Measuring an inn's business

[MtnKeeper]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

I'm with you Breakfast Diva. If innkeepers are going to all kinds of seminars so they can travel, that expense makes the #s look worse. Dinners out, that is my personal expense unless I'm trying a brand new restaurant and I make sure that it's only my husband and me. Same thing with a vehicle - why not put off buying that new $50K vehicle for a year instead of using it as a tax reducer. These are smart ideas, not deceitful tricks. Some owners don't want to pay lots of capital gains so they don't depreciate the building/assets completely, others want to save taxes now so they depreciate everything.
If you're currently closing lots of dates, then it's smart to not do that the year or so you're going to sell. It will show the actual income of the property, not what you wanted as a lifestyle. Then it's up to the new owners if they want to capitalize on the true income or take lots of time off. Do what's legal and right for your business plan/exit strategy.
.

Of course these are all valid and I am sure BD was only suggesting the same.
I just must be firmly rooted in the "pay no taxes willingly and reinvest your capital gains" camp.
I think where I got in trouble was lumping the legitimate strategies BD was advocating in the same category as those that can be less so. Your examples confirm that.
I think it would be an interesting discussion to talk about the difference between the two.
.

There's another way to look at your property as well if you want to reduce having to pay capital gains taxes. You can always do a 1031 exchange when you sell your business. It works like this - say someone sells their property for $1.5M and they bought 3 rental properties (this is "like kind" to a B&B which is the key component of the 1031 exchange) within 90 days of selling the B&B, then you hold those properties for 2 years renting them out. You pay no capital gains taxes on the sale of the B&B. So you could potentially buy 3 $500K properties, rent them out, then after 2 years sell 1 or 2 of them and buy your own place and then have what's left paid in full as rental income for your retirement. You have a house paid in full and rental properties paid in full and you've paid no capital gains taxes. Sounds like an exit strategy to me!

 

[happykeeper]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

I'm with you Breakfast Diva. If innkeepers are going to all kinds of seminars so they can travel, that expense makes the #s look worse. Dinners out, that is my personal expense unless I'm trying a brand new restaurant and I make sure that it's only my husband and me. Same thing with a vehicle - why not put off buying that new $50K vehicle for a year instead of using it as a tax reducer. These are smart ideas, not deceitful tricks. Some owners don't want to pay lots of capital gains so they don't depreciate the building/assets completely, others want to save taxes now so they depreciate everything.
If you're currently closing lots of dates, then it's smart to not do that the year or so you're going to sell. It will show the actual income of the property, not what you wanted as a lifestyle. Then it's up to the new owners if they want to capitalize on the true income or take lots of time off. Do what's legal and right for your business plan/exit strategy.
.

Of course these are all valid and I am sure BD was only suggesting the same.
I just must be firmly rooted in the "pay no taxes willingly and reinvest your capital gains" camp.
I think where I got in trouble was lumping the legitimate strategies BD was advocating in the same category as those that can be less so. Your examples confirm that.
I think it would be an interesting discussion to talk about the difference between the two.
.

There's another way to look at your property as well if you want to reduce having to pay capital gains taxes. You can always do a 1031 exchange when you sell your business. It works like this - say someone sells their property for $1.5M and they bought 3 rental properties (this is "like kind" to a B&B which is the key component of the 1031 exchange) within 90 days of selling the B&B, then you hold those properties for 2 years renting them out. You pay no capital gains taxes on the sale of the B&B. So you could potentially buy 3 $500K properties, rent them out, then after 2 years sell 1 or 2 of them and buy your own place and then have what's left paid in full as rental income for your retirement. You have a house paid in full and rental properties paid in full and you've paid no capital gains taxes. Sounds like an exit strategy to me!
.

Yes- that sounds great. So in that scenario, wouldn't you want to maximize all your deductions to reduce your taxes?
Is the sale of a residence and the one time exemption for over 55 another option?

 

[Breakfast Diva]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

I'm with you Breakfast Diva. If innkeepers are going to all kinds of seminars so they can travel, that expense makes the #s look worse. Dinners out, that is my personal expense unless I'm trying a brand new restaurant and I make sure that it's only my husband and me. Same thing with a vehicle - why not put off buying that new $50K vehicle for a year instead of using it as a tax reducer. These are smart ideas, not deceitful tricks. Some owners don't want to pay lots of capital gains so they don't depreciate the building/assets completely, others want to save taxes now so they depreciate everything.
If you're currently closing lots of dates, then it's smart to not do that the year or so you're going to sell. It will show the actual income of the property, not what you wanted as a lifestyle. Then it's up to the new owners if they want to capitalize on the true income or take lots of time off. Do what's legal and right for your business plan/exit strategy.
.

