Running a Bed and Breakfast ("B &. B") sounds great at 5pm rush hours in the streets of Manhattan during the cold of winter. The fact is it can be a real job. Let me give you a taste of what it's like in the life of a typical B &. B owner.
Imagine it's 8pm on a Friday in the middle of summer at your lovely B &. B. You just finished clearing out the dining room, in which your guests recently indulged in some light fare and beverages. You're tired. It's been a long day. You're about to begin to do the dishes, which will take you an hour or so. The phone rings. It's John Smith, a late arrival guest, who was to check-in at 9pm. He tells you he'll be there no later than 10pm.
It's now 9pm, you've just finished the dishes and now you're tossing the dirty towels into the laundry and gathering up new towels, to replace the old ones in the bathrooms. This takes you another hour or so. You look your watch. It's 10PM, no John Smith. "Where could he be?". You wonder to yourself. You check the phone for any messages, none. At 10:30 pm the phone rings. It's John Smith. He's on the Garden State Parkway at exit 117. He should be there in about an an hour. At 11pm John Smith finally arrives. You look him in, show him his room and at 11:20 pm you rush to your bedroom to hit the sack because you promised early riser, Julie Murphy, you'd have fresh coffee and a continental breakfast for her at 6am. If you're lucky you pass out from exhaustion at 11:45 pm and squeeze in just over five hours of sleep.
Welcome to the tranquil world of B &. Bs. Not your typical day. You get the idea. My point is this, managing a B &. B not as easy as you'd think. It can, however, be everything you thought it'd be as long as your thoughts are anchored in reality.
The level of your attention to detail, along with your B &. B's location, can make your B &. B a real success or a real nitemare. During your B &. B's busy season (primarily May-September in the Northeast) you're always on the go. Your hours are dictated by the hours of your guests. A late arrival can keep you up late and an early riser might require that you wake up at 5am.
Frequently Asked Questions
What constituents a B &. B? Generally speaking anything larger 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 nites, out of a year, filled to capacity, 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 at it. Anything less is just supplementary income. If a host wants to make a living at a B &. B they must open an Inn.
What're the biggest problems facing B &. B hosts? Typically, it's the attention to detail required of a well run B &. B and last minute cancellations or guests just not showing 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 definite yes! Here's why. A good RSA provides a number of valuable services. First and foremost they can drive business to your B &. B. Many RSAs provide brochures to state-run Welcome Centers. Some RSAs reach out to local businesses and special-events coordinators. When a potential guest takes one of those brochures and calls the RSA they'll provide the prospect with B &. Bs that meet their geographic and personal needs. Other advantages of joining an RSA include valuable advice about how to run the B &. B. Many RSAs will usually come to your B &. B to see if it's the right set up for accommodating guests.
They typically bring along a checklist and go through a type of inspection process. Soon you'll find out just what strengths and weaknesses your B &. B has. Oftentimes, 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 flesh out the problems inherent in your B &. B. If you pass the inspection, the RSA will be interested in listing your home. Typical operational services an RSA provides, beyond those mentioned, including answering phones, e-mail / mail inquiries, screening and matching guests with hosts. they'll send confirmations to guests who make reservations. Some even send out regular newsletters to hosts and help hosts with record keeping and tax preparation. All of these services, of course, come at a cost. Typically, an RSA's commission will be between 20-25% of the rental income from the guests they book.
How much should you charge per room per nite? Most B &. Bs charge a minimum of $ 100 per nite 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 in your B &. B? Expenses in running a B &. B include food, beverage, coffee filters, soap, shampoo, facial / toilet tissue, cleaning supplies, cleaning help, laundry, new sheets, paint, repairs, linens, bedding, towels, fresh flowers, new mattresses, advertising / promotion, office supplies, dues / subscriptions, business cards, reading lamps, telephone, internet access, commission to your RSA, membership fees to local business organizations (ie Chamber of Commerce), insurance, utilities, accounting fees, legal fees, income tax, real estate tax and mortgage interest ,.
What type of accounting or bookkeeping system is needed in a well run B &. B? Accounting for a B &. B doesn't have to be that complicated. Your options are a manual accounting system or a computer-based one. A manual accounting system could be as simple as a checkbook, accordion file and some envelopes. The accordion file should've twelve compartments for each month. Include envelopes for your main expenses in each compartment and place your expiry receipt in each envelope envelope. For those expenses that don't fit neatly into any one category, include a "miscellaneous". Envelope. At the end of the month tally up your expenses on a control sheet which lists the expenses on the left and a column for each month on the right. Subtract the month's total from your receipts for the month and you'll know how much money you made or how much you lost. A computer-based system should be one that's simple to use. I recommend QuickBooks as it's one of the easiest accounting software programs to learn and use 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 that you don't have the attention to detail in keeping even a rudimentary accounting system then use your checkbook as your accounting system. Make sure every expense you incur, however, is run through your checkbook or a specific credit card is used only for business purchases, if you're not good with keeping receipts.
Should I organize my B &. B as a sole proprietorship, partnership, corporation or LLC?
This isn't an easy question to answer. Before we get to that answer let me touch on how the B &. B should be owned. I'd recommend that the B &. B be owned personally. The reason is that there are tax advantages to owning the B &. B personally. One major tax benefit is the personal residential exclusion of any gain of up to $ 500,000 ($ 250,000 for single taxpayers) on the personal residence portion of your B &. B. Another reason is that this direct ownership better facilitates the use of a tax advantaged sale of the B &. B using a like kind exchange, which allows the seller to defer tax of any gain from the sale of the B &. B, as long as like kind property (real estate) is accepted within six months from the date of the B &. B's sale. With a direct personal ownership structure you could lease the B &. B to the legal entity that'll be running the business. In no case would I run the B &. B business as a sole proprietorship, since a sole proprietorship has unlimited liability.
My first choice would be a corporation in which an S election was made. The S corporation offers the best limited liability protection, even better than an LLC or a partnership. Here's why. In an LLC your personal liability is limited, in the case of a lawsuit for some type of negligence. Only if you didn't personally cause the negligence or injury (ie an employe was responsible for the negligence or injury and you didn't direct that employe to perform that act). If you'd something to do with the negligent act, you and all of your personal assets can be at risk. In a partnership, as a general partner, you may be held personally liable for any negligence or injury, even if caused by an employe. In a corporation, only the corporate assets are at risk. Your personal assets are safe. Personal liability at the corporate level would require "piercing the corporate veil", something that's very hard to do given the long history of corporate case law precedented limiting this. In an S corporation, any net income or net loss and certain other tax items will flow through to your personal income tax return, as an S corporation is a pass-through entity.