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How To Start A Bed And Breakfast

How To Start A Bed And Breakfast

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How To Start A Bed And Breakfast

How To Start A Bed And Breakfast

Opening a charming bed and breakfast can be a dream come true for many aspiring innkeepers. Providing cozy accommodations and welcoming hospitality in a beautiful setting is rewarding, but starting a successful B&B requires more than just being a gracious host.

This guide will provide an overview of the bed and breakfast business and industry, steps to get started, common startup costs, and answers to frequently asked questions.

Business Overview

A bed & breakfast offers guests not only lodging but also a more luxurious “home away from home” experience. Unlike hotels, B&Bs give guests tthe 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 unique experience. Hosts live on-site, giving the business a family feel.

Most inns have between four and ten 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

The B&B industry has experienced steady growth as more travelers seek unique accommodations. 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. Industry revenue is expected to drop slightly in 2023, but at a healthy $2.9 billion as the economy rebounds from the pandemic downturn.

B&Bs face competition from hotels, vacation rentals, and emerging options like Airbnb. As more guests book online, having an appealing website and strong reviews are crucial.

From the outside, it may look easy, but 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-season. Good marketing and a unique characteristic of 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.

Steps To Start A Bed And Breakfast

With careful planning and dedication, your dream of owning a charming B&B can become a reality, but starting a B&B is no walk in the park. It’s not just about freshly baked croissants and 600-thread-count sheets. There’s zoning, marketing, staffing, and much more to think about. In this guide, we’ll explore the steps that are needed to successfully start your B&B.

Step 1: Research the Market

You’ve got the vision – a cozy bed and breakfast that becomes the talk of the town. But before you start picking out paint colors or testing muffin recipes, there’s something crucial you need to do: research. Without proper market research, you could find yourself sinking time and money into a venture that’s doomed from the start. Researching demand also helps you get a feel for your potential customer base and can even influence crucial aspects like location and pricing.

A few ways to start market research include:

  1. Local tourism office: Pay a visit to your local tourism office or chamber of commerce. They often have valuable data on visitor numbers, demographics, and local lodging statistics.
  2. Competitive analysis: Check out other B&Bs, hotels, and lodging options in your targeted area. High competition can indicate demand, but it also means you’ll need a unique selling point.
  3. Social media polls: Use Facebook or Instagram to run polls or questionnaires on what people look for when staying at B&Bs.
  4. Area events and attractions: Look at local events, attractions, and tourist destinations. If these places are bringing in tourists, it can be a good sign for another B&B.

Step 2: Research Local Regulations

Starting a B&B isn’t just about the demand; it’s also about what’s legally possible in your chosen location. Local laws can be the make-or-break factor in your business plan. A few things to look for:

  1. Zoning laws: Check with your local planning office to see if your property is zoned for a bed and breakfast. Zoning laws vary greatly from place to place, and some areas may prohibit B&Bs altogether.
  2. Licenses and permits: Visit your local government website or office to understand the licenses and permits you’ll need. This could range from a basic business license to more specialized permits, like food handling. Some areas have a cap on the number of B&Bs, so be sure not to skip this step!
  3. Safety codes: Fire, health, and building codes are not optional. Consult with the appropriate local departments to ensure your property can meet these standards. If renovations are necessary, be sure to submit plans in advance to make sure they will meet code.

Step 3: Write a Business Plan

With a market identified and understanding whether there are any legal hurdles, the next step is to write a business plan. Even if you own the property and won’t need funding, a business plan is helpful in taking the ideas out of your head and guides you through the initial setup and operation.

Here’s a look at a few of the key sections when writing a business plan for a B&B.

Market Analysis

In this section, spell out why your bed and breakfast has a fighting chance of succeeding in the market you’ve chosen. You’ll need to provide data on local demand, competition, and the unique selling points that set you apart. The goal is to give lenders confidence that your business is not a shot in the dark but a well-reasoned venture based on solid research.

Management Team

The people running the show are often as important as the business idea itself. Lenders take the management team seriously because a good team can make or break a business. Include bios of the owners and any key team members, if there are any, and highlight their qualifications and experience, including any relevant hospitality or business experience.

Location

Your choice of location can be important when seeking a loan, not to mention your long-term success. Here, you should explain why the location you’ve selected is well-suited for a bed and breakfast. Factors like proximity to tourist attractions or local amenities can go a long way in persuading lenders that your choice of location is strategic and advantageous for your business.

