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A plan defines why you are in business, what your market is, what your strengths and weaknesses are, and your financial management environment. The plan will help you make insightful business decisions and inform potential lenders about your business. To develop a business plan, you will need to review other successful plans which can be found in libraries or can be obtained from the small business development center in your region

The following areas need special attention and you should understand these thoroughly prior to starting your plan: occupancy and revenue forecasting, start-up costs and operating expenses.

Occupancy and Revenue Forecasting

Accurately forecasting sales revenue is an extremely difficult task. Even after you have begun your operation you should continuously review your forecast. Your perception of future revenue is the guide to expense and operation planning. Actual sales revenues are calculated by multiplying the number of rooms rented during a given period by the room rate. You must forecast your sales revenue by predicting the number of rooms you will rent during a future period and multiplying that number by the room rate. Predicting the number of rooms you will rent is often difficult and the indicator is the data available on past occupancy in your area.

Occupancy is the measure of the percentage of available rooms that are rented. The Virginia Division of Tourism, the Bed and Breakfast Association of Virginia, the Virginia Hotel/Motel Association, and reservation service organizations can supply occupancy information. Occupancy varies with seasons, holidays, days of the week and the weather. The occupancy rate during your first year will depend on your market, the uniqueness of your B&B, and the amount of promotional activity you undertake. Usually the occupancy rates for new B&B operations are roughly 40 percent of the average occupancy rate of hotels and motels in your area. For example, if the hotels in your area have an occupancy rate of 60 percent in June, you might have an occupancy rate of 24 percent that month. However, some rural B&Bs average as low as 10 percent occupancy during the first year. Of course, there are many variables which can affect this percentage. However, you should adopt a conservative estimate when planning for your first year.

After estimating your rate for the first year, you should estimate for the second and third years of operation. The occupancy rate for these years will be affected by word-of-mouth recommendations and effective marketing. A new B&B should increase its occupancy by over 10 percent per year. Projected occupancy alone will not allow you to forecast your sales revenue.

To forecast sales revenue you must also determine your room rates. Revenues are generally determined by multiplying room rates by occupancy. Your rates should consider start-up and operational costs. Remember, the rate you charge should represent "fair value for the dollar." Additionally, the rates you set should reflect the amount of expenses you will incur while running your operation.

There are many factors which influence the value of a room. For example, rooms with private baths, luxurious amenities, excellent location, or in a heavy demand area should have a higher rate. Lower rates could be charged for rooms that lack private baths or have single beds. The location and quality of accommodations and services you provide will strongly influence the rates visitors will be willing to pay.