are the pros and cons of buying an established B&B versus setting one up from scratch?”
The option that’s right for you will depend on your personal circumstances. Will one option be more expensive that the other? Do you want to be up and running quickly? Can you afford to take time to set up from scratch and not be earning? Do you want to create something brand new? Are you happy to take some risk? Hopefully this post will give you a bit more information to decide what’s the best approach for you.
When we bought Hopton House, we bought it as our family home. We then converted a couple of rooms to run them as a B&B. We added an extra couple of rooms a few years later. For us, it was about buying a house that we wanted to live in and making it work for us
Knowing what I do now, if I were starting again from scratch, and my aim was to run a B&B, I would buy in a different area and approach creating the B&B very differently.
I’ve recently asked a few B&B friends and people who have attended my course what their experiences were. Some have bought existing B&B and others have setting up from scratch. I’ve shared their experiences here for you.
An advantage of buying an established business is that, usually, everything you need to run the business is included in the asking price. So you’ll have a good idea of exactly how much money is needed to start running your own B&B business.
Be careful of costly unexpected expenses, such as unplanned maintenance, though. Previous course attendees have shared experiences that include discovering that windows needed to be replaced.
It’s a good idea to ask after the age and condition of items in the property. For example, if a bed hasn’t been replaced in 8 years, you’re going to find yourself landed with potentially expensive replacement costs.
If you’re setting up a business from scratch, you’ll have to to do some careful research and budgeting to identify exactly how much money you’ll need to invest. You’ll need to budget for any building costs associated with structural changes, plumbing, decorating, furniture, websites, marketing, money to tide you over whilst you set up etc.
It’s also important to be get absolute clarity over what is and isn’t included in the sale. One B&B owner told me that they had bought the website as part of the purchase price, then once everything was completed, they discovered that the photographs on the website were not included in the sale.
It’s often the case that established businesses are being sold because the owners want to retire. This may mean that they have not run the B&B at full capacity for a few years so the trading figures may suggest that the business is not profitable. This can cause problems if you need to borrow money to purchase the business, as lenders will be more cautious. An over cautious lender may not lend you the money at all or require a higher deposit.
TIP One of the advantages of using a specialist hospitality mortgage broker, such as Stewart Hindley, is that they have the skills and experience behind them, so they are able to take the figures from this sort of business and produce a business plan that demonstrates how it can be made profitable.
When a business is operating at it’s full potential, it’s better for demonstrating to lenders that it will be a profitable business to lend on and less of a risky proposition. The downside of this is that the asking price will tend to be much higher.
If you want to set up a B&B from scratch, and need to borrow money to finance the venture, you will probably find it much more challenging to get finance. It may be much more difficult to demonstrate that it will be a viable business.
This is where it’s important to show you have thoroughly done your research and planning. Lenders will also see any training you’ve done in setting up a B&B as a positive thing. And again, using a hospitality mortgage broker, like Stewart Hindley, may mean the difference between being able to get a loan or not.
Quote from previous course attendees;
“However, not to be daunted, where B&Bs have not been run to full potential, we have spent a lot of time showing how we would build up the business in the business plan ( and I have to say what we learnt on your course was invaluable for this )”
How quickly do you want to start making money?
One of the advantages of buying an existing business is that you can be up and running right away.
Do you want a ready made business?
Some course attendees have completed on their B&B business one day and started cooking breakfasts for guests the next; a baptism of fire!
Whilst this is an advantage in some respects, it can be a problematic. For example you might find the previous owners have taken bookings for over a year in advance, and these may conflict with your personal commitments.
One approach I’ve seen is new owners shutting some of the rooms when they first take over. This allows them to get into the swing of things and learn the business without having to run it at full capacity.
If you need to cancel future bookings, that have been made by the previous owners, then please check with your solicitor what your legal responsibilities are.
When you’re setting up from scratch you need to factor in the time it will take to set up the B&B, then the time it will take to build the business.
It can take 3 years from opening a brand new B&B business to get one operating as an established B&B. Though if you market your business aggressively or, are in a particularly popular tourist area, you may establish yourself more quickly.
Fiona Dodd of the Rumblie B&B
“Whilst we purchased a “going business” it felt like we started from scratch…and we rushed to make changes so we could be open for New Year (we moved in October) just so prev guests could stay again for the local dance.”
