When determining the sale price of a bed and breakfast, there are two types of value you must add together: the value of the property itself and the value of the income stream it provides. Of course, as with any business negotiation, the ultimate price will be what two parties agree it will be. However, evaluating several key figures will help set a beginning number on which to disagree.
Determine the value of the house, outbuildings and land. If the property is still under a mortgage or other lien, it's best to make the real estate purchase a separate deal from the sale of the business. In most cases, it's worth it to spring for an appraiser to perform this step.
Estimate the value of fixtures, furniture, appliances, vehicles and other major property that will change hands when you sell the business. Don't bother tallying up the small things such as office supplies, cleaning supplies, towels and sheets. The total value of these is insignificant compared to the sale value of the company. You can sell them all for a lump sum, or include them as a kind of "signing bonus."
Evaluate the worth of the company's income stream, how much money it makes in a year. This can be calculated any number of ways. Two common methods are gross income for the past 12 months or the average annual gross income for the past 60 months.
List all the debts owed by the company, such as vehicle loans, equipment loans, accounts owing to suppliers and lines of credit.
List all applicable expenses for any 12 month period, calculated in the same way you calculated a year's worth of income. Applicable expenses are those expenses likely to continue once the business changes hands. Utilities are an example of applicable expenses. A personal car you've put on the business for tax reasons is not.
Add steps one through three. Subtract steps four and five from that sum. The total is the baseline value of the company.
Use the result from step six as an initial offer or starting point. It's possible that the other party will accept this number outright, or that you will agree on a very different sale price.
Tip
This plan is for selling the real estate and business associated with a bed and breakfast. It's possible to sell just one or the other. Selling the business, but keeping and leasing out the property is a common practice.
