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Opening a B&B: A Case Study

December 31, 2004

by Kit Cassingham

Conducting bed and breakfast market research can make all the difference in your success or failure. Paying attention to what travelers want is crucial to your inn's viability. Hiring quality help and management relates to your longevity too. Have a your policies established for a smooth running bed and breakfast.

I thought it might be interesting and valuable to follow a B&B project from the beginning, as a way of learning how to do a better job at starting a B&B. This is based on an inn I was involved with along the way, so have some insights to share.

A client approached me about taking a seminar because her husband decided that an historic hotel would be a great real estate investment. She thought it would be prudent to learn how to run it as a B&B to help make it more successful. Knowing the town they were considering investing in I was dubious it had good profit potential, at least in the foreseeable future, so tried to talk her into taking the seminar so they could have as much education as possible before the transaction closed. It was clear that wasn't going to happen, but she and her business partner did come for a face-to-face seminar just after they closed the transaction to learn the ropes of B&B innkeeping. Their goal was to be open two months after the seminar.

They had several issues they especially wanted to cover, so those points became the focus of the seminar. The issues were shared versus private bath, maximizing income and minimizing expenses, including a restaurant and coffee bar, working with a manager, and marketing.


The Background:

The building's layout was typical of old hotels: lots of tiny rooms, few baths, and spacious common areas on the main floor. My first suggestion was to combine the small rooms into larger rooms. That change would allow the maze of halls to be absorbed into the guestrooms, making them more spacious and reducing the confusion of labyrinth passageways. It also would allow the existing baths to either be incorporated into the guestrooms or become private "hall baths", and they could add one or two private baths as needed.

Converting the common areas on the main floor to public space and creating a guest space elsewhere was another important issue. Their community didn't have a year round restaurant and they determined having one was important, thus an important part of the renovation. When you find a situation where there is no restaurant, take heed and research the reasons for that -- there's probably a great business reason for its absence. Restaurants are a demanding, generally low- profit business. I have seen few experienced innkeepers do it well. But because the cash flow looks strong, the restaurant too often dominates the energy and focus of the innkeeper; however, the guestrooms are what really makes the money in a B&B. Since they were removing ground floor common areas they wanted to create common areas on the second floor. We found two of the original guestrooms that couldn't easily have a bath but easily combined into a space that would be comfortable for guests.

The analysis in these renovations included not only the cost of the renovation but also the savings and the increased income. They would save money by furnishing and cleaning fewer guestrooms. By having private baths they would have a higher occupancy rate (more people would be attracted to stay there for a longer period of time), and they could charge higher room rates, thus earn a higher income. A commercial kitchen is an expensive installation, making it a renovation that shouldn't be entered into lightly. Baths can be expensive to install, but because of the greatly improved occupancy it makes the expense worthwhile.

Then there's the idea of the owners not operating the business. Hiring a manager to run a B&B can be challenging, especially when you aren't an experienced innkeeper, the inn is new, and you want to put as little money as possible into the inn and its operation. Part of the challenge in having a manager-run inn is their ability to create an atmosphere of personalized service and to maintain the guest experience you defined with your market niche. It's a rare manager who can create the same warmth and caring that the owner can. An experienced innkeeper is an expensive person to hire, but it's but it's "expensive" to hire someone without innkeeping experience too, not because of their wages but because repeat and referral business is usually significantly impacted; I'd go for the experienced innkeeper any day.

My client, having helped her husband build his businesses and develop his website, felt she could handle the marketing of the B&B. We discussed defining a market niche, creating a brochure and website, and marketing a rural B&B to attract guests year-round by using pricing, added value, and packaging. Despite her experience in marketing and website development, I suggested she hire a B&B professional to create the website for her so that it was a polished job, and so she could focus on things others couldn't do during the renovation.


The results:

The suggested renovations to the guestroom weren't made because they would be "too expensive" and alter the "historic" aspect of the hotel. The commercial kitchen and dining room were developed. The inn didn't open until four months after the seminar -- twice their desired schedule. The owner's daughter ran the inn during the summer and a manager was hired for the fall and winter. The daughter did a great job during the summer. The manager wasn't motivated to work because of low pay, so fall business suffered. The website was never finished and marketing wasn't activated either. Winter business was so slow that without the marketing and website, or a viable manager, they chose to close the inn for the winter -- or possibly permanently.


My analysis and conclusions: An historic hotel is a backwater community probably isn't a viable real estate investment unless you are considering a long, slow payback. A B&B is rarely a good investment if you don't have interest in the innkeeping business and lifestyle. No market niche was defined, thus not giving direction to renovations. Poor decisions were made in regards to renovation and business development. If the kitchen and dining room renovation had been delayed until after they determined its need, they would have been dollars ahead. Money should have gone into making the guestrooms special, with private baths and modern amenities, giving them a much better chance at success. Delegating the website development would have been a sound business decision as well; not only would it have been an effective site, it would have been available when they opened.

If the owners really couldn't run the inn themselves, it would have been more prudent to have hired a manager from the beginning, rather than letting a family member run the inn during the summer and then looking for someone else to run the inn during the slower seasons. Part of the reason for hiring the regular manager immediately is that the manager could grow with the business, develop a rapport with guests which would bring them back, and to give the manager a sense of ownership so they would treat the inn as their own. The manager should help build the business rather than just baby-sit it. You can be more creative with a salary if you have one person in charge from the beginning, like income averaging through the year, to help keep them motivated and to keep your budget more manageable.


To summarize my observations about the failure of this B&B:

  • no market niche was defined so guests didn't have an experience to latch onto, attracting them to the town or the inn
  • no modern amenities were provided during the renovation so the upscale guest that my client said she wanted didn't see an appeal to the historic hotel; today's traveler insists on private baths, and prefers modern amenities like phone, fireplace, sound system, TV with DVD player, and high speed internet
  • no marketing was available so the inn was a well kept secret; I knew the inn was there but couldn't find it when I looked for it online
  • effective management wasn't put in place, and inns don't run themselves

When you are considering your B&B location, first consider your reason for the investment -- is it a real estate investment or a career and lifestyle? Location is critical for a successful B&B. Narrowly define your market niche so you can create the perfect experience for the guests you want to serve. Make sure you have private baths and modern amenities. Have a well trained manager, be it you or someone you hire, but either way it must be someone who will put the "customer" back in customer service.




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