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How to start a Bed and Breakfast, Guest House or Boutique Hotel

bed and breakfast

 

How to start a bed and breakfast, Guest House of Boutique

 

 

Starting your own bed and breakfast, guest house or boutique hotel is a very exciting dream, however, there are a couple of things you have to consider to run it successfully. You may be looking to buy an existing property, converting your residential property or converting your Airbnb to a fully-fledged B&B, guest house or boutique hotel. Here are the 12 most important tips you need to consider:

 

  • Business Model
  • Location 
  • Choosing the most appropriate business structure
  • Land zoning
  • Licensing and registration
  • Legal aspects regarding signage
  • Payment of VAT
  • Labour law
  • Insurance
  • Health and safety regulations
  • Cash flow and finances
  • Adapting to the lifestyle
  • Grading

 

Business Model

It is important to consider the pros and cons of buy an existing bed and breakfast, guest house or boutique hotel, converting a residential property into a bed and breakfast, or building your bed and breakfast from scratch, or even converting your Airbnb into a fully-fledged B&B, Guest House or Boutique Hotel.

 

Buying an existing bed and breakfast

When buying an existing establishment, please make sure to double-check the zoning permissions to make sure that the B&B, Guest House or Boutique Hotel is legal. Also, get a clear idea of the rate of occupation and expense to turnover ratio from existing owners.

 

Guest Houses and Boutique Hotels are usually more expensive to buy than ordinary residential property, especially if they are well-known. Do not just rely on what the previous owners tell you. Do your homework, check neighboring properties and see how their occupancy rate. Also, book the bed and breakfast undercover or hire a ‘mystery guest’ to check how things are going.

 

You need to weigh the purchase price against your potential future earnings as well as the possibility of capital appreciation of the property itself, however, do not ignore the existing market value of the property is used as a rental for a family. My advice is that a profitable B&B must achieve at least 60% occupancy. If it does not achieve 60%, you may want to find out why and see if it is something you can turn around.

 

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Converting a residential property into a B&B

It may seem more affordable to convert a residential property into a B&B, but this option is not always cost-effective as it might seem. Here is what you need to consider when taking this option:

 

Renovations are not only expensive but time-consuming and stressful. It may take months to get the property up to scratch, not only for comfort but to conform to all the regulations laid out by the government.

 

It is especially important to think about things that might impact your neighbors, like parking, or they’ll be lodging complaints that could be a pin in your guest house plans indefinitely.

 

It is also vital to ensure that you get the correct zoning permission when setting up a Guest House from scratch. Be sure to familiarise yourself with the requirements listed in the local Zoning scheme. The rules can differ from one suburb to suburb, let alone municipality to municipality, so make sure to check the specifics for your area, and don’t take anything for granted.

 

Location is key

 

For a lot of people, the idea of opening a B&B, Guest House or Boutique Hotel in a picturesque part of the world sounds like a dream come true. What a great way to meet new people while getting paid to keep a beautiful home in a beautiful area!

 

The realities of running a bed and breakfast can be a little more complicated than people imagine. The three main ways to get into the B&B, Villa, Boutique Hotel, or Guest House business are to buy an existing one, to buy an existing house and convert it into a guest house, or to start from scratch. Either way, location is extremely important! If you are not in an area that appeals to holidaymakers or business people, you are going to struggle to attract regular guests.

 

Think of little towns like Clarens in the Free State, Dullstroom in Mpumalanga, St Lucia in KZN, Hoedspruit in Limpopo, Parys in Free State, Hartbeespoort Dam area in Gauteng, or think of tourist routes or areas close to tourist areas like Nelspruit, Richards Bay, St Lucia, Knysna, George, Garden Route, or even think of the big cities like Cape Town, Port Elizabeth, Durban, Bloemfontein, and Johannesburg, etc. If your B&B is in any of those areas, you are almost guaranteed that you have a market.

 

You may also need to check on what is planned in the future. E.g. You may find that there is a huge project that will boost tourism and business in a certain area, like an airport. It would be opportune for you to set up your guest house in that area.

 

A perfect example is Lusikisiki in the Eastern Cape. When they were constructing the N2 (a project of nothing less than 10 years), it made sense that some business-minded people converted or even built bed and breakfasts in the area to accommodate contractors. That’s a guaranteed 5-10 years of mid-week business!

 

Choosing the most appropriate business structure

A business is a legally recognized organization used to conduct business/commercial activities. It may be a sole proprietorship, a partnership, a private company, or a business trust, for example. Whatever the structure you decide upon, you need to be aware that the government will require you to register for income tax, value-added tax (VAT), Unemployment Insurance Fund (UIF), Compensation for Occupational Injuries and Diseases (COID), and pay-as-you-earn (PAYE).

