[00:00:00 - 00:00:23]

Will Smith: Today's story is a fun and unusual one. Christine Traylor had built a successful career in international development, but wanted a change. Impeccable timing. This was actually before Doge took aim at her entire industry. Christine had always had a flair for hospitality, so she set her sights on buying a bed and breakfast.

[00:00:24 - 00:00:51]

Will Smith: The very first one on her list was Swann House in the tony Dupont Circle neighborhood of Washington D.C. family had stayed there a few times when Christine called around. It turned out the owners were looking to sell. Today, Christine and her husband own the gorgeous $6 million plus property and the bed and breakfast business that operates out of it. Our conversation has three main themes.

[00:00:52 - 00:01:21]

Will Smith: First, the numbers and operations of a high end bnb. Second, the lifestyle of a BNB owner, operator or innkeeper. In industry jargon, as you already know, buying a small business is a lifestyle choice if ever there was one. But doubly so here. Christine, her husband and two kids moved into the innkeeper apartment, a 500 square foot two bedroom in the basement of the property.

[00:01:21 - 00:01:53]

Will Smith: Christine works 11 hour days, seven days a week and pays herself only 60,000 doll a year. That doesn't go very far in the heart of dc. On the other hand, she's in the early days of an entrepreneurial venture, so of course she's working hard and it's work that suits her. This story is one of business buyer fit and her family uses the whole house. The small Innkeeper apartment is mostly just where they sleep as opposed to their primary living quarters.

[00:01:53 - 00:02:46]

Will Smith: She can legitimately run a ton of the family's expenses through the business, so her effective salary is much higher than $60,000. If nothing else, the family has no rent or mortgage, which in that neighborhood would otherwise cost them easily six grand a month. And finally, she's building equity, not just in a small business, but in real estate worth millions of dollars. Which brings me to the final theme, the property. Even if Christine doesn't grow the BNB business, which currently generates only about $100,000 in EBITDA after paying down her SBA loan at the end of 10 years, she will own outright an exquisite one of a kind building in a blue chip neighborhood worth well over $6 million.

[00:02:47 - 00:03:14]

Will Smith: So we spend time on how to think about this venture. Is this a real estate acquisition with a business attached or vice versa? Either way, it is a path to building real wealth over 10 years, all while controlling her own destiny, which, lest the money blind us to the fact, is really the main thing. Please enjoy this conversation with Christine Traylor, owner of Swann House.

[00:03:16 - 00:04:24]

Will Smith: There's a reason that entrepreneurship through acquisition is sometimes referred to as simply search because the search itself is one of the most difficult parts of buying a business. Now, one path that isn't talked about very much, including on Acquiring minds, is outsourcing your search or buy side advising, as it's sometimes called. Well, today, Thursday, June 5, Athena Simpson of AquaMatch will lead a webinar to help you evaluate this alternative path to finding and acquiring the right business. Athena will cover what buy side advising means, what different models and fee structures look like, the hidden cost of a slow search and full time searching versus keeping your W2, and how the right outsourced support for your search completely changes the calculation. Here, you'll leave this webinar with Athena with a clearer understanding of your options and how to speed up your path to ownership without quitting your job or going it alone.

[00:04:24 - 00:04:43]

Will Smith: That is today, Thursday, June 5th, noon Eastern. The webinar is how to outsource your search understanding Buy side Advisory. Register at the link in today's show notes or on the Acquiring Minds homepage or acquiringminds Co. See you there.

[00:04:54 - 00:05:29]

Will Smith: Welcome to Acquiring Minds, a podcast about buying businesses. My name is Will Smith. Acquiring an existing business is an awesome opportunity for many entrepreneurs and on this podcast I talk to the people people who do it Looking for an SBA loan to buy a business? Then meet Pioneer Capital Advisory, your team for getting an SBA 7A loan quickly and at great terms. The team at Pioneer has closed 81 SBA loans in just the last two and a half years, with an average close time well under the industry standard.

[00:05:30 - 00:06:14]

Will Smith: Founder Matthias Smith and General Manager Valerie stash both have 10 years of SBA experience and and know the process cold. There are three analysts at Pioneer who build you a lending presentation that speaks the language of the bank's underwriters and gets them to yes, two account managers to guide you from underwriting to close as fast and smoothly as possible and two sales associates ready to walk you through the Pioneer Capital Advisory process. That's nine people at Pioneer. A real team. To get you where you're trying to go new owner of a business, go to pioneer capital advisory.com or click the link in the notes.

