Hotel vs Village Shop

[molly's]

we have decided to sell our house and buy a freehold business.
we are considering a small hotel/restaurant/bar business priced at £199k with £185k turnover.
OR a village shop priced at £185k, turnover unknown at present, as its still early days.
both premises have a flat to rent out, as we will live nearby.
in general which is most likely to make the best net profit?
iv read village shops only make 20% gross profit on turnover, whereas hotel is closer to 40% gross profit on turnover. is that reasonable claim to make?

many thanks. i have worked in both restaurants and shops but not run one, so really im a beginner here! but i have run my own business before and will continue to do so.

 

[molly's]

my other option was to use the same amount of money to buy 2 or 3 rental houses for which i would receive between £1200-£1700 per month rent gross profit, pretax net profit of £1000-£1500 per month.
there is no mortgage.
any advice on the choosing the best direction?


many thanks

 

[AnneLou]

There is a saying that "turnover is vanity" and "profit is sanity"! I have found that to be quite true!
I don't know about a village shop but I have lots of small hotel business experience. It always helps to have a professionally prepared set of accounts for the business you're looking to buy and I always remember my accountant telling me to look at the Net Profit and think about that being my take home pay - could I live on it?

Hotel GP can differ from each income stream it may have - eg. my wet sales achieve a GP of about 45%, Food is currently only reaching 55% but accommodation can make all the difference - it is about 90% GP. I also have a pay & display car park which is is the only growth area this year!

The bigger picture is about more than just the product GP - a hotel may have high costs in relation to utility bills and remember that business rates are one of the biggest killer bills to high street businesses at the moment (although with such a low turnover business, I would expect that particular bill to be quite low on your hotel). A hotel may cost you more to staff and wage bills are on the increase. Is there potential to grow the business?

 

[Homer J Simpson]

Is say rental houses would be your best bet.

BUT, why with the other options would you rent the flats that come with the business out and live nearby (I'm guessing renting if your selling your house)?

 

[molly's]

staff wise for both businesses (the hotel has only 5 double rooms) it would be 1 full-time or 2 part-time plus my full-time hours. there is room for expansion/diversification in both businesses.

 

[molly's]

Is say rental houses would be your best bet.

BUT, why with the other options would you rent the flats that come with the business out and live nearby (I'm guessing renting if your selling your house)?

we hope to buy a small farm nearby and live there. that is my first love but doesnt provide enough money to live on so the main business has to pay.
At the moment we live on a farm and live off rent from rental houses but we are selling and completely relocating. my youngest child is starting school so i now want a proper business and proper money.

 

[AnneLou]

Why is the shop turnover unknown at present? If its currently operational, then you should be able to get some sort of week or month trade figures. And ask lots of questions about the running costs. Remember if you buy an exisiting business which already has staff (no matter how bad they are), then they will have to TUPE to you and you will have to take on responsibility and length of sevice etc!
Any seller wanting to sell their business should be prepared for lots of poking around in their business finances! I would poke until it hurt!
Getting to the Net Profit figure is probably the only way you can decide if you can live on the earnings.

 

[molly's]

i dont have trading figures for shop yet as im waiting for estate agent to get to me (being a weekend) the hours of the shop are 7am til 7pm.

 

[10032012]

You are crazy.. don't assume profits as a % of their turnover!!!

Do not complete any sale until you know the reason for sale and the last few years accounts.

Do you need to buy a business freehold outright with cash? You might be better getting a mortgage for the property.

 

[molly's]

another question - would it be best to offer the flat for rent to a full-time employee,with a reduced wage? or rent it out separately to a third party and pay staff the going rate?
finding staff wouldnt be a problem.

many thanks for your replies.

 

[kulture]

To my mind it helps to have passion in your business. Either one will require long hours, hard work, and dedication. If you have to ask which one on a forum, then I have to say neither.

 

[molly's]

You are crazy.. don't assume profits as a % of their turnover!!!

Do not complete any sale until you know the reason for sale and the last few years accounts.

Do you need to buy a business freehold outright with cash? You might be better getting a mortgage for the property.

its very early days yet. net profit details havent been given to me yet as yet i havent visited either business. im trying to research as much as possible before i go over (its a fair way away).

i havent considered a mortgage as i have paid cash only for last 10 yrs. the new business would be my sole wage (the farm only just breaks even, tho it is run as a business) so im not sure if i could get a big enough mortgage to buy the business anyway. realistically id be hoping to earn £30k pa max net, which wouldnt give me a mortgage for £185k. i have enough cash for the freehold business, solicitors bills and my estimate of £50k stock. thats all, then im relying on the business to pay me a wage.