 

The structure that you choose must reflect the need it intends to satisfy. By answering the following questions you can narrow down your options and find the business structure most suitable to your needs:

 

  • Are you planning to be the sole owner of the B&B?
  • Do you want to retain all profits for yourself?
  • Will you finance your own guest house without taking out a loan?
  • Do you have enough capital to pay for all the legal fees involved, e.g. liquor license fees?
  • Are there assets that need to be kept apart from the guest house, e.g. another property?
  • Would you like to offset the tax losses of the guest house against your income from another source, e.g. full-time employment?
  • If you are married or intend to get married, which matrimonial system is applicable?

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Once you have considered these questions carefully, it will be easier to select the most appropriate business structure for your bed and breakfast. The table on the opposite page sets out the basic features of each business structure and highlights the advantages and disadvantages associated with each.

 

Useful Tip: When choosing a business structure that requires official registration procedures, consult a qualified lawyer or bookkeeper/accountant for assistance.

 

Matrimonial system

The system according to which a person is married or intends to get married has a huge effect on the choice of business structure. The following must be kept in mind:

 

When married in community of property, both spouses are equally entitled to the profits of a bed and breakfast because they share the same estate; they also share any losses of the guest house for the same reason.

 

If you decide to start a bed and breakfast or intend to get married in community of property, it is recommended that you establish a business that has limited liability to protect the combined assets of the spouses in the marriage against the possibility of sequestration.

 

When married out of community of property, spouses do not share profit or losses as they have separate estates.

 

Land-use zoning

Starting a B&B, Guest House or Boutique Hotel might seem simple, but local town planning regulations might prohibit you from realizing your dream. After deciding on the most appropriate business structure for your bed and breakfast, you need to approach your local municipality to find out if there are any by-laws or regulations that will prohibit you from converting your residence into a bed and breakfast. If you intend to buy property to open a bed and breakfast, familiarise yourself with the zoning regulations and land permits needed in your municipal area.

 

As the application procedures for registration of a bed and breakfast differ from one municipality to another, it is wise to contact your local municipality to ensure that you are following the correct procedure. The title deed of the property in question should also be inspected to see if there are any restrictive conditions about the property. These restrictions may include a proviso that land may be used for residential purposes only.

 

Licensing and registration

Television license (TV)

A bed and breakfast owner must take out a television (TV) license for each TV point in the establishment. Proof of payment of TV licenses must be kept on the premises at all times.

 

If the bed and breakfast wants to install DSTV, the service providers must be contacted directly for installation. DSTV service providers have specialized packages available for bed and breakfasts and bed-and-breakfast establishments.

 

Certificate of Compliance for food preparation

If you bed and breakfast, guest house or boutique hotel intend to serve any form of meal, a compliance certificate is needed.

This is of the utmost importance as a guest who contracts food poisoning from your establishment can claim compensation from you. This certificate is available from the local Department of Health in your municipal area.

 

As a business serving food and drink to the public, you will need to comply with laws that ensure that your food is safe and your premises are clean. Department of Health regulation number 2002:15 states that you must implement a Hazard Analysis and Critical Control Point (HACCP) system to ensure that all food is handled and served without risk to customers’ health.

 

You will then need a certificate (valid for one year) from a certifying body before you can start trading. You can search for these regulations on the Department of Health’s website (www.doh.gov.za) or get in touch with your local municipality (NYDA, 2008:6).

 

Liquor license

 

Applying for a liquor license can be a long and daunting process, but worthwhile if you intend to serve any kind of liquor on the premises. If the bed and breakfast owner is uncertain about this procedure, an attorney should be consulted to assist. It is important to note that liquor license application forms differ from one municipality to another. It is therefore important to contact the local municipality to find out about the relevant forms.

 

Currently, there are 15 different types of liquor licenses available in South Africa. It is crucial to apply for the one that suits your needs. Applications take between three and eight months to process and can cost anything from R3 000 to R20 000.

 

The following people are excluded or prohibited from applying for a liquor license: a minor, an un-rehabilitated insolvent, a person in a mental care institution, and a person convicted for an offense in terms of the Liquor Act in the three years before the current application.

 

Radio/Music broadcasting license

If the owner/manager of a bed and breakfast intends to play background music or make use of radio broadcasts he or she will need to apply for a license from the South African Music Rights Organisation (SAMRO). This is an inexpensive license that will keep your bed and breakfast on the legal side of broadcasting music.

