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Running a small hotel
Old 09-08-2009, 03:18 PM   #1
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Running a small hotel

I came across an ad over the weekend for a small hotel/bar/restaurant located in a small town about 3 hours from where I live and an hour from where some of my family live. The town has about 300 people and is in the middle of a farming area. From what I can figure out there is one more small restaurant in town, but no other bar or hotel. The hotel has a suite where the current owners live. The price appears right, though I would definitely have to look into it more to come up with my own valuation.

My wife and I were kind of just joking around about it, but I started thinking that maybe it would be worth thinking a little harder about it. The current owner has been running it for 25 years (allegedly), so it would appear that a person can make a mediocre living running the place. Of course if they're putting in 80 hour weeks to keep the place afloat no thanks. On the other hand if the place is pretty easy to run and laid back, sign me up.

Has anyone ever operated (or worked in) a small town hotel or bar? I do worry about the environment of the place in the evening. I know of some small town bars which are laid back and safe, whereas others I wouldn't set foot in.

What documents / proof would you ask for to evaluate the business? I would want to see at least 3 years of audited financial statements.
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Old 09-08-2009, 03:22 PM   #2
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See if you can get crime statistics on the area from the pd or Sheriff's office.
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Old 09-08-2009, 03:25 PM   #3
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I don't know anything about running a small hotel or bar but I do know something about running a small retail business as a sole proprietor - it takes a huge chunk of your time to make it go. Say goodbye to holidays, weekends and vacations. The business is your life.
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Old 09-08-2009, 03:50 PM   #4
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I worked for a storage facility for a number of years where the managers lived on site. They were retired and it was a good fit for them...for a while. They were fortunate in that if they needed/wanted to get away, a manager or spouse from another storage facility (these were a chain of facilities) would step in for them. I'm not sure if you can get someone to run it for you in such a small town.

You may just have to close it down when you want to get away.
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Old 09-08-2009, 03:57 PM   #5
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See if you can get crime statistics on the area from the pd or Sheriff's office.

...spoilsport
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Old 09-08-2009, 04:12 PM   #6
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... I'm not sure if you can get someone to run it for you in such a small town.

You may just have to close it down when you want to get away.
In the town I currently live in, and the other one that I work in, this is exactly what happens. Some of the businesses have really weird hours.
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Old 09-08-2009, 04:15 PM   #7
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My dad bought a bar in a small town when I was a kid. He worked about 90 hour weeks, and sold it in a year--far too much work. And even though the bar was in a nice enough town, he still had to deal with too many drunks and didn't enjoy it.
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Old 09-08-2009, 04:29 PM   #8
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...spoilsport
Well...one day I'll "retire" from being a volunteer cop, then watch out...it's party time! Board your windows folks, Hurricane bbbamI is headin' your way...
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Old 09-08-2009, 04:37 PM   #9
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Check the walls for machete marks or bulletholes and go from there.
The owner always sets the tone for these little places.

Seriously, in my party days, one of my acid tests for the quality of a hole-in-the-wall was the bathrooms.
And I mean both bathrooms.
If they are ugly, then the crowd probably is too. In other words, the owner gave up a long time ago trying to keep them nice and the customers most likely have no regard for others' property or themselves.

Liability insurance will be your biggest expense.
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Old 09-08-2009, 06:02 PM   #10
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I went back to your introductory post in which you indicate that you are 25 and have a fairly secure job as well as a young family.

Why in the world would you want to take this on?
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Old 09-08-2009, 08:21 PM   #11
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I went back to your introductory post in which you indicate that you are 25 and have a fairly secure job as well as a young family.

Why in the world would you want to take this on?
I probably wouldn't. I like investigating possibilities though. I like to look into ideas and think about the pros and cons. Only if it passes a lot of checks and makes my family 'better off' do I pull the trigger. Better off doesn't necessarily mean making more money, I mean more in terms of quality of life, security, lbym, etc.

If something like this meant 90 hour work weeks as some posters have indicated, no thanks. If on the other hand it is very slack during the day and pays all of the bills, I might be interested as I would be mortgage free and have lots more time to spend with my family during the day.

