Now is an excellent time for many bed-and-breakfast owners to sell their businesses. This review discusses the valuation and sales process for bed-and-breakfast businesses.
About The Bed-and-Breakfast Industry
This industry generates revenue and profit by renting properties for short-term stays. This could be an investment property, second home, guest, house, or extra room inside your primary residence. Here is the most recent bed and breakfast industry data:
- There are approximately 10,050 bed-and-breakfast businesses in the U.S.
- There was a 0.1% annual growth for the bed-and-breakfast industry from 2018 to 2023
- The bed-and-breakfast industry generates $2.5 billion in annual revenue
- The annual profit for the bed-and-breakfast industry is $112 million
- Experts predict a sizable increase in annual growth (3.5%) from 2023 to 2028
The bed-and-breakfast (B&B) industry is a fascination among many investors. The idea of customers (or guests) coming directly to your doorstep makes it a truly unique business model. You also the privilege of owning real estate that you otherwise would not be able to afford. All of this adds up to an excellent investment (and excellent valuations as a result.
How Much is My Bed-and-Breakfast Business Worth?
A market-based approach is usually best for exit strategy planning. This is because it more accurately determines your fair market value (FMV), the amount you can expect a prospective buyer to reasonably offer. To calculate this, your business broker may use rule of thumb data, your seller’s discretionary earnings, and necessary adjustments. The rule of thumb data (multiples) for the bed-and-breakfast industry are:
- Bed-and-breakfast businesses sold for approximately 0.55 times the Seller’s Discretionary Earnings (SDE)
- Bed-and-breakfast businesses sold for approximately 1.26 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Bed-and-breakfast businesses sold for approximately 0.88 times the annual net sales
As can be seen, the rule of thumb data for bed-and-breakfast businesses is less reliable than you may desire. This is why it is important to work with an experienced business broker who understands how to help you receive maximum value for your bed-and-breakfast business during a sale. Other factors such as the quality of your properties, your growth potential, and your reason for selling all play a role as well.
How Do I Sell a Bed-and-Breakfast Business?
Although it may seem complex and overwhelming, it is easy to sell your bed-and-breakfast business if you work with an experienced business broker and take the process one step at a time. The most notable steps of the sales process for bed-and-breakfast business owners are:
- Determine your strategy
- Prepare your documents
- Find a qualified buyer
- Complete due diligence
- Sign the purchase agreement
Determine Your Strategy
Strategy preparation for selling a bed-and-breakfast business begins with determining your fair market value (FMV). This is the amount you can expect prospective buyers to reasonably offer, although there are times when bed-and-breakfast companies sell above fair market value. In addition to maximizing your value, you may have other goals, such as minimizing your tax obligation and finding a buyer you can trust. Your broker will also establish your sales approach.
Prepare Your Documents
Next, you need to prepare all documents you need to properly negotiate, complete due diligence, close the sale, and transfer ownership. Some documents you may have already arranged for your broker during the valuation stage (see above). The documents you need include (but are not limited to) your tax returns, cash flow statements, profit and loss (P&L) statements, balance sheets, employee information, property insurance policy, lease or property ownership documents, a list of equipment and fixtures, and guest logs.
Find a Qualified Buyer
Now that you are fully prepared, it is time to sell your bed-and-breakfast business. This requires confidentiality, meaning you are not selling via public channels. Instead, you are selling discretely without news of your sale making it public until a deal is finalized. Of course, your broker can help you maintain confidentiality and find qualified buyers. This stage also involves negotiations. Selecting the right buyer goes beyond simply accepting the highest bid. Instead, you should consider which buyer allows you to minimize tax obligations and meet your non-financial goals the best.
Complete Due Diligence
Once you secure a buyer, they will seal their commitment to purchase your bed-and-breakfast company by signing a letter of intent (LOI). Next, they will start the due diligence process to ensure all details that led them to make an offer are verified. This process may involve further review of financial and legal documents, providing a list of questions for the seller to answer about the business, and a visit to all bed-and-breakfast rentals within the business, among other potential due diligence tasks. Your broker can help ensure a smooth and fast process.
Sign The Purchase Agreement
Last but not least, the seller and the buyer sign the purchase agreement. If they are receiving financing, the financing and payment plan must also be worked out during the closing stage. The seller will also receive payment during closing. O course, the bed-and-breakfast business must be transferred over to the buyer. This may involve updating legal information, transferring policy ownership to the buyer, notifying employees and guests, and more.
Receive a Free, No-Obligation Business Valuation
Are you interested in selling your bed-and-breakfast business? If so, then you can get started with a free business valuation from Sigma Mergers and Acquisitions. Schedule a consultation today. We can also answer your questions and address your concerns during the initial call.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!