Writing a business plan is critical to the success of your bed and breakfast. It can be intimidating writing a bed and breakfast business plan for the first time, but we have tips and sample plans to help you get started on the right path.
Why is a Business Plan Important?
While many people write their bed and breakfast business plan for the purpose of funding, the business plan can offer many more benefits.
You have likely already spent a lot of time thinking about starting your B&B, but it’s next to impossible to stay organized and reach all of your goals by not writing them all down. It’s very difficult to have a clear vision until you put those thoughts on paper and that’s where the business plan comes in. Creating a business plan provides a blueprint to connect all the dots and make your vision a reality.
Another point to encourage you in writing your business plan is the Small Business Administration shows that over 21% of small businesses fail in the first year and 50% fail in the first five years. Some of the more common reasons for business failure include not starting with enough money, lack of planning and over estimating revenue. The business planning process identifies issues on paper which can help reduce costly mistakes after opening.
The business plan is also important because of the critical feedback you can get on your venture. It’s very common for a new entrepreneur to be overly optimistic when starting their business and being blind to what they don’t yet know. By having another bed and breakfast owner, professional or consultant in the tourism industry, local business owner or accountant look over your plan, they will provide critical feedback to find weaknesses in the plan and make sure your numbers are reasonable. Getting these insights and fixing the plan before taking it to a lender or investor increases the likelihood you will have a successful business and receive funding.
Taking the time to write a business plan is not something many prospective bed and breakfast owners want to do because it’s unfamiliar and takes time. Keep in mind though, that writing a business plan is nowhere near as hard as running a bed and breakfast, especially one that wasn’t properly planned from the start.
What Goes in a Business Plan?
There isn’t a set format that business plans are required to use, however there are certain topics that need to be covered. Below we have a bed and breakfast business plan outline that should be helpful in getting started. However, since this is your plan, write it the way that makes the most sense for your business and the intended reader.
Executive Summary
The executive summary is included at the beginning of a business plan but is going to be the last thing written. This section should be a clear, concise, and high-level overview to help the reader (often a lender or investor) quickly decide whether or not your project is one they will continue reviewing. If they aren’t engaged after reading the summary, they will not likely read further so it is important to quickly generate interest.
Common elements of an executive summary for a bed and breakfast business plan includes:
- Overview of your bed and breakfast
- Why a B&B is needed in your area
- Location
- Experience of the owner(s)
- Amount being requested
- How much the owner(s) are investing
- What the money will be used for
Business Overview
The business overview section of a bed and breakfast business plan is where you provide details of what the business is going to do. It’s especially important to show the excitement you have for the business and knowledge of the industry. If you are using the plan for funding, you will have the opportunity to tell the loan officer all the great things you plan to do. However, the plan will likely be going to a loan review committee who won’t get to hear your story, so be sure to get all the important details on paper!
The business overview has a few key areas to focus on, including the overview of the B&B and why the bed and breakfast is needed in your area.
In the bed and breakfast overview, provide some details on the history of the property, style and number of rooms, the guest experience and any other important details.
Another important aspect of this section is to answer why this bed and breakfast is needed. Describe what makes your bed and breakfast unique among all the other properties in your area and why people will go to you versus the competition.
While a lot of people start their bed and breakfast to make a little additional side income, it does take more than offering a nice room to have a successful business. The owner of a successful bed and breakfast needs to not only offer nice accommodations, but also offer great customer service, market effectively, watch the numbers and so on.
Industry Overview
The industry overview section should describe the overall market for not only bed and breakfasts, but accommodations in general. If national sales trends aren’t increasing, try to find positives that support the decision to open your B&B, such as population growth or new tourism opportunities in your local market. The more supporting data you can come up with to support the strength of the industry the better, but be sure to reference where you got this information. A lot of industry information can be found with an online search or through industry associations but if you haven’t already, take a look at our Guide to Starting a bed and breakfast.
Company Ownership
Indicate the legal entity of the bed and breakfast and how ownership is structured. If you aren’t sure about the differences between a sole proprietorship, partnership, corporation or LLC, be sure to check out our overview of legal entities.
Location
Discuss where your bed and breakfast will be located and why this location is desirable. Make note of proximity to local tourist activities.
Permits and Licenses
Before opening a new bed and breakfast, you’ll need to obtain several federal, state, and local licenses and permits.
Learn more about licenses and permits for a new business.
Owners, Management & Employees
Owners
In this section, include a brief biography on the owner’s professional experience and education. This section is especially important when looking for funding as a lot of weight is placed on the experience of the owner(s) and their ability to successfully run a bed and breakfast. If the owner(s) don’t have direct industry experience, explain how their previous experience is relevant.
Employees
If there will be any employees include information about staffing to detail what positions and how many people are needed to run the bed and breakfast. Include the title of the position, the number of people needed for each position, hours needed per week or month and the wages for those positions.
Milestones
Include a timeline of milestones already achieved and those that are being worked on. By having a timeline, you will have a list of the sequence of when critical tasks need to happen.
Marketing
The competition for lodging can be competitive and the number of ways to market keep expanding. Without a solid plan to get the message out about your property, it may be hard to get customers to stay with you. Getting noticed in the market is critical, so what will you do to get the message out and make your bed and breakfast stand out?
The marketing section is one of the most important sections of the business plan, but is often not given the time and attention to detail as it needs. Why is it so important? Because your business needs customers to spend money and without sales, there is no business. Without knowing who your customers are and how to reach them, they may never hear about your bed and breakfast.
Some key areas of the marketing section should include the target market, promotional strategy and competitive analysis.