 

 

Legal aspects regarding signage

 

If your bed and breakfast are correctly zoned, it is usually unnecessary to get approval from the local municipality if you want to erect signs on the property. If you intend to erect signs to advertise your bed and breakfast near the side of the road or to direct clients to your establishment, the following bodies must be contacted for approval:

 

On national roads: the National Department of Transport, see www.transport.gov.za for the current procedure

On secondary roads: the Provincial Department of Transport, see www.transport.gov.za for the current procedure

On local roads within the municipal area: the local municipal engineer.

 

Disclaimer board

It is advisable to have a comprehensive disclaimer board on the property in a clear view of all clientele. This disclaimer board informs the client that there are certain instances when the bed and breakfast will not take responsibility for the occurrence of specified events. These boards must also contain the words “enter at own risk”.

 

The disclaimer board assists in protecting the bed and breakfast in the event of bona fide injury, damage, or theft. This includes:

  • non-liability in the event of an accident or incident that causes the guest bodily injury or harm;
  • the damage or theft of the guest’s property in the event of it being left unattended;
  • non-liability for damage or theft of the guest’s motor vehicle or another mode of transport;
  • non-liability for bodily injury or harm caused by food or drink consumption that leads to an allergic reaction due to lack of knowledge thereof on the part of the bed and breakfast.

 

 

The payment of value-added tax (VAT)

In general, if you are not registered for the payment of value-added tax (VAT), the bed and breakfast cannot add VAT to its prices. If the bed and breakfast turnover is more than R1 million per annum, the law makes it compulsory for the bed and breakfast to register for VAT.

 

The bed and breakfast must charge its clientele VAT on products and services and must pay the VAT over to the South African Revenue Service (SARS) regularly. It is advisable to contact SARS and to register as a VAT vendor.

 

If you have successfully registered as a vendor, SARS will issue the bed and breakfast a VAT number. This number must appear on all official bed and breakfast documentation. The current VAT rate is 15% and is charged in full on all products and services sold at the bed and breakfast.

 

Make sure that prices quoted to guests are always tax inclusive and that it is clearly stated on all the quotes. All quotes must mention that VAT is included. The bed and breakfast owner must keep proper records of the VAT charged, to comply with the law. Invoices, credit notes, bank statements, deposit slips, and paid cheques must be maintained and stored for 5 years in a place of safekeeping.

 

Tax evasion is a serious crime: if a person is found guilty of this, a large fine or imprisonment may be sanctioned. Contact SARS or access the SARS website www.sars.gov.za for more information in this regard.

 

Labour law

Employment regulations

As a bed and breakfast owner, you are likely to employ staff to assist you in the daily operation of the bed and breakfast. As such, you must register as an employer with the Department of Labour. You will then be compelled to make contributions on behalf of your employees to the Unemployment Insurance Fund (UIF) and Workmen’s Compensation Fund.

 

The Basic Conditions of Employment Act, Act 75 of 1997 (BCEA) applies to all employers and employees in South Africa. This Act regulates working hours, overtime, leave, deductions, sick leave, maternity leave, etc. This Act stipulates that all employees must have written contracts with their employers. The dismissal of an employee is also regulated according to this Act. Dismissal must be fair and the correct procedures must be followed to dismiss an employee.

 

The Act makes it compulsory for you to display a summary of the Act at your main place of business if you have more than five employees. Contact your local Department of Labour office or visit the department’s website at www.labour.gov.za

 

Insurance

Being in control of your assets implies that you as the bed and breakfast owner have made provision for unforeseen events that can hurt the future existence of the bed and breakfast, e.g. fire, theft, earthquakes, natural disasters, etc. It is therefore essential to have comprehensive insurance that covers you in the event of a risk materializing.

 

Most bed and breakfast owners are under the impression that homeowner insurance is sufficient to protect them against disaster, but make sure that all your goods are covered and request a confirmation letter to this effect from the insurance carrier and not the insurance agent.

 

  • Homeowner insurance is not the only insurance available to the bed and breakfast industry.
  • Here is a comprehensive list of currently available insurance to cover your enterprise:
  • Personal accident and life insurance.
  • Fire and general property insurance.
  • Home owner’s policy.
  • Burglary insurance.
  • Office content insurance.
  • Public liability insurance.
  • Product insurance.
  • Insurance against natural disasters.

 

  • Insurance companies tailor-make insurance policies to suit the needs of clients in specific industries. The bed and breakfast industry, as a division of the tourism and hospitality industry, has received a lot of attention in this regard over the last couple of years, so insurance agents have new and exciting proposals in hand to make sure you receive the correct cover.