 

[molly's]

To my mind it helps to have passion in your business. Either one will require long hours, hard work, and dedication. If you have to ask which one on a forum, then I have to say neither.

no not at all, iv always wanted both. but physically cannot do both.
id love to serve up my own farm produce and meat via a hotel/restaurant, or sell it in the shop - i already sell meat at the moment so am all legal.
iv also been on the edge of starting an arts and crafts business, selling on commission, as opposed to making myself, which has been on-hold until we have moved house. the area we are moving to has many local crafters. this produce could easily fit into the shop scenario. or would fit into the off-season hotel trade as it could be sold on-line also.
i am aware i cant do everything so i have to choose wisely.

 

[hotel-man]

Sorry - did you say the hotel has just FIVE rooms? - and you are looking to pay staff?

I must have missed something.

Anyway..

There are LOTS of cheap hotels around at the moment; the trick is finding a cheap one with reliable turnover figures and sensible staffing costs (or costs you can reduce and work yourself).

If you decide on a hotel, offer max 2/3rd of what they're asking - you can always increase your offer but near impossible to reduce it.

There are spreadsheets out there which show you whether you are better to get a mortgage or pay cash - its not a straight-forward decision.

 

[PDRD]

5 bed hotel with 2 full time and 2 part time staff? Is that not a B&B?

If I had the cash to buy a small holding and then £200k spare I would buy houses at auction to renovate and re-sell or to let. Then get a part time job to boost the coffers. If you are only looking to earn a wage of £30k then why not stick the £200k in the bank and get a job?

Is the farm to be bought with cash? If so, how is it only breaking even? Can you not make more money here?

 

[arcon5]

The figures for the hotel don't add up, assuming £50 per night for he rooms and assuming full capacity every night of the year yields £85k. I expect most would aim to acheive around 80% capacity, so £65k ish. So to have a turnover of £199k or annum doesn't seem right if the only other income stream is the bar and restaurant.

With 1 FT and 2 PT staff, your looking at about £30k py so a significant chunk of your takings.

As for the village shop, the price tag seems exceptionally high! We have some convince stores for sale around my end from 65k mark to 125k mark for high turnover stores.


I would think very hard and carefully before spending such significant sums of money on such business.

Could you as part of your offer work for them for say a month as part of sue diligence, at the very least.

 

[molly's]

i meant either one full-time staff or 2 part-time. plus myself.
the hotel has only 5 double rooms. it has a restaurant and bar and due to its location would be seasonal trade unless locals used it.

running a farm at a profit is very difficult unless it is subsidizes, which i dont know if it is yet. feed prices have almost tripled in last 5 yrs. at best it will be a low wage but will give me a good supply of homegrown meat to sell in shop/hotel which would be a USP.
one benefit of that having the hotel would be that i could run butchery/sausage making courses using the facilities there, as an extra income. so the hotel and farm can work hand in hand.
the hotel has 2 acres so im looking to create a campsite there also.

opinions welcome, thankyou

 

[Deleted member 138423]

To my mind it helps to have passion in your business. Either one will require long hours, hard work, and dedication. If you have to ask which one on a forum, then I have to say neither.

Look, hotel or shop means long hours, staff with associated issues, weekend working, 24/7 actually. Property developing is far less hassle imo! Good returns and safe investments in as far as not many people buy hotels and or shops but everyone buys houses at the right price!

Think smart!

 

[hotel-man]

Molly's

Forget the hotel !!

For a 5 bed "hotel" you should be doing it ALL yourself - even running the bar/restaurant (but getting a chef in for restaurant meals NOT breakfasts).

The hotel is seasonal and you state "if" the locals use the bar/restaurant - you would need to know this by looking at trading history AND THEN cut it down by 50% as (on the whole) the indie pub/restaurant trade is extremely slow and getting worse.

Its great having an idea about sausage making courses etc BUT is there a call for such a course - I would say extremely limited.


Not sure I understood it correctly; why would you want to buy a farm with all the hassle involved AND buy another business? Just because you have a source of meat and a shop/hotel to sell some does not just give you a successful business - in fact, it dilutes what you're doing.

Not sure what total funds you have available, but a new business purchase requires you to be available 24/7 for at least the first 12 months - buy somewhere you can live-in.

With a small child, I think you would be better with property rental.

 

[molly's]

thanks for everyones replies, it has helped enormously.
i think we will consider buying 2 properties to rent out instead of a buying new business, and develop the farm by adding a campsite.
it is the farm that is my passion but i could possibly do a little B&B from there.
many thanks cos its been v helpful to speak about this. feel alot more focussed now. thanks x

 

[hotel-man]

Just be aware that you can operate a 5 unit Certified Location type site without planning permission.

CLs generally are at the (very) cheap end of the camping market - typically £5/£8 per night for a caravan pitch. Though at that rate you dont need to supply showers etc but potable water would be needed.

Anything above 5 and you need PP.

Asuming there is a demand and you get PP, you could put your cash into making a decent campsite (full hookups, hardstanding, quality showers).