[00:06:16 - 00:06:27]

Will Smith: Christine Traylor welcome to Acquiring Minds. Thank you. Well, glad to be here. Christine. You bought a bed and breakfast business and it's accompanying real estate.

[00:06:28 - 00:06:45]

Will Smith: It is in a building a house in the Dupont Circle area of DC. That I myself have walked by countless times. That my own office of one time. Is down the street from it is really a specimen of a building. I love it, I know it.

[00:06:46 - 00:07:01]

Will Smith: And of course a bed and breakfast is a fantasy business for many, often a retirement fantasy. You are decades away from retirement. So let's get into this story. Give us some quick background on yourself please, Christine. Sure.

[00:07:01 - 00:07:45]

Christine Traylor: Thanks. Yeah, so my background has really nothing to do with hospitality or bed and breakfast or even acquiring businesses which some might find a little bit surprising. I actually started my career in international development so I went to grad school studying international peace and conflict resolution. And my hope was to just be involved in the international development sector and do some good in the world. So I was in that sector for about 15 years in varying organizations and in different capacities doing a lot of operational finance, project management work.

[00:07:47 - 00:08:37]

Christine Traylor: And I got to a point where I really started to want to run my own ship and do my own thing and have a business that I could make the calls on my own and see the successes or failures of that. As opposed to international development where your client is often the US government or different multilateral stakeholders, that appeasing is quite challenging and you never know where the success, success metrics really are. And so I had always had this in the back of my mind as something I think I thought I would be really good at. But the means and opportunity never really came about until about a year ago and thought, why not? I'll chase that dream.

[00:08:38 - 00:08:54]

Christine Traylor: And somehow it came to fruition and I sometimes still have to pinch myself that it did. Great, great summary. Now let me, let me do some follow up questions here. First of all, you thought you'd be really good at what, hospitality specifically or just owning any business? Both, I think.

[00:08:54 - 00:09:26]

Christine Traylor: Hospitality for sure. I have always been referenced by friends and family and even colleague associates that I'm a very hospitable person. And the, you know, the hosting and the kind of striving to make sure people are comfortable and well in hand comes as second nature to me. So I thought I would be good at that. But also given kind of the background of what I did in international development with operational finance, I did believe that I could run a business very well.

[00:09:27 - 00:10:15]

Will Smith: So you have some, there's some finance, you have finance chops, if you will, even though you don't come from a strictly finance background. Yeah, it's not, you know, full scale accounting or MBA studying, but managing kind of 50, 60 million dollar international development projects and supporting the financial backbone of some of these development organizations that I worked for. I got pretty pretty well attuned to some of the necessary skills involved. And so just a little bit more on this awakening or change in taste for how you were spending your time or the future trajectory as you looked to the next, you know, years of your career.

[00:10:17 - 00:10:41]

Will Smith: A lot of my guests want to do something for themselves. That's, that's really, I think what, there are a lot of reasons people become entrepreneurs, but that's top of the heap. But they, they're already in business in some way. So, so your, your pivot here is, is a much bigger, a much more dramatic pivot because you weren't in, you weren't in, you know, for profit land already. So I don't know.

[00:10:41 - 00:11:16]

Will Smith: So, so maybe say more and probably, probably like your circle, your orbit. There were more raised eyebrows and head scratches than, than my typical guest gets, which is already a lot. So. So say more about this Christine has gone crazy decision. Yeah, I think some people were wondering if I should be checked into to check my mental state at certain times because it is, it was a very surprising turn of events I think after the international development field is unfortunately completely dwindled now.

[00:11:16 - 00:12:02]

Christine Traylor: So a lot more people are hoping they had considered something like this now. But I, that's such a good question. I think that with international development there and where I had gotten to in the point of my career, there are a lot of opportunities to be the decision maker, be the manager of your own destiny, but the outside factors will always make it limited in what you can do achieve or the extent to which you can be successful. So I was working on a project in Ukraine and Russia, decided to invade. And those are factors completely beyond my control.

