All Bed & Breakfasts/Inns are unique by design; in fact, it is that special and unique quality that distinguishes one Bed & Breakfast/Inn from the next. Innkeepers invest their creative energy and capital over time to create a welcoming and hospitable environment that is unique to their community and valued guests. While the charm and ambiance of an inn add to a patron’s experience, such intangibles have only an indirect effect on the actual value. So, how can an innkeeper determine a realistic, fact-based asking price before marketing their inn for sale?
A knowledgeable “B&B Industry Specialist Realtor” should be engaged very early on to consult on matters of value and how best to prepare the property itself and organize financial data prior to offering the inn for sale. A good number of these Realtors and consultants have been innkeepers themselves and are intimately familiar with their market area. They can expertly support the initial asking price with their own analysis of the inn’s Financial Performance, Real Estate Improvements, Good Will, and Furniture, Fixtures & Equipment (FF&E). I cannot overstate how important it is for an innkeeper to accurately determine the market value of the business prior to making the inn available in the marketplace. In my view, arbitrarily assigning a value to a business and its assets based on what someone feels it is worth is imprecise and cannot be a successful approach, knowing that an appraiser will eventually establish a value of the business and its assets. The innkeeper or their representatives must be able to defend the asking price with tax returns to document the business’s performance/viability over time and other documents to value its business assets.
Where the rubber meets the road: Ultimately, a “Bank/Lender Approved Appraiser” will be selected by the lender to appraise the value of the business and its assets. In most cases, the “Commercial Value” of a hospitality property will be largely determined by examining comparable sales and financial data for actual closed sales of “Comparable Properties” in the past two years. The bank’s appraiser will make adjustments to account for location, physical amenities, cash flow and so on; but the final and most important determinate of value is the inn’s historical ability to generate income; this value will be referred to as its value as a “Going Concern” or its commercial value.
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