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Overview of How to Prepare a Financial Informational Packagefor a Small Inn

By

Drew Dimond

This publication was designed to provide accurate and authoritative information in regard to the subject matter covered. In publishing this overview, neither the author nor the publisher is engaged in rendering legal, accounting, architectural, design, engineering, or other professional services. If legal or other expert assistance is required, the services of a competent professional should be sought.

COPYRIGHT  1990,2003, 2005, 2007

by Drew W. Dimond

All rights reserved

Reproduction or translation of any part of this work beyond that permitted by Section 107 and 108 of the 1976 United States Copyright Act without the written permission of the copyright owner is unlawful. Requests for permission or further information should be addressed to the publisher.

How to Prepare a Financial Informational Package for Investors or Lenders for a Small Inn or B&B

Selling a lender (or investor) on a small inn or B&B project requires considerable preparation. This overview can be used as a guide for the presentation of your project. I have purposely made it somewhat generic to appeal to a full array of lenders and investors who might be interested in a project of this nature. Should you wish to seek specific lenders, you may be required to streamline and tailor your financing package to better fulfill the stated basic requirements of their specific institution.

This guide is intended only as an aid to help you present your project in a package that is attractive as well as informative and contains enough detail for the lender or investor to make a positive response.

The more completely the package is presented, the more likely it will receive an enthusiastic response. A package that is bound with a hard cover is preferred to a loose-leaf, three ring binder. Tabs and high quality paper will add to the attractiveness and effectiveness of your proposal. Color renderings, graphics and photos will enhance the overall clarity and presentation.

A table of contents would look something like this:

Section

  1. Executive Summary
  2. Project Description
  3. Architectural Schematics
  4. Project Cost Estimate
  5. Market Overview
  6. Financial Projections
  7. Profile of Owner/Operator

Include an exculpatory clause at the beginning of the package noting that the projections provided are estimates and that the information is made available on a confidential basis.

Following is a sample exculpatory statement:

The information in this presentation and any other materials with respect to the proposed Inn project are made available on a confidential basis solely for the purpose of participation in the proposed project. This presentation should not be used or reproduced for any other purpose. The information contained in this presentation has been obtained from sources believed to be reliable and includes projections of future operations. All of the projections are merely estimates (which may or may not be realized) of what future results may be. Since these projections are based on estimates and assumptions, which are inherently subject to uncertainty and variations depending upon evolving events, we do not represent them as results that will actually be achieved.

The author has made certain assumptions concerning the construction of your loan package presentation.

  1. That you performed or had a third party perform a Market and Economic Feasibility Study.
  2. That you completed a business plan and a marketing plan.

These assumptions were made because much of the information gathered in the process of completing the above will be used in your loan presentation package.

Section 1 ~ EXECUTIVE SUMMARY

This could be the most critical part of your package. A lender or investor will scan through this section to determine if they are interested in reading the entire package. Therefore it should highlight all six sections and briefly inform the reader what is actually contained in each of the succeeding sections.

Section 2 ~ PROJECT DESCRIPTION

The thrust of this section is to stimulate the lender/investor’s interest in the project by quickly presenting the basic description of the Inn. While subsequent sections of your package will inform the lender/investor of matters related to the market and estimated financial performance, this section’s goal is to the outline overall facilities, services and amenities.

This section contains a brief overview of the project, including the location of the site within the general market served, as portrayed on a map that also includes points of interest in the area. Include, number of rooms, services, and amenities. Additionally it’s a good idea to include an aerial photograph of the area.

This is the ideal opportunity to present a “well planned and thought out” facility. For example, it is important to emphasize that the guest room is designed in such a manner that best serves the types of markets targeted for this property. It is very important to assure the lender/investor that the logistics of operating the Inn will be smooth and efficient. They may want to review your business plan. Therefore, the number of rooms and the guest room configuration by type of furnishings must be consistent with the market study.

Section 3 ~ ARCHITECTURAL SCHEMATICS

This section serves to help one visualize how the facility is going to look upon completion. In addition to a color rendering, it is very important for the lender/investor to know how well the building and the associated parking spaces conform to the proposed site.

Drawings of the layout of the various guest room configurations, with the furnishings and amenities outlined, also serve to assist the lender/investor in visualizing the project.

Section 4 ~ PROJECT COST ESTIMATES

The purpose of this section is to outline the estimated capital expenditures necessary for the entire development process of your project. Every attempt should be made to identify all costs in a “turn-key” approach to those expenses and to provide a reasonable amount of detail.

Cost estimates should include:

  • Land
  • Site work
  • Construction estimates
  • Furnishings, fixtures and equipment
  • Pre-opening administrative and marketing costs
  • Legal and accounting fees
  • Consultant fees
  • Architectural, interior design & engineering fees
  • Licenses and permits

  • Initial operating capital
  • Contingency fund

Section 5 ~ MARKET OVERVIEW

The function of this section is to provide market justification, which serves as the basis for the occupancy and room rate projections. The key is to inform the lender/investor of the long-term viability of the market share and of the Inn’s ability to maintain a strong competitive position over its normal life cycle.

Section 6 ~ FINANCIAL PROJECTIONS

This is where you detail your best estimates of the project’s future operating results and resulting cash flows for up to five future years. Estimates of revenues and expenses should be reasonable and consistent with present and future market conditions. Include your assumptions along with your projections. Your goal is to convince the lender/investor to use your estimates in his/her underwriting of the project.

Nearly all lenders and investors have a required “standard package of information” which seldom corresponds exactly to that of other lenders and investors. The sample presentation package as described in this manual was devised to cover the information to meet those individual requirements.

Section 7 ~ PROFILE OF OWNER/OPERATOR

The business experience and background of the owner/operator are presented here to convince the lender/investor that they will be involved with someone capable of developing the project and satisfactorily operating the Inn upon its completion. The information presented should demonstrate and build upon the strengths of the developer/operator. A financial statement showing assets and liabilities along with banking references should also be included.

SUMMARY OF LOAN PACKAGE CONTENTS & SOURCES

Financing Package Section / Source of Information
1. Executive Summary / Summary of Sections 2 - 7
2. Project Description / Market & Economic Feasibility Study
3. Architectural Schematics / Architect and Market & Economic Feasibility Study
4. Project Cost Estimate / Market & Economic Feasibility Study
5. Market Overview / Market & Economic Feasibility Study and Marketing Plan
6. Financial Projections / Market & Economic Feasibility Study and Business Plan
7. Profile of Owner/Operator / Owner’s Resumes, Accountant, and Banker

Exhibit A.Market Study & Statement of Estimated Operating Results

Exhibit B.Business Plan

Exhibit C.Marketing Plan

HILLSBORO VILLAGE BED & BREAKFAST INN

Financial Informational Package

(Sample)

PROJECT FINANCE MANUAL

Section

I.PROJECT DESCRIPTION

  1. ARCHITECTURAL SCHEMATICS
  1. COST ESTIMATE
  1. MARKET OVERVIEW
  1. FINANCIAL PROJECTIONS
  1. PROFILE OF DEVELOPER/OPERATOR

EXHIBITS

  1. Market & Economic Feasibility Study
  2. Marketing Plan
  3. Business Plan

1