One of the most asked questions that comes in from Innkeepers is “how do I know when the right time to sell is?” Well, my feeling is that, if you are asking the question, then the right time to sell your inn is NOW! As long as you have things in order and are prepared to be patient and wait.
Seeing that your house is in order and that you are “ready” to sell is step one. To do this, you have several questions that you must answer. Are you able to sell your property and walk away regardless of how the new owners run the business or do you have so much personally invested that you feel you can’t completely disconnect? Is your
Firstly, you should always know what your occupancy levels are as well as ADR (Average Daily Rate) per room. Knowing these numbers will help you to stay focused on your budget, sales and marketing plans each year.
Figure out what your NOI is (Net Operating Income). The definition of Net Operating Income is: Gross Income minus Operating Expenses. Gross Income includes all sales revenue plus income from investments held by the business.
Operating Expenses include all those expenses necessary to bring in lodging business and provide services and products. (I will go into this more in depth in a later post). Figuring out your NOI is key in helping you put a value on your
Next, be prepared to present at least the last two if not three years Tax Returns. An option that is sometimes easier to produce is your State Sales Tax or Use Tax statements. These tend to be easier to produce and certainly easier to copy as opposed to the long Federal IRS Forms.
List any improvements made by you to the property or major renovations with approvals or extensions with any floor plans or surveys and permits, plus costs to prove added value, such as adding a room(s) or change of use for revenue increase purposes (examples might include changing out a room to provide a small or large Spa Treatment facility or adding a pool or even a bathroom).
If you can show a recent real estate appraisal or business valuation of your bed and breakfast or inn within a few years, this will also be helpful to the process of arriving at a fair market value.
Be sure to keep a steady inventory of all items you may wish to include and consider those valuable family heirlooms that just simply have to go with you when you decide to sell.
With these critical ‘first step’ elements, you will then want to consider the inn’s current status as far as year over year real occupancy is concerned. If the business is not growing, then you might want to consider improvements that will generate new growth by deciding upon an exit strategy that incorporates a careful plan to improve the bottom line. To create an exit strategy you will need to take note of my earlier recommendations and, at the same time, decide upon how you will achieve this.
Over the past several years and during these trying economic times, it takes an average eighteen plus months to sell an inn nationwide and here in