Running a Bed and Breakfast (“B&B”) sounds great during the 5 p.m. rush hour on the streets of Manhattan during the cold season. The fact is that it can be a real job. Let me give you an overview of the life of a typical B&B owner.
Imagine it’s 8pm on a Friday in the middle of summer in your pretty B&B. You have just finished cleaning the dining room, where your guests recently enjoyed snacks and drinks. You are tired. It’s been a long day. You’re about to start doing the dishes, which will take about an hour, and the phone rings. It was John Smith, a late arriving guest, who was checking in at 9pm. He tells you he will be there by 10pm at the latest.
It’s 9pm, you just finished doing the dishes and now you throw the dirty towels in the dry cleaners and collect new ones, to replace the old ones in the bathroom. This should take another hour or so. You check your watch. It’s 10pm, no John Smith. “Where is she?” you wonder yourself. You check the phone for messages, there aren’t any. At 10:30 the phone rang. This is John Smith. He’s on the Garden State Parkway at exit 117. He’ll be there in about ½ hour. At 11pm John Smith finally arrived. You checked her in, showed her the room and at 11:20 pm you rushed up to your room to sleep because you promised an early riser Julie Murphy you would have fresh coffee and continental breakfast for her at 6 am. If you’re lucky, you’ll collapse from exhaustion at 11:45 p.m. and sleep more than five hours.
Welcome to the serene world of B&Bs. Not your typical day, but you get the idea. My point is this, managing a B&B is not as easy as you might think. However, it can be everything you think about as long as your mind is anchored in reality.
Your level of attention to detail, along with the location of your B&B, can make your B&B a real success or nightmare. During your busy B&B season (especially May-September in the Northeast), you’re always on the go. Your hours are determined by your guests’ hours. Arriving late can make you wake up late and early risers may require you to wake up at 5am.
Frequently Asked Questions
What is a B&B? In general, anything larger than 5 rooms is considered Inn and anything less is considered B&B.
How do you know if your B&B is successful? 100 nights, in a year, fully charged, is a good year.
Can you make a living running a B&B? In most cases, you need about six rooms to make a living. All that is lacking is additional income. If hosts want to make a living in B&Bs, they have to open inns.
What are the biggest problems facing B&B hosts? Usually, 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 services agency (“RSA”)? If this is your first B&B and you’re just starting out, the answer is definitely 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 flyers to state-run Welcome Centers. Some RSAs reach out to local businesses and special event coordinators. When potential guests pick up one of these flyers and contact RSA, they will provide potential guests with B&Bs that meet their geographical and personal needs. Other benefits of joining RSA include valuable advice on how to run a B&B. Many RSAs will usually come to your B&B to see if the arrangements are right to accommodate guests.
They usually carry a checklist and go through some sort of inspection process. Soon you will find out what strengths and weaknesses your B&B has. Often, these services are offered free of charge, as an initial consultation, RSA will perform as a way of determining whether your B&B meets their minimum standards. These checks help pinpoint inherent problems with your B&B. If you pass the inspection, the RSA will be interested in registering your home. The general operational services that RSA provides, beyond those listed, include answering phones, email/mail inquiries, screening and matching guests with hosts. They will send a confirmation to the guest who made the reservation. Some even send regular newsletters to hosts and assist hosts with tax filing and preparation. All of these services, of course, come at a cost. Generally, RSA commissions range from 20-25% of the rental income from the guests they book.
How much do you charge per room per night? Most B&Bs charge a minimum of $100 per night for a double occupancy room. Depending on your geographic location, this number can be significantly higher or lower.
What types of fees/expenses can you incur on your B&B? Expenses in running a B&B include food, drinks, coffee filters, soap, shampoo, facial/toilet tissue, cleaning supplies, cleaning assistance, laundry, new sheets, paint, repairs, sheets, blankets, towels, fresh flowers, new mattresses, advertising/ promotions, office supplies, dues/subscriptions, business cards, reading lights, telephones, internet access, commissions for your RSA, membership fees for local business organizations (i.e. Chambers of Commerce), insurance, utilities, accounting fees, legal fees, tax revenues, real estate taxes and mortgage interest.
What type of accounting or bookkeeping system is required in a well-managed B&B? Accounting for a B&B doesn’t have to be that complicated. Your choice is a manual or computer-based accounting system. A manual accounting system can be as simple as a checkbook, an accordion file, and a few envelopes. An accordion file should have twelve compartments for each month. Include an envelope for your main expenses in each compartment and place a receipt for your expenses in each spending envelope. For expenses that don’t fit into any of the categories, include an “assortment” envelope. At the end of the month, calculate your expenses on a control sheet that lists expenses on the left and columns for each month on the right. Subtract the month’s total from your receipt 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 is easy to use. I recommend QuickBooks because it is one of the easiest accounting software programs to learn and use on the market. A few hours with your accountant, studying QuickBooks, can save you a lot more trial and error, not to mention frustration and stress, later on. If you feel you lack the attention to detail in maintaining even a rudimentary accounting system, use your checkbook as your accounting system. Make sure any expenses you incur, however, are run through your checkbook or a certain credit card is only used for business purchases, if you’re not good at keeping receipts.
Should I set up my B&B as a sole proprietorship, partnership, corporation or LLC?
This is not an easy question to answer. Before we get to that answer let me touch on how a B&B should be owned. I would recommend that the B&B be privately owned. The reason is that there are tax advantages to privately owning a B&B. One of the main tax benefits is the private residence exclusion of up to $500,000 in profits ($250,000 for single taxpayers) in your B&B private residence portion. Another reason is that this direct ownership makes it easier to use a tax-advantaged B&B sale using a like-kind exchange, which allows the seller to defer taxes on any gains from the sale of the B&B, as long as it is like (real) like property. real) acquired within six months from the date of sale of the B&B. With a direct private ownership structure, you can rent out your B&B to the legal entities that will carry out the business. In no case would I operate a B&B business as a sole proprietorship, because a sole proprietorship carries unlimited liability.
My first choice is the company where the S selection was made. S Corporations offer the best limited liability protection, even better than LLCs or partnerships. Here’s why. In an LLC, your personal liability is limited, in the case of a tort for some types of negligence, but only if you did not personally cause such negligence or injury (i.e. the employee is responsible for such negligence or injury and you did not direct the employee to take such action). If you have anything to do with negligent acts, you and all your personal assets can be put at risk. In a partnership, as general partner, you may be held personally liable for any negligence or injury, even if caused by an employee. In a corporation, only corporate assets are at risk. Your personal assets are safe. Personal liability at the corporate level would require “piercing the corporate veil,” something that is extremely difficult to do given the company’s long history of restrictive case law. In an S corporation, any net income or net loss and certain other tax items will flow to your personal income tax return, because S corporations are pass-through entities.
