The bed and breakfast (“B&B”) sounds great at 5 pm on peak hours on the streets of Manhattan during the cold of winter. The truth is it could be a real business. Let me introduce you to what it’s like in the life of a typical bed and breakfast owner.
Imagine it is 8 pm on a Friday in the middle of summer in this lovely B&B. You just finished vacating the dining room, as your guests recently indulged in some snacks and drinks. You are tired It was a long day. You’re about to start washing the dishes, which will take an hour or so, and the phone rang. John Smith, a late-arrival guest, was scheduled to check-in at 9 pm. He tells you that he will be there no later than 10 pm.
It’s 9 p.m. now, she just finished dishes and now she’s throwing the dirty towels into the wash and collecting new ones to replace the old ones in the bathrooms. This takes you another hour or so. Check your watch. It’s ten in the evening, no John Smith. “Where could he be?” You wonder to yourself. Checks the phone for any messages, nothing. At 10:30 p.m. the phone rings. It’s John Smith. It is at Garden State Parkway at exit 117. It should be there in about 3 hours. At 11 pm, John Smith finally arrives. You check in, show him his room, and at 11:20 p.m., you rush into your bedroom to hit the sack because you promised Julie Murphy, an early riser, a fresh coffee and her continental breakfast at 6 am. If you were lucky, you passed out from exhaustion at 11:45 PM and squeezed out for just over five hours of sleep.
Welcome to the peaceful world of bed and breakfasts. Not your regular day, but you get the idea. My point is that running a B&B is not as easy as you think. However, it could be everything you thought it would be as long as your thoughts are rooted in reality.
Your level of attention to detail, as well as your bed and breakfast, can make it a real success or nightmare. During busy B & B season (mainly May to September in the Northeast) you are always on the go. Your hours are dictated by the hours of your guests. A late arrival may keep you up late and getting up early may require you to get up at 5 in the morning.
Frequently asked questions
What constitutes a bed and breakfast? Generally anything larger than 5 rooms is considered an inn and anything less is considered a bed and breakfast.
How do you know if your bed and breakfast is a success? 100 nights, every full year, is a good year.
Can you earn a living managing a B&B? In most cases, you’ll need about six rooms to earn a living in. Anything less is just an extra income. If a host wants to make a living in a bed and breakfast, he must open a hotel.
What are the biggest problems facing bed and breakfast hosts? Typically attention to detail required of a well-managed bed and breakfast and last minute cancellations or no-show guests.
Should you list your bed and breakfast with the Reservation Services Agency (“RSA”)? If this is your first bed and breakfast and you are just starting out, the answer is YES! Here’s why. A good RSA provides a number of valuable services. First and foremost they can push business to your bed and breakfast. Many RSAs provide brochures for state-run Welcome Centers. Some RSAs reach out to local businesses and special event coordinators. When a potential guest takes one of these brochures and contacts RSA, they will provide the potential customer with B & Bs that meet their geographic and personal needs. Other benefits of joining RSA include valuable advice on how to operate the bed and breakfast. Several RSAs usually come to your bed and breakfast to see if it has the right preparation to accommodate guests.
Usually they bring a checklist with you and go through some kind of inspection. You will soon discover the strengths and weaknesses of your bed and breakfast. Often times, this service is offered free of charge, as an initial consultation, RSA will do this as a way to determine whether your bed and breakfast meets minimum standards. This check helps clarify problems inherent in your bed and breakfast. If you pass the examination, RSA will be interested in listing your home. Typical operational services provided by RSA, other than those mentioned, include answering phones and inquiries via email / email, screening and matching guests with hosts. They will send confirmations to guests who book. Some even send regular newsletters to hosts and help them keep records and prepare taxes. All of these services, of course, have a cost. Generally, the RSA commission will be between 20-25% of rental income from guests who book them.
How much should each room charge per night? Most B & Bs charge a minimum of $ 100 a night for a double room. Depending on your geographic location, this amount could be significantly higher or lower.
What kind of costs / expenses do you expect to incur on your bed and breakfast? Expenses in managing the bed and breakfast include food and drink, coffee filters, soap, shampoo, face / toilet tissue, cleaning supplies, cleaning and laundry assistance, new sheets and paint, repairs, linens, bedding, towels, fresh flowers, new mattresses, ads / promotion, office supplies, receivables / subscriptions, business cards, reading lamps , Telephone, Internet access, commission to RSA, membership fees for local business organizations (such as Chamber of Commerce), insurance, utilities, accounting fees, legal fees, income taxes, property taxes and mortgage interest.
What kind of accounting or bookkeeping system is required in a well-managed bed and breakfast? Calculating the bed and breakfast doesn’t have to be this complicated. Your options are a manual accounting system or a computer based system. The manual accounting system can 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 expenditures in each compartment and place expense receipts in each envelope. For those expenses that don’t fit neatly into any one category, include a “miscellaneous” envelope. At the end of the month, group your expenditures into a control sheet that lists the expenses on the left and a column for each month on the right. Subtract the month’s total from the month’s receipts, and you’ll know how much money you’ve earned or how much you’ve lost. The computer based system should be easy to use. I recommend QuickBooks because it is one of the easiest accounting software to learn and use on the market. A few hours with your accountant, and learning QuickBooks, can save you more hours of trial and error, not to mention frustration and stress, in the future. If you feel you don’t care about detail in maintaining even a rudimentary accounting system, use your checkbook as the accounting system. Ensure that every expense you incur is run through your checkbook or that a particular credit card is only used for business purchases, if you are not good at keeping receipts.
Should I organize my bed and breakfast as a sole proprietorship, partnership, company or limited liability company?
This is not an easy question to answer. Before we get to that answer, let me dwell on how to own a bed and breakfast. I would recommend that the B&B is a personally owned property. The reason is that there are tax benefits to personally owning the bed and breakfast. A major tax benefit is the residential personal exclusion of any gain of up to $ 500,000 ($ 250,000 for individual taxpayers) on the personal accommodation portion of your bed and breakfast. Another reason is that this direct property better facilitates the use of the tax-granted sale of the bed and breakfast using a similar exchange, allowing the seller to defer taxes on any gain from the sale of the bed and breakfast, as long as the property in-kind is identical (real estate) within six months of the date. Sell a B & B. With a direct personal ownership structure, you can rent the bed and breakfast to the legal entity that will run the business. In no way will I be managing a B & B business as a sole proprietorship, as the sole proprietorship has unlimited liability.
My first choice would be the company in which the S election took place. The S corporation offers the best limited liability protection, even better than an LLC or partnership. Here’s why. In a Limited Liability Company, your personal liability is limited, in the event of a lawsuit for some kind of negligence, but only if you did not personally cause the negligence or injury (that is, the employee was responsible for negligence or injury and did not direct an employee to perform this act). If you have something to do with negligence, you and all of your personal assets may be at risk. In a partnership, as a general partner, you may be personally liable for any negligence or injury, even if it was caused by an employee. In corporations, only company assets are at risk. Your personal assets are safe. Corporate-wide personal liability requires “breaking through the corporate veil,” which is very difficult to do given the long history of corporate precedence that limits this. In S corporation, any net income or net loss and some other tax items will flow into the personal income tax return, as S corporation is a pass-through entity.