[00:12:02 - 00:13:15]

Christine Traylor: So at the point I was where I was in my career, I wanted to really harness those skills that I had developed to make sound, reasoned, smart business decisions and have them be in a little bit more of a controlled environment where I could see what success looked like. And so the type of business was always going to be bed and breakfast. It wasn't I want to own a business, it was I want to own a bed and breakfast. I, yeah, I, if something had come along that was interesting that I thought I could do well, I, I don't think I would have said only bed and breakfast, but that was all that I had in my head because I, it was just such a strong mixture of kind of the qualities that I thought I bring to, to the table most great for it to be successful. And financially we're going to, we're going to get into numbers here throughout, but give us a picture of kind of salary that you were earning or, and, or like what you Thought you were going to need to replace or, you know, kind of income that your bed and breakfast was going to have to, to generate to replace or come close to replacing.

[00:13:16 - 00:13:55]

Christine Traylor: Yeah, so I was making right around the 150k salary mark once I retired from international development. I knew I probably wasn't going to make that right off the bat starting anything brand new. And with the bed and breakfast model and if we talk numbers, I can go into more specifics. But a lot of the business costs are also the living costs for me and my family, they're, they're folded in. And so living expenses are much less than they were when I was, you know, working a salaried position and living in the suburbs.

[00:13:55 - 00:14:35]

Christine Traylor: So I knew I could take a little bit less money home because our living expenses were so much more limited. So 150,000. But you could buy a bed and breakfast that generated less than that first because you recognize that there was just going to be some year or years of sacrifice to, to get back to 150. And also because so many of your personal expenses were going to be run through or paid by the business anyway. Okay, now of course that point which we'll return to about small business owners often take advantage of, let us say, running things through their businesses.

[00:14:35 - 00:14:49]

Will Smith: And there's a lot of gray area there. In your case, it's actually much more direct. I mean, you are, as we'll hear you are living on the premises of the bed and breakfast, not in the building. You're living in the. What's called the Innkeepers building.

[00:14:50 - 00:14:55]

Will Smith: So we're going to get a lay of the land there. Okay. And I heard you mention suburbs. So you were not actually living in. D.C.

[00:14:55 - 00:15:04]

Christine Traylor: proper before, just right outside. Where in Vienna, Virginia. You were living in Vienna. Okay. As I think you know, I'm in Arlington, so.

[00:15:04 - 00:15:23]

Christine Traylor: Yes. And the. I also heard you say starting from scratch or something to that effect. Did you consider this, the realization of this dream in starting a bed and breakfast or was it always by and existing? No, I entertained all possibilities.

[00:15:24 - 00:16:09]

Christine Traylor: I knew it was going to be a lot harder, especially with bed and breakfast zoning and license restrictions, buying a property and then getting the necessary paperwork in line to. To be okay to run a bed and breakfast. So I knew acquiring an existing bed and breakfast would skip over all of that kind of paperwork headache. Especially I did want to be in Central D.C. and unfortunately, well, fortunately, kind of depending on who you, what vantage point you're looking from, with the ANC neighborhood, involvement in zoning, starting a bed and breakfast and Getting the necessary approvals is extremely difficult.

[00:16:09 - 00:16:28]

Christine Traylor: So if I wanted to be in Central D.C. having a property that it was already zoned and approved for that purpose was going to be much easier. Okay. Anything more on the backstory or on the context here that you haven't mentioned and think is you think you should. No, I don't think so.

[00:16:28 - 00:16:47]

Will Smith: Great. So what do you decide to do? How do you decide? How do you approach this search, if you will? Yeah, so my brother's brother and sister in law had come and stayed in a bed and breakfast in D.C.

[00:16:47 - 00:17:37]

Christine Traylor: several times, but it was a few years back and so I asked them which was the bed and breakfast that they stayed at and they told me the Swann House. And I did some other just general research online and based on the location of Swann House, based on some of the other attributes that I was looking for, which was really central, the size, the kind of street notability of it, I, I determined that Swann House would be my first stop. So I cold called the a representative who, who knew the owner and we did a site visit and it just so happened that they were looking to sell. So it was really fortuitous. That is quite fortuitous.