If you are in a good seasonal location (with limited competition) you could even try to get into static sales.

Straight away, your investment will go thru the roof (on paper) as proper campsites fetch huge sums of money.

Of course, its only worth a lot once you come to sell it.

 

[molly's]

i was thinking in terms on wooden "pod" type huts, which sleeps a family of 4. has a fridge and a table, thats it. very solid and long lasting. cost is approx £7-8k each plus delivery. they usually rent for £40 per pod per night. plus tents as thats simple. i know there are stables on the farm that cold be converted to holiday lets but i think pods are far simpler and probably cheaper, as id have to pay a builder to do the work.
you do need planning permissions for these tho, but there are some in a similar area that isnt direct competition to me. long lasting is what im looking for as its v windy.

 

[MrsPWN]

Site yiour pods in a nice field with a decent play area/adventure playground, have free range chickens wandering around, a nice shed with rabbits/guinea pigs in and you will have a winner.

Maybe post on netmums and ask what the ideal campsite would consist of...

 

[molly's]

my dream has been to open a farm park, iv been toitering on the edge of it here but didnt think my current location would attract holiday makers for the campsite.
we have visited a number of farm parks and they were, from a business point of view, very busy,very stressful, alot of staffing costs and very noisy kids alday long, with big indoor play areas which would need alot of financial investment and a degree in health n safety.
i dont want this, i want a quiet and peaceful campsite/farm park. does this exist and still run at a profit? maybe not, im well aware that u have to get people thru the gates to make money.

at one point we were considering erecting big tipi's here, we have a large woodland, and giving each family 10 acres each to play in. apparently tipi's were renting for £600 per week, for a family 6.
what stopped us was the cost of the toilet blocks divided between so few customers. the tipi's cost £2500 each but tipi's wouldnt work in our new location as far too windy.

 

[Chris Ashdown]

How do you run a hotel full time if you are not there at night time, i cannot think of any hotel i have stayed in where the guests are left alone all night or are you giving up one paying room for staff to sleep over

Small caravan site with good toilet block and electricity to each caravan would be a good earner along with camp shop, people now go camping all year round so if you lay hard standing you may even get Christmass guests

I would have thought that gettin PP for a say 10-20 touring caravan site would be a great investment and with good facilities charge more towards the £20 per night if done right

Pods have high support and maintanance costs, cleaned out for new guests etc caracans just take the money and clean out he washrooms twice a day

 

[molly's]

the hotel has a one-bed flat with it, which it too small for our family of 5.
i thought i could either rent it separately or use it for part-payment for my full-time member of staff, hopefully bringing the wages down to more manageable level for such a small business.

if a flat rented for say, £100 per week, could you knock £100 off someones wages if they lived-in? or does it not work like that?

the hotel lets each room for £90 per 2 people. based on 100% full capacity 24/7, that brings in only £164,250.
either the restaurant is v busy, or the turnover figures of £185k are wrong.

 

[vvaannmmaann]

"based on 100% full capacity 24/7"

I've spotted a flaw in your plan.

 

[molly's]

the estate agent said the turnover for the hotel was roughly one third each for drinks, food and rooms.
so £60k from rooms is about 35% capacity. leaving £125k turnover for food and drink turnover which seems to be the same figure in every hotel we'v enquired about.

 

[PDRD]

The only time a farm does not run at a profit is when it has a large mortgage or rent to pay. If you are buying it with cash then you are doing something wrong if you are not making money. The SFP will be netting you a good chunk of money.

Can you not convert a barn to a holiday let? Or open a farm shop on site?

 

[molly's]

unfortunately my farm gets absolutely no payments. the previous owner got paid alot (£50k) to plant trees so we cant claim for them. they are taking no new entrants on any scheme at moment. we have been here 8 yrs and sfp had expired by then and no-one had claimed for it beforehand so we cant get it.
we breed pigs which sell at a loss as feed has tripled over last 2 yrs. we breed ponies and their price has reduced by 2/3rds in last 2 yrs cos of credit crunch. before that the ponies paid the bills. our cattle and sheep are ok but we only break even at end of the day.
i run it single-handed but have to pay a contractor for any assistance i require.
i was wanting to open a farm/craft shop on the old farm (got as far as council inspections) but didnt think it was the right location for the campsite iv always wanted, so decided to relocate.
we are relocating farmwise to an area where we can offer holiday accomodation, as our current location isnt suitable. we are also downsizing in the size of the house drastically so i can use that money to invest into the farm business. our main priority is to run at a profit so have drastically reduced everything that isnt paying. we specialise in particular breeds that sell at a premium. but have to diversify. hence WHY i was wanting to buy a profitable business such as a shop or hotel (both of which are for sale with 4 miles of new farm). though 2 businesses may be too much to chew.

all advice very helpful, thankyou.

