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How to Start a Bed and Breakfast

Overview

How to Start a Bed and Breakfast

If you enjoy sharing your town with others and have experience in the hospitality industry, then starting a bed & breakfast might be an exciting business opportunity. Running a B&B gives you the chance to meet many different people and help ensure that they have a great vacation or trip. While opening this type of business requires significant work, many people who open a B&B do it because they love the industry and find the experience rewarding.

Business Overview

A bed & breakfast offers guests not only lodging but also a more luxurious, personable experience, as B&Bs generally have 4-10 guest rooms. Unlike hotels, B&Bs give guests the experience of feeling like they’ve been invited into a home. Little touches, like mints on a pillow, lemonade on a porch, and meals in a warm and welcoming dining room transform lodging into a deluxe experience. Hosts live on-site, giving the business a family feel.

Most inns have between four and 10 rooms, which allows their owners to provide attentive, specialized customer service to guests. There’s much more personal interaction in a B&B than you’d find in a hotel, and that’s one of the benefits of this business. Hosts get to know their guests and often play an important role in their trips or vacations. When hosts have an intimate knowledge of the local area, they can help guests find ideal activities and make the most of their experience.

Owning a B&B is not just an entrepreneurial opportunity, but it’s also a lifestyle. This is one business opportunity where you truly need to enjoy what you’re doing to be successful. Great B&B owners and hosts love to share their home and town with visitors, and they’re fully invested in their business. With weekends and tourist seasons being the busiest times, plan to change your personal schedule when you get into this industry.

Industry Summary

According to IBIS World, from 2014 to 2019, the bed & breakfast and hostel accommodations industry underwent an annual growth of 4.4 percent. During that time, the number of businesses increased to 9,542, and industry employment great to 30,677. In 2019, the industry was expected to bring in total revenue of $3 billion.

The B&B industry is influenced by the number of people who travel and take vacations, and that’s closely linked to the amount of disposable income available. With the improved economy and an increase in disposable income, travel has also increased, boosting the B&B industry.

The B&B industry isn’t an easy one to succeed in. Bookings can fluctuate, and businesses may be fully booked up during their tourist seasons and have minimal bookings in the off-seasons. Good marketing and a unique characteristic to the B&B, like being pet-friendly, can help to combat this to a degree. Still, it’s important to budget and plan for the income fluctuations that come in this industry.

Related Industries

Winery

Industry Trends

The B&B industry is a competitive industry, and businesses need to keep up with current trends to bring in both new and returning guests. According to the B&B Team, many trends currently affect the industry. With the increased focus on health and healthy eating, B&B’s need to provide guests with healthy breakfast options and their standard decadent breakfasts. Knowledge of and adherence to dietary restrictions, like gluten-free diets, is also increasingly important.

More and more travelers are seeking pet-friendly (in particular, dog-friendly) lodging options. B&Bs with a dog-friendly policy can draw in increased or even specialty clientele by advertising lodging for pets and their owners.

Personalized service for returning guests is another important trend, and B&Bs are in the perfect position to provide this higher level of service. Businesses can take notes about a guest’s favorite wine, restaurant, or local attraction or activity. When the guests return in the future, a B&B can provide guests with a personalized gift, bottle of champagne, and thank-you note. Such attention to detail stands out and can ensure that returning guests become loyal customers for life.

Target Market

Retirees and millennials are often the target market for most bed and breakfasts, but that target market can vary according to a B&B’s business model. Some B&Bs specialize in offering lodging in conjunction with a local attraction, like a nearby concert hall. Other businesses may market luxury stays to a particular audience or may want to market pet-friendly lodging to pet owners.

Checklist for Starting a Bed and Breakfast

Starting a bed and breakfast can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.

Step 1: Write a Business Plan

After coming up with the idea, the next step in starting your business should be to write a bed and breakfast business plan.  The plan is beneficial as it forces the entrepreneur to think about important aspects such as who you want to market to, why people want to stay in your home, the average daily rate and how that compares to other local establishments, sales projections, and expenses and more.

Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related: How to write a business plan

Step 2: Name the Business

Finding the perfect business name for a bed & breakfast can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Step 3: Form a Business Structure

A business structure (also referred to as a business entity) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business structure is best for a bed and breakfast, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.

The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest structure to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 4: Select your Location

Many B&B owners decide to make their current homes into a B&B, while some purchase an additional property. Rent or mortgage payments on a property will vary depending on down payments, property size, and location.

Related: Choosing a business location

Step 5: Obtain an EIN

The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Federal Tax Identification Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file federal and state taxes, and more.

There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.

Related: How to Apply for an EIN

Step 6: Apply for Business Licenses and Permits

The city occasionally requires licenses required specifically for bed and breakfasts; however, most will need to be properly zoned to allow commercial activity.  Zoning and licensing for a B&B vary by state, city, and county government regulations. Compliance can vary by occupancy rate, safety requirements such as having sufficient smoke detectors and fire extinguishers, whether owners have to live on the property, parking, etc.  If food is being served, a food handling certificate and foodservice licensing may both be required, in addition to local health department licensing. A liquor license will be needed as well if alcohol will be served. Most B&B’s will see recurring inspections to ensure they are operating safely.

Also, there are some general business registrations that may be needed, such as a local business license, sales tax permit to sell food and beverages and collect tourism or hotel tax, Employer Identification Number, and Occupancy Permit, among others.

Related: Common business licenses, permits, and registrations by state

Step 7: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a bed and breakfast is another.  Funding to start a bed and breakfast can be difficult due to the cost of the property.  In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.

Related: Finding the money to start a business

Step 8: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 9: Get your Marketing Plan in Place

Good marketing to tourists is important to a bed & breakfast’s success. Marketing will help to generate initial business but is also necessary to keep the business fully booked, especially during off-seasons. A B&B can use many different marketing techniques, but some of the most common include print advertising, social media, and the development of a quality website.

Pricing is an important signal to potential guests as to the quality of your home. This is a struggle for B&Bs in rural areas because the owner compares their price to the cost of local lodging.  Many tourists are likely coming from more costly areas and will think something is wrong with the property if it is too inexpensive.

Having a solid web presence is critical as many people are finding listings on sites like HomeAway, Air B&B, or linked to an area group of B&Bs in addition to your own website.  Consider having a professional photographer take pictures of the home as good photos influence the potential customer’s opinions of the property.

Related: Low-cost ideas to market a new business

Every business is going to need a logo. Make a professional logo in no time with the free Canvaa logo maker!

Step 10: Get Business Insurance

There are several types of insurance to consider when starting a bed and breakfast. A few of these include:
– General liability insurance protects the business if any guests are injured while on the property or during a stay, and it can cover expenses like medical bills and lawyer fees.
– Commercial property insurance can cover expenses and damage if the business’ property is damaged, such as by fire. This type of insurance can cover the cost of not only the building but also the equipment within it.  Often, a homeowner’s property insurance won’t cover commercial activity so be sure to read your coverage carefully before charging guests.
– Commercial auto liability insurance covers business-owned vehicles and can pay for expenses or lawsuits resulting from an accident.

The cost to insure a bed and breakfast will vary depending on several factors like the size and value of the property, the business’s location, and the number of employees. To get an accurate idea of potential insurance costs, request quotes from multiple providers. Then, compare those quotes while looking at factors like premiums, coverage limits and exclusions, and deductibles.

Related: Types of insurance your business may need

Step 11: Hire Employees

Most B&B owners do all the work themselves, but depending on the size of a B&B or the owner’s interest in doing all the work, it may be necessary to hire multiple staff. According to PayScale, the following are average hourly incomes for B&B staff:
– Innkeeper: $14
– Housekeeper: $12
– Bookkeeper: $17
– Property manager: $15

In addition to budgeting for employee salaries, a B&B will also need to budget for the expenses that come with hiring staff, such as workers comp insurance, health insurance contributions, and paid time off.

Related: Hiring your first employee

Step 12: Set up an Accounting System

Setting up an accounting system for your bed and breakfast is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business 

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a bed and breakfast?