Target Market
The first building block in the marketing plan is defining the target market. A target market is a group or groups of people that are most likely to benefit from a company’s offerings. A target market shares a similar set of characteristics such as demographics (age, gender, education, or income), interests (sports, hobbies, lifestyle or values) or geographic areas. Don’t think of targeting a specific group as excluding people and limiting business potential. By defining your target market, you are able to more effectively spend your marketing budget by specifically going after the people who are most likely going to need overnight lodging.
After defining who your target market is, try and find numbers as to how many of them there are. You may need to reach out to your state or local tourism department to get details on the number of overnight stays in your area. Having actual data in your business plan lends credibility and will help to form the basis for the sales projections we will work on later.
Promotional Strategy
After defining the target market, the promotional strategy comes next. The promotional strategy looks at how to best reach your target market. By knowing your target market, assumptions can be made on how to best reach them by focusing on their media preferences.
When preparing this section, make sure to have a solid plan in place on how you will generate attention through the various marketing channels like print, radio, social media, website, etc. Be sure to get actual costs for marketing to use in the financial projections later in the plan.
Competitive Analysis
The competitive analysis section will provide an overview of the competition in your area and why you believe people will choose your B&B over them. You will likely focus on other bed and breakfasts, but don’t forget to look at hotels and vacation homes for rent as these are all competing for the same lodging dollar.
You should list how many bed and breakfasts are in a nearby radius and then focus your analysis on the top 3-5 competitors. The purpose is to research and show you understand the competition and what gives you a competitive advantage.
Some of the key areas to look at in a competitive analysis include:
- Competitor’s name
- Location
- Years open
- Pricing
- Features
- What they do well
- What you will do better
This is not the place to bash your competition or make references to how terrible of a person the owner is since this is subjective. Doing so also makes you look unprofessional.
Financial Projections
The financial projections of your bed and breakfast business plan are the most important part of the plan, but are often the most intimidating. Typically, lenders and investors will read the executive summary first to see if it is a project they would be interested participating in and then jump right to the projections. If the thought of preparing your own financial projections is a bit daunting, software such as LivePlan helps make it easier.
Sales Projections
Sales projections can be complicated to estimate without knowledge of the market and local vacancy rates. There are a number of ways of estimating sales for a bed and breakfast, but you will want to refer back to your target market research that was done earlier to support your assumptions.
This is a common place for new business owners to be overly optimistic and is where having a mentor or consultant help with the plan.
Read our article on creating financial projections for more information.
Seasonality
When looking at sales projections, the effects of seasonality also needs to be evaluated. Seasonality is more significant in some businesses than others and is important to estimate because it can show in the financial statements whether a business is projected to run out of money.
Simply dividing sales by 12 months is a common mistake picked up by lenders and investors because it shows the entrepreneur may not really understand the sales trends for the industry.
Local markets will vary, but bed and breakfasts are typically busier during holidays and local tourist related activities such as festivals or events.
Uses of Funds
Start off with a section for the Use of Funds to show the total cost of starting the B&B. List any costs you have already incurred and what still needs to be purchased. You don’t need to itemize every little item like silverware and plates, so combine the cost of all similar items and list them.
It’s important to have quotes for everything should the bank or lender request them, but only add quotes for the more expensive items such as renovations as attachments in the Appendix.
Total up the Uses of Funds to find the total cost of the project
Sources of Funds
The Sources of Funds section breaks out where the money is going to come from. The owner’s investment is commonly listed first. Most lenders are going to want to see the owner(s) put in between 15% – 25% for a new bed and breakfast.
Other funding sources are listed next such as bank loans, investor funds, etc. Learn more about finding financing for your bed and breakfast.
The total amount in the Sources of Funds should match the Uses of Funds.
Financial Statements
There are three primary financial statements that a lender is going to look at for a start-up bed and breakfast which include the cash flow statement, profit and loss statement and balance sheet. The information provided previously in the narrative portion of the business plan must match the financial projections.
Cash Flow Statement – The projected cash flow statement is an important tool when starting a business. Similar to a checkbook register, the projected cash flow statement shows an estimate of the money coming into the business and expenses that will need to be paid. The benefit of this statement is to see whether there is enough cash to sustain the business based on the assumptions. Should this number be negative, the assumptions need to be reevaluated to see if sales can be increased, expenses reduced or if more cash is needed to start the business.
The cash flow statement is typically structured to look at three years in the future, with the first year broken out by month and years two and three broken out by quarter.
Profit & Loss Statement – This statement (sometimes called a P&L statement or income statement), while similar to the cash flow statement, shows the annual income and expenses of the bed and breakfast. The projected profit and loss statement is often displayed annually and takes a before-tax view of the financial results of the business.
Balance Sheet – The projected balance sheet statement is not requested by all banks when reviewing a loan for new bed and breakfast. A projected balance sheet shows the projected assets and liabilities for a business at start-up and then the end of each year.
Personal Financial Statement
If applying for bank financing, a personal financial statement will typically be needed for every person with a 20% or more ownership position in the business. This statement is similar to one that is used to apply for a home or car loan. Here is a link to a personal financial statement template. The personal financial statement will show a borrower’s assets (checking & savings accounts, CD, IRA, 401K, valuables, home, vehicle, etc) as well as assets (mortgages, credit card bills, installment accounts, etc).
See how to fill out a personal financial statement.
Save Time with a bed and breakfast Business Plan Template
To help with creating a business plan, you can use our free business plan template. This template can be used for any business, so some of the sections may not be relevant to your bed and breakfast business plan. Some of the tips in this article should help you in modifying it to work for your B&B.
To help with the creative juices, here is a link of free sample bed and breakfast business plans.
Last, there is software such as LivePlan that includes a bed and breakfast business plan narrative and financial projections to help make writing a business plan easier.