Of course these are all valid and I am sure BD was only suggesting the same.
I just must be firmly rooted in the "pay no taxes willingly and reinvest your capital gains" camp.
I think where I got in trouble was lumping the legitimate strategies BD was advocating in the same category as those that can be less so. Your examples confirm that.
I think it would be an interesting discussion to talk about the difference between the two.
.

There's another way to look at your property as well if you want to reduce having to pay capital gains taxes. You can always do a 1031 exchange when you sell your business. It works like this - say someone sells their property for $1.5M and they bought 3 rental properties (this is "like kind" to a B&B which is the key component of the 1031 exchange) within 90 days of selling the B&B, then you hold those properties for 2 years renting them out. You pay no capital gains taxes on the sale of the B&B. So you could potentially buy 3 $500K properties, rent them out, then after 2 years sell 1 or 2 of them and buy your own place and then have what's left paid in full as rental income for your retirement. You have a house paid in full and rental properties paid in full and you've paid no capital gains taxes. Sounds like an exit strategy to me!
.

This is what my accountant suggested we do. We thought about it, but for us personally, we want to get away from being landlords and the whiny problems that come with it. I think we're just going to bite the bullet and pay the capital gains and get on with our lives. We already have some rental property and at a certain point, that in itself can become a full time job.

 

[EmptyNest]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

I'm with you Breakfast Diva. If innkeepers are going to all kinds of seminars so they can travel, that expense makes the #s look worse. Dinners out, that is my personal expense unless I'm trying a brand new restaurant and I make sure that it's only my husband and me. Same thing with a vehicle - why not put off buying that new $50K vehicle for a year instead of using it as a tax reducer. These are smart ideas, not deceitful tricks. Some owners don't want to pay lots of capital gains so they don't depreciate the building/assets completely, others want to save taxes now so they depreciate everything.
If you're currently closing lots of dates, then it's smart to not do that the year or so you're going to sell. It will show the actual income of the property, not what you wanted as a lifestyle. Then it's up to the new owners if they want to capitalize on the true income or take lots of time off. Do what's legal and right for your business plan/exit strategy.
.

Of course these are all valid and I am sure BD was only suggesting the same.
I just must be firmly rooted in the "pay no taxes willingly and reinvest your capital gains" camp.
I think where I got in trouble was lumping the legitimate strategies BD was advocating in the same category as those that can be less so. Your examples confirm that.
I think it would be an interesting discussion to talk about the difference between the two.
.

There's another way to look at your property as well if you want to reduce having to pay capital gains taxes. You can always do a 1031 exchange when you sell your business. It works like this - say someone sells their property for $1.5M and they bought 3 rental properties (this is "like kind" to a B&B which is the key component of the 1031 exchange) within 90 days of selling the B&B, then you hold those properties for 2 years renting them out. You pay no capital gains taxes on the sale of the B&B. So you could potentially buy 3 $500K properties, rent them out, then after 2 years sell 1 or 2 of them and buy your own place and then have what's left paid in full as rental income for your retirement. You have a house paid in full and rental properties paid in full and you've paid no capital gains taxes. Sounds like an exit strategy to me!
.

Why would I want to be a landlord? our CPA tells us that no matter when we sell this place we will have to pay pay depreciation.

 

[gillumhouse]

For my own benefit, I decided to go through some of these terms to understand better what the heck I am talking about without getting all these terms jumbled around in my head. Seemed like it was worth sharing.
I thought the best place to start was:
Room Inventory – the volume of rooms available to be sold.
The key take away in this definition is “available to be sold”. If a room is blocked, it is not available to be sold.

This, in my experience, is where your definition is different that an industry professional. Blocking a room for whatever reason - vacation, don't want to have more than five rooms, whatever - and removing it from the inventory throws the measurement off, because every owner will have different rationale and different denominators for measurement.
I'm not trying to quibble about how you run your business - all those definitions must surely help you understand it and manage it as successfully as you have. As a word to aspirings, and those selling their businesses - banks and brokers care about room occupancy on a 365 day/year basis, and no one will lend money on what you MIGHT do if you unblock those rooms or don't take those vacations - loan officers no longer bet on the come (it's a gambling term). That is my experience buying a working B&B with a commercial loan and selling a working B&B with a commercial loan..

