Farm-based Bed and Breakfast

Introduction

The bed & breakfast (B&B) concept has roots dating back many centuries, when families with an extra room would open their home to strangers passing through, sending them off with a warm, filling breakfast the next morning. In the mid-1900s, the concept took hold in the United States and has become a fast growing, yet diverse industry. Today, there are thousands of B&Bs all over the country. There is also a significant and growing interest in B&Bs by farm owners exploring options to diversify their product offerings.

Before proceeding, we should clarify what is meant by the term "Bed & Breakfast." In this fact sheet, the term is used to denote any operation that provides a place to sleep and a breakfast for its patrons. We make no distinction based on the size of operation or other services offered. As you may find when you enter the industry, there is considerable debate surrounding the term as well as related others, such as "inn."

This fact sheet provides an overview of the key factors to consider when determining if a B&B enterprise aligns with your farm business plan. Operational, marketing, and legal/risk management considerations are covered. We also provide some useful resources for you. In those resources, you'll find much more detailed information about this exciting option.

Operational Considerations

As a B&B owner, you are in charge of making beds and preparing breakfast. However, your work has just begun there. You'll also serve as a bellhop, doorman, concierge, custodian, maintenance staff, maid service provider, general contractor, and business manager (which includes roles such as financial officer, marketer, customer service representative, etc.). So, make sure you fully understand the job description and skills necessary for success as a B&B owner.

Because this publication is directed at potential owners of farm-based B&Bs, there are some important aspects that should be considered regarding that feature. One of the key decisions is whether or not you wish to operate a functioning farm in conjunction with the B&B. The B&B can be a very time-consuming enterprise. Will you have time to provide labor and management to the other farm enterprises? Unless the B&B is a very profitable enterprise on its own, you will not want to forfeit profitability in your other enterprises. If, however, an operational farm is a key marketing point, then you may be able to sacrifice profitability there in exchange for a premium on the room rental rate.

If you decide you have the skills and patience that it takes to be successful, then begin to think about your B&B. Farm-based B&Bs are, by definition, located on a farm, although the farm may or may not be operational. So, you may be starting with your family's farm home, or you may be looking to purchase a farm with an excellent B&B home. Either way, there are some important aspects of the home you should consider.

First, location is of paramount importance! Obviously, it should be easy for patrons to find you. However, your location may affect how you market your business. For example, if you are near an attraction such as an amusement park, you may market very differently than if you are near a major college. Your typical customer may have very different expectations associated with each location. These expectations may impact how you develop your business, from room décor to the types of services you provide.

Second, whether you own the home or are in the market for one, consider what changes will need to be made to prepare the home for business. Will you be able to provide a private bathroom for each bedroom? Will you be able to offer a television in each room? Can your home handle the heavy electricity usage experienced during the morning? Do you have a large enough space to entertain guests at meals? Visiting other B&Bs and reading up on the topic (see the resources provided below) will help you answer the numerous other questions you'll need to address before opening your doors.

Third, what kind of B&B do you want to operate? This is closely tied to location in some respects. Do you want to allow guests to perform farm chores? Will you primarily serve as a place to stay, conveniently located near nearby attractions? Are you planning to be the major attraction, keeping guests on the grounds to relax? The type of business you operate must align with your values, interests, and capabilities. It is also an important aspect of your marketing efforts.

There are numerous other operational considerations. As noted above, visiting other owners and exploring the resources listed below will help you frame the appropriate questions and provide answers to those questions. Every operation is different, but we have covered some of the most important aspects here.

Legal/Risk Management Considerations

As you are establishing your business entity, which may take shape long before you open the doors, you will need to consider which legal structure is right for you. There are three basic types of legal structures, with some variety within some of the structures. First, a sole proprietorship is the easiest legal structure to establish. Other benefits include having complete control of the business and avoiding corporate taxation (tax returns for the business are included on your IRS Form 1040). One of the major drawbacks of a proprietorship is that, because your business is so closely tied to your personal assets, all of your assets are at risk in case of a lawsuit.

A partnership is slightly more complex. For one, a partnership agreement is necessary. This document outlines issues such as buyout if one partner decides to leave, division of management responsibilities, salary structures, and what to do in case of a partner's departure. This document should be prepared with the help of an attorney and should be signed and notarized. Also in the agreement, specify if one or more partners are "silent," that is, are not to be involved with day-to-day management. While tax returns are still covered by Form 1040, the calculation of tax basis is much more complicated than for a proprietorship. Like a proprietorship, liability is not limited by the assets invested in the business.

Finally, a corporation is a distinct legal entity. The assets of the corporation are those invested by one or more individuals. One of the major benefits of a corporation is that liability is limited to the value of the assets invested in the business. Thus, your personal assets can be protected in the unfortunate case of a lawsuit. Some negative aspects include more complex taxation, more federal control over operations, and more difficult startup procedures. There are several "flavors" of corporations (e.g., subchapter S and Limited Liability Corporations). To make this decision, consult an attorney or other expert.

If you are building a B&B home, there are some important legal considerations. A building permit must be obtained. Zoning requirements must be adhered to. The public works departments or others may be concerned about parking, sidewalks, curbs, etc. Be sure to work with a well-respected contractor to manage these issues.