 

[bigeasy]

I don't know about farm businesses, village shops, or hotels, but I do love camping. Getting away from it all for a long weekend with no technology or worries is a great stress relief for me.

One thing I look for when searching for a camp site is being able to have a proper fire! You'd be surprised how many sites don't allow it. All you need to do is allow free use of a fire tray, that way the ground doesn't get scorched.

You can also sell wood and coal on site and I'm sure there'll be more than a few takers for your meats and eggs, etc.

 

[molly's]

i have also found out that the new farm has no subsidies either.
the village shop net profit in 2011 was £13k from £169k turnover, in 2012 its was £25k from £190k turnover. the business costs £185k freehold. how does that sound.
the hotel wont release anymore figures til i have viewed it.


advice please - if a shop sells £175k of stock per yr, holds £25k of stock at anyone time, how much cash do i need in the bank to afford to run it, or is it all on credit?
thankyou,

 

[Root 66 Woodshop]

I must admit before I make my reply, I have only read up to where Molly states that the hotel only has 5 bedrooms.

Wowzers!! And you're being asked to pay how much?

The reason I'm saying that is because a good friend of mine has recently taken on a Hotel in Tomintoul, Scotland, a 26 bedroom Hotel for £195,000

The place is stunning, the locals are erm... locals and the scenic views are to die for *gone all lady like there sorry! *

 

[sarahjohs]

Go for rental houses. But if you want to decide between the village shop and the restaurant business, it is important you consider the following points.

1. How much competition you have in the area. Whether you'd have to spend on marketing.
2. Business expenses. A restaurant is comparatively bigger on everyday expenses.
3. Your target market- Whether they are people who have enough spending money. A village shop is likely to have people with little spending money. You also have to consider the people who will be buying on credit.
4. Stocking facilities- a shop would need adequate space and facilities for inventory.
5. Long-term maintenance expenses- A restaurant without a doubt will have more expenses in terms of maintenance since the look of the place is extremely important.

The restaurant business is any day more challenging to run than a village shop. But yes a restaurant has potential to make you more money. Weigh the odds. Also consider your lifestyle. Ask yourself if you'd be able to withstand the pressure of running a restaurant. All this considered, you should have an answer.

Good luck!

 

[molly's]

I must admit before I make my reply, I have

The reason I'm saying that is because a good friend of mine has recently taken on a Hotel in Tomintoul, Scotland, a 26 bedroom Hotel for £195,000

we are also looking in scotland. would u know the turnover / profit for that hotel? most iv looked at - these would be pub/inn/restaurant with 3-5 letting rooms, plus 3 bed owners, have been £250-£350k freehold but all seem to have £120k turnover.

thanks

 

[PDRD]

You can buy farm subsidies (SFP) from the outgoing tenant, or on the open market and then apply them to the land you own.

 

[Root 66 Woodshop]

Personally, I can't answer that question has I've only been there the once... and she hasn't technically opened yet either

Her and her husband took the gamble, and I really do hope it pays well for her - she has a lot of potential where she is, her Hotel offers an extremely high income if she targets the right market area... for instance, she has 2 rooms which offer disabled access on the ground floor with an adjoining disabled bathroom, out of the other 24 rooms she is only able to let out 20 rooms because there is no carpeting on the floors in the corridors, these rooms until she's made some money back she is offering to friends and family a free getaway (Believe me, we took her up on that offer back in August ) Then there is the Bar and ability to provide a take away.

Then theres the Whisky Trail and the Ski Slopes in winter

Tomintoul only has 380 residents (or so) yet is quite a busy little village, there is only one other "Hotel" in the area which is actually owned by the same person that she has taken this property off - and it's closed Then there is the pub with rooms to let further down the street and one Restaurant.

There is a hell of a lot of scope for her if she tackles the Take Away side, the pub at the moment is running a take away from there £10 for 2 meals - it's only microwave/oven food and he's making a killing with it, she's planning on offering the same deal but with home cooked food, then in her kitchen she has a huge Pizza oven so another possibility for her there. - Tomintoul Pizza's can't be bad!

 

[molly's]

its sounds so wonderful. location is great too. all the best.
i hadnt seen that website before so gona have to have a goodlook, thanks!

 

[Chris Ashdown]

A few questions that may help you

Why would anyone come to your village and want to stay there or buy from a shop

What % of residents in a village use the local shop / pub / restaurant

I would have thought you need at least 500 houses to keep a shop makling a living wage

With pubs closing every day as they cannot compete with stay at home drinkers, why would they drink at your bar

How many locals go out for a meal and where do they go

Basically what I am saying do your local research and find out the why, when what etc of the business, most but not all sell a business because they cannot make it pay or the are retiring, they have tried most idea's to improve things over the years so what can you do to change it around