Financial Projections

Banks and investors will pay very close attention to this section and will want to see reasonable projections that demonstrate that the business will be profitable. It’s important for entrepreneurs to understand their financial projections and be able to explain them to potential lenders. This includes outlining startup costs, revenue streams, operating expenses, and cash flow projections.

Before presenting the plan to a bank or lender, it’s always a good idea to have someone else review the plan and numbers to ensure they are reasonable.

Related: How to write a bed and breakfast business plan for a B&B

Step 4: Secure Funding

After validating that there’s a market for your bed and breakfast and crafting the business plan, the next step is securing the funds to make your dream a reality. It’s important to have the funds in place before proceeding further because, without adequate funding, it can be difficult to launch and sustain the business.

When looking at funding sources, personal savings will come first. However, if personal savings aren’t enough to cover startup costs, outside funding sources will be needed.

The most common outside source of funding is local lenders. There are a few different loans they can offer, which include:

  • Commercial real estate loan: Commercial real estate loans are specifically designed for businesses that are purchasing or renovating commercial property. These loans typically have longer terms and lower interest rates than other types of business loans.
  • SBA 7(a) loan: SBA 7(a) loans from a bank that are guaranteed by the Small Business Administration (SBA). These loans can be used for a variety of purposes, including purchasing property, renovating or expanding an existing property, and purchasing inventory.
  • Home equity loan: If you already own the property you will be using for your B&B and need funding for renovations, a home equity loan could be a good option.

Another potential source of funding is friends and family. While this can be a great option for many entrepreneurs, it’s important to put agreements in writing to avoid any misunderstandings or conflicts down the line.

Related: Finding the money to start a business

Step 5: Purchase and Renovate the Property

Once the funding is secured, the next step in starting a bed and breakfast is to purchase the property and begin any renovations. This is an important step that brings all of the planning and preparation together into something tangible.

Step 6: Register the Business

Getting your bed and breakfast officially up and running involves several legal steps, which can differ depending on the state you’re in. Here is a general overview for key steps to registering a B&B.

Business structure: The first decision is to decide on your business structure. The most common options are sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC). The choice depends on various factors, including tax implications, liability, and business goals. Each has its advantages:

  • Sole proprietorship: Easy to set up and low startup costs. However, there’s no liability protection, meaning your personal assets could be at risk if the business encounters legal issues.
  • General partnership: Similar to a sole proprietorship, but with more than one owner. Again, easy to start, but it also brings joint liability.
  • Corporation: Offers liability protection but comes with higher costs and more regulations.
  • Limited Liability Company (LLC): Blends elements of corporations and sole proprietorships/partnerships. You get liability protection but with fewer formalities.

For a bed and breakfast, many opt for an LLC structure due to the blend of liability protection and operational flexibility.

Related: Comparison of business structures

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!

ZenBusiness - Best for beginners. $0 plus state fees & free registered agent for 1 year!

Northwest - Best privacy protection. $39 plus state fees & free registered agent for 1 year!

Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Obtain business licenses and permits: Before starting a bed and breakfast, you’ll also need various licenses and permits.

For starters, zoning and licensing for a B&B vary by state, city, and county government regulations. The city and/or county typically require licensing for bed and breakfasts, or the property may need to be zoned to allow commercial activity.  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 safety certificate and/or food service licensing may be required, in addition to local health department licensing. A liquor license will be needed as well if alcohol will be served. Most B&Bs will see recurring inspections to ensure they are operating safely.

In addition, some general business registrations may likely 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.

Related: What licenses do bed and breakfasts need?

Step 7: Create a Marketing Strategy

Good marketing to tourists is important to a bed & breakfast’s success. Marketing will help to generate initial business, but it 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 can especially be 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 may think something is wrong with the property if it is too inexpensive.

Having a solid web presence is critical as many people find listings on sites like TripAdvisor, HomeAway, Air B&B, or linked to an area group of B&Bs besides 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. Also, the ability to book rooms on your website is a great feature that makes it more convenient for potential guests to reserve a room.

Social media platforms like Instagram and Facebook are a great way to use visual storytelling. Showcase your rooms, area points of interest, the delicious breakfasts you offer, and the unique charm of your B&B.

Community involvement also goes a long way. One often overlooked resource is your local tourism bureau. Partnering with them can provide invaluable exposure to tourists seeking local experiences and accommodations. This collaboration could range from brochure placements to being featured on their website or social media platforms.

