B&B Profit or Loss?
Understanding your B&B Profit & Loss account
When it comes to starting a B&B there are some choices. Do you create from new, buy existing, or buy a new property and create?
If you buy existing chances are that some figures will be made available to any prospective purchaser. These can range in format from basic Profit and Loss Accounts to more complex ‘whole business’ accounts, which will include profit and loss figures.
The Profit and Loss or P&L, as its known, lays out in a simple format what the business’s sales were for the last accounting period and what expenses were incurred operating the business during the same time.
A professional advisor will normally create any P&L accounts shown to a prospective purchaser and he is allowed to alter them from what has been declared for accountancy/taxation purposes for items, which are ‘peculiar’ to that business’s operation
Why?
Because it is considered prudent by most financial advisors to remove expenses which are ‘peculiar’ the way their client operates that business
A couple or examples might be:
- The current vendors current mortgage repayments.
Lets assume that the current owner has a mortgage and lets also assume that you will require a property loan when you make your purchase. It is unlikely that you will require exactly the same loan as the current owner. The borrowing requirement is therefore ‘peculiar’ to the individual operators needs and as such can and will be removed from any P&L declaration for sale purposes.
- Private Medical Insurance
The current owner may chose to pay for private medical insurance the premiums for which may be taken directly from the business accounts. How the current owner accounts for this ‘drawing’ is between him and his tax inspector (and I suspect his financial advisor) but because this expense is one which you will not be required to incur as part of your business operation it will not be included in the P&L.
- Motoring Expenses
Perhaps the most obvious example. Current taxation legislation on ‘company cars’ means that a business owner has a choice on how his business is charged for the mileage incurred by the vehicle used in operating that business. Most P&L’s will list some expense in operating a motor vehicle but it may not be the whole cost of running the vehicle, as it used to be.
So hopefully you can see how the phrase ‘peculiar to this business’ can be used to eliminate some of the items listed under the vendors P&L Account. It is not breaking the law to do this and done properly can evidence a truer picture of the business’s past performance.
A typical example of a standard P&L for a small accommodation business prepared for a sale would look something like this