The cost of operating a bed & breakfast will vary depending on the size of the business and whether the owner already owns the property to be used. Expect to pay $200,000 or significantly more for a suitable property, and then $20,000 to $40,000 per room for renovations. Smaller properties may cost $200,000 or more to open, but budget closer to $500,000 and up for larger properties.

Some common startup costs for a B&B include:
– Interior renovations such as making sure the plumbing and electrical service is up-to-day, in addition to repairing any worn items, nice fixtures, and fresh paint
– Exterior renovations are important as this is the first thing your guests will see when approaching the property. Make sure the landscaping is fresh, paint or exterior is clean, and windows and roofing is well maintained
– Amenities and upgrades to the home, such as whirlpool tubs, private balconies, swimming pools, etc.
– Furniture, like beds, dressers, and living room
– Kitchen equipment and supplies
– Reservation software
– Supplies like linens, bathroom towels, soap, toilet paper, etc.
– Inventory like food, alcohol, etc.
– Signage

How much can a bed and breakfast owner make?

Data on the average income of B&B owners aren’t available, but owning a B&B isn’t regarded as a highly profitable venture.

Looking at the potential of a B&B with four rooms available charging $100 per guest room.
– If every room is filled, that’s $340 per night.
– Over a week, 4 rooms x 7 nights = 28 room nights. 28 x $100 = $2,800.
– There are 28 room nights in a week x 4 weeks = 112 room nights in a month. If every room is booked every night, that’s 112 x $100 = $11,200.
– There are 365 nights per year X 4 rooms = 1,460 room nights. If every room is booked every night, that’s 1460 x $100 = a maximum annual gross income of $146,000.

The chances of being booked every night of the year are exceedingly slim, no matter where you’re located or what you do to increase occupancy rates.

The typical bed and breakfast guest typically will only stay a few days at a time. One survey indicated about 60 percent of guests stay one night, 25 percent stay two nights and about eight percent stay three nights.

Don’t expect too much from your first year unless you’re located in a very popular tourist area or an area of high demand with few accommodations. If you want to make a full-time living as an innkeeper, consider running a full-service inn with more rooms.

Related: Tips to Turn Your Home into a Profitable Vacation Rental

Are there grants to start a bed and breakfast?

It’s extremely rare to find a grant to start a bed and breakfast. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.

What skills are needed to run a B&B?

It’s possible to start a B&B without a business degree, but particular skills and experiences can increase the business’s chance of success.

Experience in a hospitality setting. Hosts who have experience within a hospitality setting can step into the role of running a B&B more easily. Experience in a hotel or even with another B&B is ideal since owners will already have a working idea of how to keep the business running smoothly and the types of service that guests will expect.

Customer service skills. Owners need to be able to provide great customer service, so experience in this area is important. The quality of customer service can shape a guest’s perception of their stay, determining whether they leave a negative review or enthusiastically recommend the B&B to their friends. Experience in taking reservations and checking guests in and out can be helpful.

Knowledge of the local area. A host who can help B&B guests to find events, restaurants, and other attractions in the area can make a guest’s vacation extra special. Ideally, B&B owners will have lived in the area for years and will be familiar with local events and businesses.

Attention to detail. From mints on the pillows to how neatly beds are made, attention to detail in the B&B industry matters.

Meal preparation skills. Meal preparation experience is important in a B&B since great breakfasts are essential to a great experience. If a host isn’t doing the meal preparation themselves, they need to hire someone or partner with someone who is a talented cook and who can handle the meal preparation.

Interpersonal skills. Most guests choose a B&B because they want to stay in a warm, welcoming environment, so hosts need excellent interpersonal skills to deliver this kind of experience. A warm, outgoing, engaging, and genuine host can establish important relationships with guests that make for a great stay and encourage guests to return.

What is the NAICS code for a bed and breakfast?

The NAICS code for a bed and breakfast is 721191.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

Resources: 

American Bed and Breakfast Association
Association of Independent Hospitality Professionals
Professional Association of Innkeepers International

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