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Performing Due Diligence and Making an Offer

March 31, 2002

by Kit Cassingham

When you are making an offer to buy your B&B, be sure to perform due diligence like looking for evidence of termite, examine the books, hire a home inspector to conduct buyers pre-sale inspections, and verify zoning. Develop a game plan for making an offer and negotiating the deal. And be prepared for the search and negotiations to take time.

The Forbes article shares seven tips for buying seven-figure homes. The information is pertinent for buying a B&B of any price. Forbes' seven points are to get a good agent, get your finances together, make contingency plans, look for termites (conduct a Due Diligence), what's next door, prepare to negotiate, and take it easy. From the B&B industry perspective, let's look at the remaining four points.


         4 & 5.    Look for termites, etc. What's next door? Let's call these two points Due Diligence. Inspect the home for not only termites but also wear and tear beyond what you are willing to accept and that the various mechanical/electrical systems work appropriately. Keep in mind that you aren't buying a new home but also remember that some innkeepers don't maintain their homes as they should. You don't want to pay their top dollar if you then have to tend to deferred maintenance issues.

Examine the inns books. Hire an accountant familiar with business accounting, and preferably B&B accounting, to review not only the books but also the tax returns. Be comfortable with the cash flow. Know what you are getting, as best you can.

Investigate future plans for surrounding areas so you don't have unpleasant surprises later. Confirm that you can run the B&B as you want. Check around. Look at more than the B&B itself


         6.    Prepare to negotiate Personally I believe that you should do your homework and then make your best offer but the world wants to negotiate. Given that tendency, once you are ready to write an offer, decide haw you want to play the game. Since you probably will negotiate, don't present your best offer initially, unless you feel there are other interested Buyers, then you want to present your best case. The down side of making a low-ball offer is that it might be summarily rejected. Then when you go back with your second offer they think they have the upper hand and might feel it's still not your best offer. Be prepared to counteroffer and find a reasonable compromise. Getting a sense of the Seller's motivation to sell will help you in this process. It's not always easy to determine their real motivation, though many innkeepers gladly share some of their reasons for moving on.


        7.    Take it easy. It can take months, even years, to find the right B&B. Take notes, written and digital (do be sure to get the Seller's permission to take pictures). Be flexible. Have fun.




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