Whether you are building a new B&B or not, lots of other legalities must be addressed. You will need a business license. The home will need to be up to fire codes. Also, the health department will inspect your property. Be sure you know what they're looking for before they arrive. You'll be better off if you conform without having them return. Also, be sure you understand the implications of the Americans with Disabilities Act. Finally, the state may have some rules and regulations. For example, room taxes, sales taxes, and liquor licenses are all issues over which the state has jurisdiction. If you have employees, there are MANY laws and regulations of which you must be aware. Be sure you know the laws regarding workers' compensation, employee taxes, and others covering hiring, employing, and firing employees.

In addition to pleasing the federal, state, and local government entities, you also need to protect yourself from the risks inherent in allowing people onto your property and into your home. Following fire and health codes helps to avoid some risks. However, making your B&B a safe and healthy place to stay will avoid many problems that could lead to litigation. Be diligent in monitoring for health and safety concerns. Finally, make sure you carry the proper insurance. As noted under operational concerns, this list could be much longer. Consult the resources for a more thorough review of legal and risk management issues.

Marketing Considerations

"If you build it, they will come," is a famous line from "Field of Dreams." It probably won't fit here. Even in the movie, they didn't come until word of mouth spread. This is a valuable lesson, though; word of mouth can be one of your greatest marketing strategies. For this to work, your product must be outstanding. Your guests must realize a rewarding experience at a reasonable price. They will tell people whether it did or did not meet these criteria, so make sure it does.

Beyond personal referrals, there are several other ways to promote your B&B. A well-designed brochure is a great way to promote the business. These can be placed at local convenience stores, rest areas, or other places that promote local attractions. Today, a website and social media presence are nearly required. Make sure there are some fantastic photos of the home, the common rooms, and the guest rooms. This effort overlaps well with the brochure development.

A very effective marketing tool is a listing in the Yellow Pages, accompanied by an advertisement. Many potential guests search through the yellow page listings. Some may be searching for a hotel, and your ad may persuade them to give your B&B a try. Others may be searching specifically for a B&B. Make sure they see you!

Placing periodic ads in newspapers, radio, or TV media may also be effective. But be sure the ads will reach your target market. Understand which outlets your target audience is likely to see. For newspapers, you may not need to purchase advertising space initially. Many newspapers carry articles on local businesses, highlighting new businesses. You can take advantage by developing a press release or, better yet, by inviting a reporter out to do a story on the operation. Your newspaper should have contact information to help you.

Of course, signage, stationery, business cards, and other publicly visible items should have a consistent look and feel. Design and use a logo to brand your items, reinforcing your business to customers. Shameless promotion can be a huge benefit to you. Be sure, too, that your public image aligns with the type of B&B you have. For example, if you own a B&B near a major attraction, such as a state or national park, tie the attraction into your promotional materials. If your B&B is well off of the beaten path, a place where people go to relax and walk around the farm grounds, tie that image into your materials. Sell the experience, not just a place to stay and eat.

The last marketing item we'll cover here is pricing. This is always a challenging target to hit, especially initially. However, some guidelines will help. First, know your cost of providing a room to your guest. Your costs include your mortgage, utilities, taxes, labor, food, appliances, etc. A detailed budget will help you assess your costs. This sets a minimum price limit. You cannot afford to charge less than your cost.

Second, take a look at your competition, other B&Bs, hotels, and motels. What are their rates? You can use those as a baseline for setting your price. To adjust your rates, consider the services they offer in relation to your own. If you do not have a private bathroom, your rate will need to drop. If you offer van service, you can increase your rate. One of the key things a farm-based B&B offers is the opportunity to be on, and maybe work on, an operational farm. This should be part of your niche marketing campaign, allowing you to increase your rates.

Conclusion

A farm-based B&B can help increase farm profitability while providing important recreational and educational benefits to the community. As with any enterprise, you owe it to yourself to keep accurate records, enabling you to assess the B&B's insurance contribution to your farm's bottom line. It's very different from other farm business enterprises, but it may be a good fit for owners who enjoy entertaining, are skilled cooks, and value the synergies that can exist between the B&B and the other enterprises on the farm.

Useful Resources

Bed & Breakfast Inns Online - A great resource for current and aspiring B&B owners. There's a special section for owners.

Davis, P. and S. Craig. The Complete Idiot's Guide to Running a Bed and Breakfast. (2001). Alpha Books, Indianapolis, IN. - A nice overview of the details you need to consider.

Dimond, D. How To Develop, Market & Operate A Bed & Breakfast or Small Inn. The Dimond Companies, Nashville, TN. - A more detailed manual for preparing marketing and business plans, loan applications, and other important startup documents.

Hotch, R. and C. Glassman. How to Start & Run Your Own Bed & Breakfast Inn. (1992). Stackpole Book, Mechanicsburg, PA. - Full of helpful hints from the authors and many different B&B owners around the country.

Prepared by Jeffrey Hyde & Stacee Frost. Assistant Professor of Agricultural Economics & Business and former Marketing Agricultural Extension Associate