 

  • Make sure you have adequate comprehensive insurance.

 

  • Review your insurance once a year and if need be, compare quotes so that you are content with the final product on offer. Take all the necessary precautionary steps beforehand to minimize the premium, for example, install an alarm and CCTV cameras, burglar-proof windows and doors and have a security gate installed.

 

Health and Safety Regulations

The Occupational Health and Safety Act, Act 85 of 1993 (OHSA), provides for the safety of all employees in the workplace in South Africa. According to section 8 of OHSA, bed and breakfasts are required to maintain a list of all the different safety risks that may be experienced in the specific industry. These include physical risks, psychological risks, chemical hazards, and behavioral risks.

 

The bed and breakfast owner/manager must conduct regular inspections to ensure that the staff and clientele adhere to the safety measures. If any incident occurs that is covered by OHSA, the employer has seven days to report it to the local Commissioner at the Department of Labour. 

 

Cash Flow and Finances

The hospitality industry is notoriously seasonal, and unless you are lucky enough to attract regular business clientele, you may well need to weather periods of few or no guests at all, therefore no income. Because of this, it is advisable to plan your finances very carefully and ensure sufficient savings to carry you through the occasional dry spell.

 

Try not to overstretch yourself especially in the beginning. High monthly repayments on a large bond can become unmanageable during a particularly bad patch, and you do not want to find yourself losing the property because of a few months of low occupation.

 

Rates and taxes are also more expensive for bed and breakfasts than the ordinary residential-zoned properties, however, this should not have a dramatic impact on your profit margins. Dry spells aside, a successful bed and breakfast can be very profitable, with relatively low overheads if managed well.

 

In terms of gross income, a bed and breakfast with 4 sellable double rooms, charging R700 per person per night sharing can generate over R100 000 per month at an occupancy rate of 60%. If run well with excellent sales and marketing strategies, a bed and breakfast should achieve an occupancy rate of over 85% per month during the high season. This case, the one with 4 double rooms and charging R700 pppns, should give you a monthly gross income of over R142 000.

 

 

Adapting to the lifestyle

Life as a bed and breakfast owner/ manager can be extremely rewarding, but it is also hard work. You will face long days — up early and working until late- and all manner of complications arising from day-to-day maintenance and operations as well as fussy guests. If you are not a people person, then hospitality isn’t for you.

 

A huge amount of being successful as a bed and breakfast owner/ manager involves being able to please and satisfy guests, even the most difficult ones. The upside of the Bed and breakfast lifestyle is that you will likely still have plenty of time to yourself, usually during the day when guests are out to enjoy the attraction in your area.

 

Remember, you will have to make sure that there is always someone available at the bed and breakfast, so your leisure time might still be spent around the property.

 

Another big thing to remember is that you will also be competing with Airbnb, which is very competitive and well-positioned due to their offerings at reasonable prices. Nowadays, hospitality establishments rely upon online marketing to be successful, so it is not just good enough to have an average website; you will need to market to as many platforms as possible, like Facebook, Instagram, Twitter, and online travel agents like BOOKING.COM, Expedia, etc. These days are all about consumer-centric marketing.

 

While the Bed and breakfast life may not be as easy, romantic, or peaceful as people imagine, it can nonetheless be a profitable and satisfying alternative to the 9–5 desk job. “If you have the energy, dedication, and passion for people the hospitality industry requires, and the ability to plan and budget for the ebbs and flows of the tourism industry, a Bed and breakfast may well be the ideal job for you”, Bill Rawson.

 

Did you find these tips helpful? Please let me know in the comment below or email me at training@hospitalitycourses.co.za or call Samkeliso Nkwanyane on +27 82 765 9238.

 

Are you planning to open your very own B&B, Guest House or Boutique Hotel? We have an amazing Bed & Breakfast Distance Learning Course. You study in the comfort of your own space. Training material is emailed to you and you submit assignments via email. In this course, we cover all aspects of running a successful B&B and all small accommodation businesses. Check out this course here and enroll now. The course takes 3 - 6 months fo complete. 

 

How much is the bed and breakfast management course?

The course is R7500. You are allowed to pay it in 3 monthly installments. 

 

Get your B&B Graded by TGCSA

The Tourism Grading Council of South Africa (TGCSA) is the only official body that grades and gives stars to hospitality establishments. Getting your B&B graded has many advantages. It will give you a competitive edge over your un-graded competitors. Customers trust graded B&Bs more because they know what to expect. kagiso@3tfusion.co.za

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Are you planning to open your own B&B? Talk to us on the comment below or email training@hospitalitycourses.co.za