Related: Low-cost ideas to market a new business

Step 8: Prepare to Open!

So, you’ve done your research, gotten the lay of the land, and are almost ready to hang that “Open for Business” sign. But wait – there are a few more important steps you’ll want to check off your list. While each B&B owner’s journey will differ, these are common steps you won’t want to overlook.

Business insurance: Protect your investment and yourself by getting the appropriate business insurance. This could include property, liability, and even business interruption insurance. We recommend getting at least three insurance quotes, including local insurance agents and online providers like Coverwallet or Hiscox to get the best coverage and price.

Setting up bookkeeping: Financial organization from the get-go is crucial. Consider hiring an accountant or utilizing accounting software like Wave Accounting (FREE) or Quickbooks to keep tabs on your earnings, expenses, and taxes.

Contracts: Draft up guest agreements and any other legal paperwork if hosting weddings or corporate retreats.  RocketLawyer and Law Depot have free and inexpensive templates that may be helpful.

Opening a business bank account: Open a separate bank account specifically for your business. This makes tracking earnings and expenses easier and is better for tax purposes.

Purchasing booking software: There are several B&B reservation software solutions available, such as Checkfront, Cloudbeds, and Little Hotelier, that can help with managing reservations, room inventory, and guest information.

Setting pricing: Your pricing strategy should be based on factors like local demand, competitive rates, and your operating costs. This will be a dynamic process, so be prepared to adjust as needed as seasonal fluctuations may be needed.

Accepting credit cards: Offering multiple payment options is important for guest convenience and can help increase bookings.

Hiring staff: Depending on the size of your B&B, you may want to consider hiring a housekeeper or cook to assist with daily operations.

Joining industry associations: Association of Lodging Professionals (ALP) or state/local B&B associations for networking opportunities and access to resources.

Greg’s Tip: If renovations are needed, ask for more money in your business plan to cover unexpected costs and changes to the renovation plan.

This is because renovations often uncover unexpected problems, such as mold, structural damage, or outdated wiring. These unexpected costs can quickly add up, and changes to the original plan can also increase the cost of the project. Additionally, the cost of materials and labor can increase over time, even during a renovation project.

Greg's Business Tip

Common Questions When Starting A Bed And Breakfast

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

Starting a bed and breakfast typically costs between $200,000 to $600,000, depending on the size and location of the property. Key startup costs include:

Location: The cost of acquiring a property is often the largest expense. Buying an existing inn or making deposits on a rental can range from $100,000 to $1,000,000.

Renovation and furnishings: The condition of your property will dictate renovation costs. Additionally, you’ll need to furnish the rooms, common areas, and any outdoor spaces. This can run from $20,000 up to $100,000 or more.

Initial licenses and permits: You’ll need to budget for local, state, and possibly federal licensing. Costs can vary widely, but budgeting around $2,000 is a good starting point.

Initial insurance costs: Liability and property insurance are essential. The initial setup can cost around $2,000 to $4,000.

Marketing: Your initial marketing push will be essential for drawing in guests. Budget at least $2,000 to $5,000 for website setup, social media advertising, and local advertising.

Other Costs: Miscellaneous items like kitchen appliances, linens, or a point-of-sale system can add another $10,000 or so to your startup costs.

How much can a bed and breakfast owner make?

Profitability in the bed and breakfast industry can vary widely based on factors such as location, size, and amenities offered. However, a common formula used to estimate revenue is the Average Daily Rate (ADR) multiplied by the Occupancy Rate.

For example, if you charge an average of $150 per room per night (ADR) and maintain a 60% occupancy rate, your daily revenue would be $90 per room. If you have 5 rooms, that’s $450 per day or about $164,250 per year.

On the expense side, it’s not uncommon for operational costs to consume around 50-75% of the revenue. This includes the mortgage, staff salaries, utilities, food, maintenance, and marketing. Using our example, if your annual revenue is $164,250 and 60% goes to operational costs, that leaves you with expenses of $98,550 per year.

Subtracting the annual expenses from the annual revenue ($164,250 – $98,550), you’d be looking at an annual profit of $65,700.

Please note that these are simplified calculations, and actual results can vary. For more precise projections, it’s essential to consider local market conditions, specific costs, and the competitive landscape.

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

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 with experience within a hospitality setting can step into 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 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 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 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

How To Start A Bed And Breakfast

How To Start A Bed And Breakfast

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