[00:17:38 - 00:17:49]

Will Smith: When you said that they had representation, what do you mean? A real estate agent, I assume. Yes. Yep. But how did, if it wasn't yet on the market, how was this agent, how did you get this?

[00:17:50 - 00:17:52]

Will Smith: Why was the agent in front of the seller, so to speak?

[00:17:54 - 00:18:19]

Christine Traylor: I believe that a real estate agent friend of mine knew him and just reached out and that, that was kind of the cold call is hey, I have someone who is interested in Swann and it had been on the market previously before the previous owners did a full scale renovation. They, they briefly put it on the market so his information was available.

[00:18:22 - 00:18:42]

Will Smith: Well, how timely. So, okay, so I guess the next step is you were connected with the seller to start having conversations. What did, what take us through now, the process and the analysis, please. Sure, yeah. So this goes all the way back to, I think the original letter of intent was signed with the previous owner March 15th of 2024.

[00:18:44 - 00:19:19]

Christine Traylor: And it was a pretty, I would say informal letter of intent in the beginning as we were just exploring options at that point. I had not looked at financing. I had not or lending packages. I had not really put together pro formas based on any actual accounting that the business was bringing in at the time. So it was just mostly to explore whether or not the arrangement would be feasible.

[00:19:20 - 00:19:58]

Christine Traylor: And then we finally found an operable lending package that left it so that the Margins would support the success of the business that came through. As we were talking to banks going through the SBA route and so finally we got pre approved. I think that was the end of July in 2024. You know that one of the most common levers to pull in a target acquisition is technology updating the systems of a business that may still be running off a spreadsheet or even pen and paper. But tech is complicated with tons of solutions out there.

[00:19:59 - 00:20:37]

Will Smith: So choosing the right cloud platform, CRM, telephony, compliance and cybersecurity, not to mention implementing all that, is a job in itself. Acquiring Minds Guest Nick Akers knows this firsthand. As a former searcher who now owns Inzo Technologies, Nick has seen the tech challenges searchers face when acquiring businesses. His team at Inzo regularly works with searchers and their acquisitions, offering a complimentary IT audit of the target company. Nick takes a personal interest in all their searcher clients, drawing from his own experience in the search phase.

[00:20:38 - 00:21:05]

Will Smith: Enzo dates back to 1989. So this is a company that has managed the tech for hundreds of small businesses over decades. And one last thing, no long term contracts with Enzo. A big differentiator. Check out inzotechnologies.com I N Z O or email Nick directly@nicknzotechnologies.com and don't forget to tell them you're a searcher.

[00:21:06 - 00:21:30]

Will Smith: So tell us about the building and business in, in that order. So, so give us a, give us a picture of this building, how big, how many units, bedrooms, et cetera, where the value of the real estate, the value of the location, all, all of that real estate first, please. Sure. So the value of the real estate.

[00:21:33 - 00:21:45]

Christine Traylor: I've seen different numbers and different interpretations of what exactly it is valued at. I know the appraisal for both the commercial and the real estate came in just above 7.5.

[00:21:48 - 00:21:49]

Christine Traylor: The real estate.

[00:21:51 - 00:22:31]

Christine Traylor: It's a tough question that I never really got a straight answer on throughout this entire, this entire purpose because, you know, even when I was working with agents to send around comps, the structure of the building being set up for a bed and breakfast, you can't really compare it to the comps of, you know, the, the Embassy Row mansion that has, you know, comparable square footage just by the nature of, of the structure of the, the property. Yeah. And so, but give us a sense of square footage. How many night, how many rooms are available for, for guests. It's that sort of stuff as well.

[00:22:32 - 00:23:04]

Christine Traylor: Sure. So there's 10 guest rooms, which that does not include the innkeeper's apartment that I is a two bedroom innkeeper apartment. All of the guest rooms have their own en suite bathrooms. And then we have an outdoor area with a pool. And the first floor is all common area space, which includes a large dining room, a parlor, a study, and this lovely room that I'm sitting in which we refer to as the solarium.

[00:23:06 - 00:23:33]

Christine Traylor: And this total square footage of the property, I believe it's 10,000 square feet. What more would you say to try to give people a sense of the size and how kind of the vibe. It's a Victorian style mansion. It was built in 1883 by an architect and builder by the name of Walter Paris. He was a pretty well known and prolific builder in the D.C.