Great idea to get occupancy up before selling but I'm not worrying about that right now - we're more interested in living. Currently we block off midweek all winter long as both our kids play basketball and we go to every game. Once they are off to college, we won't be doing this so the numbers will look totally different. We also take a summer vacation with the kids which costs us over $10K in lost income on top of the cost of the vacation. But it's so worth it to us. But we will be changing all of that when we get ready to execute our exit strategy.
.

Call us crazy, but we don't look at our upcoming closure as lost income.
I am not as inclined to recommend working more before selling. I would rather sell the business in it's current workable form than work my butt off for three additional years to drive revenue up and show artificial profits.
Although it gets a lot of back draft here, I am absolutely certain that the numbers we have, including all that we have talked about here and our EBITDA, will sell. They will sell a profitable business, a great lifestyle, and an enormous potential for growth. I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?
.

I really do not understand this idea that you would limit deductions to inflate profit. Yes, that is what a banker wants to see, but is it really an honest expression to the new owner?

I'm not talking about fixed deductions, i.e. utilities, food, etc. Every owner deducts different things over the years. Let's say owners love to get out of the inn at working vacations, such as conferences, etc. Some owners will do several in a year and deduct that expense. Or some owners will lease or purchase a company vehicle. If you're planning on selling, then put that kind of purchase off. A lot of innkeepers go out to dinner a lot and deduct the expenses as research. Just because the selling owners choose to deduct those items doesn't mean the new owners will. There's nothing there that skews the picture for the buyers. They can factor in their own deductions. There is nothing underhanded or immoral about doing this. It's good good business.
Here's the reason to do this in an exist strategy. If you are able to increase your net profit $10,000 it cam mean an extra $100,000 on the sale price. That's huge. That's what I learned in a seminar given by industry specialists just a couple of years ago. I don't know about you, but that would sure make my retirement a lot better.
.

I'm with you Breakfast Diva. If innkeepers are going to all kinds of seminars so they can travel, that expense makes the #s look worse. Dinners out, that is my personal expense unless I'm trying a brand new restaurant and I make sure that it's only my husband and me. Same thing with a vehicle - why not put off buying that new $50K vehicle for a year instead of using it as a tax reducer. These are smart ideas, not deceitful tricks. Some owners don't want to pay lots of capital gains so they don't depreciate the building/assets completely, others want to save taxes now so they depreciate everything.
If you're currently closing lots of dates, then it's smart to not do that the year or so you're going to sell. It will show the actual income of the property, not what you wanted as a lifestyle. Then it's up to the new owners if they want to capitalize on the true income or take lots of time off. Do what's legal and right for your business plan/exit strategy.
.

Of course these are all valid and I am sure BD was only suggesting the same.
I just must be firmly rooted in the "pay no taxes willingly and reinvest your capital gains" camp.
I think where I got in trouble was lumping the legitimate strategies BD was advocating in the same category as those that can be less so. Your examples confirm that.
I think it would be an interesting discussion to talk about the difference between the two.
.

There's another way to look at your property as well if you want to reduce having to pay capital gains taxes. You can always do a 1031 exchange when you sell your business. It works like this - say someone sells their property for $1.5M and they bought 3 rental properties (this is "like kind" to a B&B which is the key component of the 1031 exchange) within 90 days of selling the B&B, then you hold those properties for 2 years renting them out. You pay no capital gains taxes on the sale of the B&B. So you could potentially buy 3 $500K properties, rent them out, then after 2 years sell 1 or 2 of them and buy your own place and then have what's left paid in full as rental income for your retirement. You have a house paid in full and rental properties paid in full and you've paid no capital gains taxes. Sounds like an exit strategy to me!
.

Yes- that sounds great. So in that scenario, wouldn't you want to maximize all your deductions to reduce your taxes?
Is the sale of a residence and the one time exemption for over 55 another option?
.

I do not believe the one time exemption exists any longer. We took it when we sold in Illinois - The difference between what he paid for that house and what it sold for was more than what we paid for this house. Bit that was back in 1995.