Business development · 19 August 2015

B&Bs and nurseries among the most expensive small businesses to purchase

Many prospective business owners love the idea of running a picturesque B&B like Lochside Bed & Breakfast
Many prospective business owners love the idea of running a picturesque B&B like Lochside Bed & Breakfast

Many city dwellers often contemplate the possibility of escaping their current jobs to run a B&B in the future – offering both independence and the lure of a more enjoyable lifestyle. As with any new business, it’s important to contemplate how costly such a venture will be, as research suggests B&Bs are one of the most expensive types of small business to purchase.

A new study by insurer Direct Line looked into which small firms are more expensive – comparing the amount paid upfront to turnover. For every £1 of turnover generated, B&Bs had a purchase of £4.49, which was considerably higher than the figure for the average UK small firm – at £1.74.

The second and third most expensive were care homes and nurseries, with sale valuations of £2.56 and £1.91 per £1 of turnover respectively. If you’re looking for the cheapest, internet-based businesses had a relative value of 51p, reflecting the extra cost coming from the purchase of property.

If you’re buying an internet firm, it involves the transfer of intellectual property – which at the small business stage doesn’t hold as much value as physical assets.

The research noted that the average price of buying a B&B is £572,000, with the average turnover £127,000. Business owners take on numerous assets in the upfront purchase – the property itself, along with its contents, then the online accompaniments such as a website and domain registrations.

Nick Breton, head of Direct Line for Business said: “Small businesses are the lifeblood of the UK’s economy and it’s great to see that in many sectors there are deals to be had. People looking to become their own boss or invest in a business can purchase an existing enterprise with a proven revenue stream and customer base.”

He added that while turnover is a “positive marker”, it’s not the whole story. “Current and future profitability need to be thought about when assessing the potential value of a business as well as the assets that come with the business,” Breton explained.

The chief executive of the Bed and Breakfast Association, David Weston, said comparing these businesses as like for like was misleading though as most B&Bs are also residential properties. To compare the purchase cost with an internet business which has a similar turnover doesn’t follow “as you are buying a property asset”.

Weston explained that “most people start a B&B in their own home at little or no capital cost”. He also projected that homeowners with two guest rooms could generate an income of £30,000 at a very high margin – charging £70 per night with an occupancy rate of 60 per cent.

Many Britons are holidaying in the UK this year and opting for short breaks
Many Britons are holidaying in the UK this year and opting for short breaks

With numerous Britons intending to holiday within the UK, B&B owners could be looking at a busy summer. The 2015 Travelodge Holiday Index suggested many were forgoing two-week summer holidays in favour of shorter UK mini-breaks.

The numbers of those taking a two-week holiday has dropped by 46 per cent over the last five years, with 70 per cent planning a “staycation” in the UK. The outlook is even more positive for UK B&Bs when coupled with the study’s findings that Britons intend to spend significantly more this year compared to the last five years on their UK holidays.

British holidaymakers will be spending an average of £501.28 on their UK break, at an increase of £70.95 compared to 2014, and up £102 from 2013. It’s not just for the summer either – the Travelodge research found 46 per cent of Britons were intending to book four short breaks spread out across the year, so they have something to look forward to.

Image: Shutterstock

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ABOUT THE EXPERT

Rebecca is a reporter for Business Advice. Prior to this, she worked with a range of tech, advertising, media and digital clients at Propeller PR and did freelance work for The Telegraph.

Business development