[00:23:33 - 00:23:56]

Christine Traylor: area at that time. And he built it for his family, but never actually lived here. So it's, it's one of the last, and I think it might be the only freestanding buildings in Dupont Circle that's used as a partial residence. I'm sorry, what do you mean by that? Because everything else is a row home is attached.

[00:23:56 - 00:24:38]

Christine Traylor: Exactly. So I think that that conveys to your point, Will like the uniqueness of the house a little bit because it does feel like a bit of a standalone property, but yet it's amidst all these other row homes and does have that grand Victorian feel, but not too ostentatious that you're looking at it and thinking that doesn't belong here. Well, you know that when a big time developer builds his family house, albeit he never lived in it, that it was something that he, he built with, with, you know, it. It probably was the, the prime expression of his talent. So that, that's really cool.

[00:24:38 - 00:24:52]

Will Smith: I didn't know that factoid about it. Okay. And so let's hear about the business now of the bed and breakfast. What, what can you tell us about revenue, profitability, et cetera? Sure.

[00:24:53 - 00:25:45]

Christine Traylor: So the conservative estimates that we went with for year one after, after my acquisition went through was that we'd bring in just north of a million dollars in revenue. And then the NOI, not including, you know, lending payments, would be roughly $700,000 annual. And that would just be the starting off point. And we went really conservative because Swann House was shut down for a good portion in at the end of 2022 and early 2023. They did a full scale renovation of the property, the previous owners did, and that had an impact on business.

[00:25:45 - 00:26:01]

Christine Traylor: Right. The return customer base kind of dwindled and we knew that we'd have to build that business back up. So we wanted to Go with a pretty conservative year one. So a million dollars in revenue. Top line revenue is conservative.

[00:26:02 - 00:26:13]

Will Smith: That's a, That's a lower number than you would expect it to. To reach at sort of full potential. Yeah. And when you say $700,000, NOI. So of course, noi is a real estate term.

[00:26:13 - 00:26:33]

Will Smith: And part of the interesting aspect of this business is disentangling, you know, is this real estate with a business attached or business with a real. With real estate attached or, or what the se. But, but let's just unpack that 700,000 number. So that is to say that 300,000. There's 300,000 in operating expenses.

[00:26:33 - 00:26:40]

Will Smith: Okay. And does that include, like, maintenance on the building or is it just. It does. Yep. That includes everything.

[00:26:40 - 00:26:43]

Will Smith: Oh, wow. Okay. Okay. Wow. But it doesn't include.

[00:26:44 - 00:26:46]

Will Smith: It doesn't include the. It doesn't include the.

[00:26:49 - 00:26:55]

Will Smith: Well, it's not a mortgage. It's an SBA loan. Yes. It doesn't include the. The payments.

[00:26:55 - 00:27:10]

Christine Traylor: The loan payments. The loan payments. So 1. Again, kind of this. What's a little confusing here is often in a brick and mortar business, which essentially yours is, the rent payment needs to be considered as an operating expense of the business.

[00:27:11 - 00:27:28]

Will Smith: In your case, though, it's not rent because you own it, but it's the SBA loan. But in some sense, I guess, I mean, even when you. Well, I mean, I guess, I guess when you pay off the SBA loan, it's equip. It's the equivalent of like owning the real estate. Then you'll just own the real estate outright.

[00:27:28 - 00:27:32]

Christine Traylor: Exactly. And when you own the real estate. Outright.

[00:27:35 - 00:27:55]

Will Smith: It'S a very profitable business. Yes. So if you owned the real estate outright, you'd bring in. You'd bring in $700,000 a year in profit, is that right? So only $300,000 in expenses.

[00:27:55 - 00:28:01]

Will Smith: So give us a picture of. Now more of a picture of the business. Business, please. And specifically starting with head count. Sure.

[00:28:02 - 00:28:30]

Christine Traylor: So I run the business and am the full time innkeeper on staff. I have an assistant innkeeper that's part time, so he works about 30 hours a week. I have a full time housekeeper and then another assistant housekeeper. So overall, I have hourly employees that work anywhere from, depending on how busy we are, 50 to 80 hours a week. Okay.

