Running a bed and breakfast may not be for everyone. However, if you enjoy meeting people, are happy to work ‘unsocial’ hours and feel relaxed about living and working in the same environment, you may well find the B&B sector a highly rewarding choice if you fancy being your own boss.
Acquiring an established B&B is a great way to get into the industry, so here are some preliminary pointers to help you identify a suitable enterprise and get your adventure off to a flying start.
Overview of South Africa’s accommodation sector
The South African economy has consistently outperformed other economies in Africa, making the country an attractive business destination. It’s also a popular tourist destination, with 9.5 million arrivals every year.
Though non-African business and tourist visitors have traditionally come from the United Kingdom, Europe and the US, there has been a recent surge in visitors from China – jumping by 60% year on year between January and April 2016. The number of tourists from India has also risen sharply in recent years.
Occupancy rates in hotels and guest houses were projected to rise steadily between 2015-2019, according to a report published by PricewaterhouseCoopers in 2015. Guest houses were forecast to enjoy the strongest growth of any accommodation segment, at 1.0% (compound) annually, while Cape Town will see the sharpest rise in occupancy of all South African destinations.
Choosing your location and premises
Location is very important for a B&B. If it’s based in the heart of a business district or near to a train station or highway then it’s well placed to attract business travellers. Situated near to a beach or tourist hub, it will naturally be in a great position for holidaymakers.
Of course, the more attractive the location, the higher the asking price it can expect to command.
You must also identify the rivals with whom you will have to compete and decide on aspects – eg, prices, targeting a niche (like being family-friendly or pitching to young travellers), quality of accommodation – which you can enhance to mount a successful challenge.
How many guest rooms does the property have and how many guests can they accommodate? At what are its occupancy rates?
Profits might be decent, but if it’s operating at full capacity most of the year then it’s important to recognise there is limited scope for growing revenues – unless the market can bear higher prices.
Studying the local market is key to enhancing the business’s offering to customers and demands a strategic approach.
You may notice, for example, that an established business is failing to compete in a saturated mid-price market. In your hands, such a business might be realigned to cater for guests with a higher, or lower, disposable income – depending on where you think the balance of supply and demand is more fruitful.
Due diligence
Unless you have a great deal of industry experience, you may wish to hire a business broker to help you analyse the potential of any business you take an interest in.
This will certainly apply to the matter of pre-sale financial due diligence, which should be carried out by an experienced auditor. There are many other parts of the sale process where an expert eye will prove invaluable too.
However, there is much you can do yourself to research and assess the genuine worth of any B&B property which seems to fit your requirements. For instance, besides arranging an official viewing of the property, you could also go ‘undercover’ as a paying guest, check guest reviews on TripAdvisor and customer feedback on social media, as well as review the quality of its website and position on Google for popular searches (eg ‘guest houses in Cape Town’).
Licences and regulations
Don’t commit to buying a B&B until you’ve checked if it complies with disability regulations, health and safety legislation, food hygiene laws and fire regulations. Also ask for documentation around business insurance, employee contracts and any other paperwork relevant to proving that the establishment is meeting its legal obligations.
In some instances you may be able to arrange a transfer of existing arrangements into your own name, but many will require you to make a fresh application.
Furthermore, do remember to check whether there are additional legal implications if you intend to take the business in new directions. For instance, you might spot an opportunity to grow revenues by selling alcohol – but how difficult might it be to obtain the relevant licence?
Financing your purchase
As well as requiring a substantial deposit, lenders will need to be convinced that, taking any seasonal fluctuations into account, your revenues will support necessary loan repayments.
If you can show them a recent history of profitable trading, it will be all the easier. However, take financial advice at an early stage to be clear about the kind of property you can actually afford.
If you do close the deal on a B&B then you’ll be ‘at work’ 24/7 and constantly meeting new people who will rely on you for a comfortable stay. Provided you are looking forward to the challenge, there is every chance you can quickly adapt to a lifestyle that can be immensely rewarding.
