Is This Your Team?
Banks, buyers, and B&B owners need the same thing: complete and accurate financial information. No one can accept “Dazed & Confused” profit and loss statements and tax returns. The importance of this can’t be overemphasized. As my colleague Scott Bushnell once said: “Building buyer-seller or lender-owner trust is critical. So how is it done? Like a good Boy Scout, be prepared!”
So, what does preparedness look like? The financial basics always include the following items. Have them up-to-date and ready:
- A balance sheet for the most recent fiscal year that accurately shows capital improvements and inventory (e.g.: mugs, gift items, wine, etc.) A spreadsheet showing capital expenditures and improvements to buildings is helpful.
- Federal tax returns for the three most recent years (e.g.: Schedule C 1040, 1065, or 1120)
- The most recent real estate tax statement.
- Monthly or quarterly state sales tax and room/hotel tax (if applicable) reports.
- Occupancy by month and by room. Reports from your property management system (PMS) should make this easy.
Three good reasons to keep accurate records:
- Uncle Sam expects timely and accurate tax reporting.
- Lenders and buyers do not like incomplete or muddled records.
- You cannot control what you cannot measure. This is the key to your B&B’s business management.
Can You Relate To This?
Then perhaps you should:
- Eliminate excessive “casual labor” from your expenses.
- Separate personal expenses from business expenses.
- Report all revenues and expenses. Failing to report cash sales and paying staff under the table ultimately undermines the value of your business. (And it is illegal.)
- Learn how capitalizing and expensing major renovations, improvements, and equipment affects both your tax liability and your net operating income (NOI).
- Ask your accountant to explain allowable depreciation and depreciation recapture and their future tax consequences.
- Consider paying yourself a salary (even if modest). Lenders, buyers and (sometimes) Uncle Sam expect it.
Remember… stay cool… they’re only numbers!
These opinions are those of Eliot Dalton, who is not an accountant. Eliot’s intention is to offer guidance on good business practices. His opinions are based on his own observation and experience and should not be construed as legal or tax advice.
An article by Eliot Dalton, published in the April, 2017 AIHP newsletter