[00:28:31 - 00:28:42]

Will Smith: And when you talk about the profitability of the business, are you including the. The cost to yourself as operator? Because that, that is a. That is a core operating expense of the business, obviously. Yes.

[00:28:42 - 00:28:51]

Will Smith: Okay. Okay. And then tying that to your $150,000 salary you needed to replace. How much are you paying yourself? What is your cost as operator?

[00:28:52 - 00:29:08]

Christine Traylor: My salary right now is $60,000 a year. Okay, and how did you decide on that? That's, obviously that would be hard to live in Dupont Circle on that. But as we've talked about, you, you, you are, can enjoy a lot of your family expenses kind of going through the business. But how did you decide on that 60 number?

[00:29:09 - 00:29:49]

Christine Traylor: Yeah, I, I think it will be revisited and we'll do quarterly or biannual reviews to make sure we're zoning in on the right number. It's about the market rate for an innkeeper and you know, that fluctuates a lot because whether housing is provided or not depends on the salary compensation. But it is about the market rate and that's what we just determined that. We. Required as a family and as direct take home during the first year.

[00:29:49 - 00:30:30]

Will Smith: At least one of the concepts that we talk about a lot on this podcast is the operator of the business. And so many of my guests buy a business with the idea that they'll be the operator at least for a while. But the, the larger vision usually involves them stepping out of operating the day to day business and really being able to enjoy the profits of the business without having to be the one making sure the trains run on time. So it's always, it's always an important analysis of a business to understand what it looks like with an operator placed and not you and not at all at all relying on you. You said so in your case, the innkeeper is, is the operator.

[00:30:30 - 00:30:59]

Will Smith: They're basically the same concepts, your innkeeper. So the, the fee for an innkeeper would be about $60,000. Do you think, therefore, if you wanted to not be the innkeeper anymore, you could go out and just find, not just, but I mean, you know, find a solid candidate and pay them $60,000 a year and solve that problem and you no longer are the one living and breathing the actual, the actual function of the business. You're asking the question that my husband asked me.

[00:31:02 - 00:32:06]

Christine Traylor: I'm not sure quite yet. I know for a fact that I'm going to be operating this for at least the first three to four years very intimately, because I see as the success of this business is the personal touch and the direct involvement of the person who's owning it and who's trying to yield it success financially, but in other ways as well. So I think that personal investment is absolutely required, especially in the initial years, whether or not we get to a point, year, three, four, five, where I start to bring in someone who's my right hand, who can do much more of the general day to day functions. I think that that's a hopeful vision. I don't think we'll be moving off site, so there is no living potential here for another innkeeper unless we were to take a room away, which significantly decreases our revenue.

[00:32:06 - 00:32:48]

Christine Traylor: So we don't want to do that. And then paying someone $60,000 in DC is not really a manageable possibility for most people. So there's factors to weigh in there, but I do, I hope, and you know, I've been talking to a lot of school hospitality programs and the DC area that, you know, there is someone who kind of wants to experience this and see how it works and that I can bring in more intimately to really get involved. And then only then would I kind of step back a little bit. And, and do you feel like such a person exists?

[00:32:48 - 00:33:10]

Will Smith: I'd imagine that for people who want. To work in hospitality, running a gorgeous bed and breakfast in the middle of Dupont Circle would be like a dream job. It would be. It's hard. And for those of us who are not hospitality oriented, I personally couldn't do it, but I could see for those who are drawn to hospitality as a field that it would be a dream job.

[00:33:10 - 00:33:21]

Christine Traylor: Yeah. And I've gotten a lot of interest. Right. And especially from those hospitality programs at, at Georgetown and at gw. Georgetown has a.

[00:33:21 - 00:33:23]

Will Smith: They both have hospitality. They do, they do. Oh, wow.

[00:33:25 - 00:33:49]

Christine Traylor: So I think, yeah, I think people are interested. It's just a matter of being competitive from a staffing perspective with the larger hotel chains that can offer a lot more compensation given, given how the financial margins of Swann work. I can't, I'm limited in what I can provide compensation wise. Right, right. Well.