When I set up Hopton House B&B over 13 years ago, the main way to market yourself was to get yourself a star rating, get in some guides and register with the tourist information centre. In 2004 I was a bit of a rarity having a website and online availability but there was certainly no online booking.
You can still get assessed by a quality assurance scheme, such as Visit England, and get your star rating. In fact there are more choices for how to get assessed these days, with local tourism bodies offering assessment.
If you are buying a property with a star rating, it’s important to note that the star rating is associated with the owner, not the business. If you want to remain rated you will have to reapply and get assessed.
However, an increasing number of established ( and new ) businesses are choosing not to be assessed these days. They are instead relying on their own website and review sites, such as Tripadvisor.
Obviously if the business you’re buying has good tripadvisor reviews you could choose to keep those, but if the reviews are poor, you may want to get these reviews removed and start your review history from scratch.
Under normal circumstances, it’s not easy to get reviews removed from Tripadvisor, but it is possible if you can show proof in change of ownership.
It’s important, if you are starting from zero reviews, as a new B&B or having taken over an established business, and had reviews removed, that you quickly build up a good number of reviews.
I cover managing and responding to Tripadvisor reviews, and how you can go about quickly and legitimately getting good new ones on the course.
Hopefully one advantage of taking over an existing B&B is that they will have a good repeat customer base, which you will continue to benefit from. For my own business, 60-75% of my business is made up of repeat guests.
You do need bear in mind, that a lot of these guests continue to return because they’ve built up a good relationship with the owner. They like the way they’re treated by the owner, the way the business is run, the breakfasts they get etc. You could find that if you have a different personality or run the business in a very different way you’ll lose some of this repeat business.
You may also want to make dramatic changes to the business which completely changes the target market. This will also obviously affect how much repeat trade you continue to get.
For example, I’ve seen new owners turn a 3 star B&B into a 5 star gold award business and double their prices. Or turn an adult only premises into one which is family friendly.
The main advantage of setting up a B&B from scratch is that you can decide exactly which markets you want to cater to ( bearing in mind a lot of factors such as location, cost, quality etc will have an affect on who comes to your B&B ) and create a B&B that meets all the wants and needs of that market.
If you’re setting up a B&B, you can create exactly what you want in terms of style, quality etc. It’s far more difficult to find something that exactly meets your requirements if you’re buying an existing B&B and you may find, if you do find the perfect property, that it comes at a premium
Clare Brauninger of the Brambles B&B set up a B&B from scratch
“We set up from scratch. For us it was better we moulded the house to the way it would work for us as a family and a business.We went for our certificate of lawfulness and built our business slowly this way we learnt as we went to build up to a standard we were happy with. We then went for our AA rating which we hoped for a 4 star and was awarded a few months after opening. This was a much better way of working for us we found we did not have to jump in anyone else’s shoes or inherit their reputation”
“We also started from scratch. We had some issues with some of the existing B&Bs we looked at. Location (x3!) is exactly the thing to consider. We didn’t like or want to stay at a few, one was asking far too much (like twice what it was really worth!) and others needed so much money spending on it was going to be cheaper to start again.”
Head versus heart
And finally, Clive and Caroline of The Mount in Keswick came on my course and they had this to say. It just goes to show that you can be as logical and focused on the pros and cons as you like, but sometimes the heart wins over!
“When looking to buy a B&B, we narrowed the search down from over 100 for sale in the Lake District to 2 that met our requirements and we loved.
One was an established B&B and the other had been a B&B but stopped trading about 5 years ago.
Our accountant strongly recommended the former as the best option from a finance perspective. Doing a business plan for both, it did seem the best option on paper.
But we really loved the second option and felt we could make it work. We expected it might take longer to balance the books, but decided to take the risk.
And, one year in, we have surpassed all our own expectations. Full most of the time, and doing better than the first option.
A sensible choice for a successful B&B needs to be both head and heart of course, but for us, following our initial instinct has worked well. We are living the dream after all!”
Thank you to everyone who contributed to the article. Some of whom preferred to stay anonymous.
Particular Thanks to Caroline and Clive of the mount, Keswick ,
Cordelia Galley of Balkissock Lodge
Fiona Potts of Gwaenynog bed and breakfast, farmhouse and campsite,
Fiona dodds of the rumblie B&B,
Clare brauninger of the brambles B&B
Carol Jones of stewart hindley for their contributions