I understand your confusion, it does sound like a pretty kooky idea. I appreciate the replies though, gives me some good things to think about.
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Old 09-08-2009, 09:20 PM   #12
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Well...one day I'll "retire" from being a volunteer cop, then watch out...it's party time! Board your windows folks, Hurricane bbbamI is headin' your way...
look out world...
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Old 09-08-2009, 09:22 PM   #13
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I probably wouldn't. I like investigating possibilities though. I like to look into ideas and think about the pros and cons. Only if it passes a lot of checks and makes my family 'better off' do I pull the trigger. Better off doesn't necessarily mean making more money, I mean more in terms of quality of life, security, lbym, etc.

If something like this meant 90 hour work weeks as some posters have indicated, no thanks. If on the other hand it is very slack during the day and pays all of the bills, I might be interested as I would be mortgage free and have lots more time to spend with my family during the day.

I understand your confusion, it does sound like a pretty kooky idea. I appreciate the replies though, gives me some good things to think about.
kooky it is... but if you decide to give it a go let us know where it is so we can help support your future retirement...
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Old 09-08-2009, 09:33 PM   #14
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I probably wouldn't. I like investigating possibilities though. I like to look into ideas and think about the pros and cons.
I suppose this is being broad-minded. But many (maybe most?) ideas don't deserve consideration. They are just flat out bad ideas.

There was a small hotel in the small town where I lived. God knows who would have stayed there. But they kept heads above water with a failry successful tavern. Saturday night special was everyone in the bar was supposed to trade pants with the nearest person of the opposite sex.

Ha
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Old 09-09-2009, 12:32 AM   #15
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I also re-read your original post. It seems like your current current town may not be much different from the one housing the hotel you're considering. If not there will be a similar town within 20 minutes of you, check it out. Is there a hotel/bar and how are the owners making out? Would you like to spend 90% of your time in or near it? If you haven't visited it, why not?

I've spent far to much of my life in small prairie towns. I don't think I'd want to do it.
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Old 09-09-2009, 03:48 AM   #16
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I would not do it... but then again, I am not looking to buy a business (or work it).

You did not say much about your situation. For example do you intend to quit your job and run the place.

I think of a couple of important questions you should ask yourself is what is your motivation and what do you hope to accomplish.

Before you seriously consider it, you should do your homework. Since he has been in business for 25 year, he should have plenty of history:

  1. Look at the books (accounting, guest registry- history, tax filing, etc) and do some analysis. Consider having an accountant look at it and run some projection if you are not comfortable doing it. How many room days are vacant vs filled in a year?
  2. Run the numbers... what will be you ROI including after you pay yourself a reasonable wage?
  3. Have a professional inspect the hotel.
  4. If you intend to quit working, don't forget the cost of benefits you might receive at a job (e.g. health care).
Remember people can stop by and check in at all kinds of hours and when you have guest, someone needs to be there. I am not sure how busy you will be, but you will have to be available.

If you cannot make more money than you would investing in a diversified portfolio plus working... I cannot see any reason to consider it.

To me it sounds like investing in a job and taking business risk to boot.
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Old 09-09-2009, 07:04 AM   #17
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I couldn't have put it better than what chinaco said. I will add, however, that if you have to ask, it probably isn't right for you; you are not ready.
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Old 09-09-2009, 03:58 PM   #18
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If you intend to quit working, don't forget the cost of benefits you might receive at a job (e.g. health care).
The OP is Canadian, so healthcare is not an issue
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Old 09-09-2009, 10:55 PM   #19
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  1. Look at the books (accounting, guest registry- history, tax filing, etc) and do some analysis. Consider having an accountant look at it and run some projection if you are not comfortable doing it. How many room days are vacant vs filled in a year?
  2. Run the numbers... what will be you ROI including after you pay yourself a reasonable wage?
A lot of business may have been done in cash. The valuation might be interesting is it wasn't all accounted for.
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Old 09-10-2009, 10:18 AM   #20
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For valuation I think those kinds of businesses (and small retail) usually go for 1-3 times annual "profit" which they sometimes call just "cash flow," because the owner has to draw his income out of it and put whatever's left back in the business. That's on top of the hard assets -- real estate, inventory, etc.
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