[00:33:49 - 00:34:17]

Will Smith: And of course you are, Al. You are bumping into exactly what so many guests do when they, when they contemplate hiring somebody to replace themselves. The. You as owner of the business are bringing your full self the highest quality that you possibly can. So finding somebody to do, to do as good a job as you're currently doing with the same passion alone is hard, let alone at your budget.

[00:34:18 - 00:34:38]

Christine Traylor: Right. So. So it is a, it is a challenge, although not an insurmountable one. And so, and, and you're also Christine. And I'm just going to keep kind of drawing parallels between you and, and, and, and my other guests because this is a different type of story and you're not used to, you're not talking to other small business acquirers.

[00:34:38 - 00:34:41]

Will Smith: But, but there are the parallels here are, are everywhere.

[00:34:44 - 00:35:16]

Will Smith: You're not turning this business around, but you're going through a transition of ownership and, and, and, and, and in fact the revenue has been low because there was a choppy renovation or whatever. So, so you're not turning the business around, but it is in a place where it's not at its full, at its full potential and you are with your own two hands pushing it there and lifting it there. So, so you know, yeah, your, your, your operational involvement until it gets to, you know, flying altitude is going to be required. And you think that'll take a few years. That's your kind of estimate?

[00:35:17 - 00:35:54]

Christine Traylor: Yeah, absolutely. And okay, so let's, and so let's hear numbers wise, what does this business look like fully actualized? Yeah, so my kind of 10 year pro forma has us growing both revenue and profit at about a 5% rate per year, which I think is pretty doable, albeit, you know, we don't know what the market's going to do. And if, you know, a recession or any other kind of unforeseeable force of nature comes, we'll, we'll take that in stride.

[00:35:56 - 00:36:28]

Will Smith: Can I, can I press on that 5% number? That sounds like a what a lot of people buying businesses will kind of put as their, as their growth case where it kind of grows a little bit along with gdp, maybe a little bit better than gdp. But, but what I understood this situation of Swann House to be is that there's a delta between where it is and where it could be in a normal place. So I feel, I, I, I kind of thought you were going to say, like it needs to bump up 25% and from there it, it grows incrementally. Did I misunderstand?

[00:36:29 - 00:37:23]

Christine Traylor: Yeah, I think, I don't think that bump is going to be as Stark as a 25k increase from my research. And again, I'm, I don't have a hospitality background, so I, I may be wrong in this, but from research that I've done, it does take a while to build up, back up that, that customer base and that returning customer base that's so critical to the success of, of reliable lodging occupancy increases in ADR increases. So, so what had happened with Swannn and why they had to close? It was, it was in complete disrepair and so you had already had a huge customer base that had had really negative experiences staying here. Add to that that it was closed and sheltered for about six months.

[00:37:24 - 00:38:04]

Christine Traylor: It does take a lot of time to build back Build back the, the occupancy. So I, I do think that it will be gradual and I'm hoping, right. That maybe my gradual projections are more conservative than they ought to be. But everything that I've read is that you don't want to almost have a severe bump in occupancy that's not, not gradual because then it, it's not indicative of, of the natural progression, people coming. Exactly.

[00:38:04 - 00:38:18]

Christine Traylor: Exactly. How interesting. Okay, so neg. So there were a lot of negative experiences. Was this something where if, if we all now go Google Swann House, we're going to see a bunch of negative, unfortunate or negative reviews from, you know, 2022 sort of thing?

[00:38:18 - 00:39:04]

Christine Traylor: Yeah, yeah, I think I, I, at that point the innkeeper was very well known and I think people have had a lot of, you know, liking for her and, and really enjoyed knowing her. But she was also hired to run and wasn't an owner operator. And so the owner was absent and was just not willing to invest in the upkeep and maintenance of the property that it required. So I think you'll see in the reviews a lot of love and admiration for the innkeeper, but some frustration with, with how the building was being managed and it just wasn't as luxurious of an experience as it could have been and should have been. Could have been and should have been.

[00:39:04 - 00:39:11]

Will Smith: Because this is a what star hotel or lodging? What? This is a four star. Four star. Yep.

[00:39:11 - 00:39:19]

Will Smith: Yeah. Yep. And so can you give us a sense of nightly rates? I mean, we could go check ourselves, so maybe just tell us. Sure.

[00:39:19 - 00:39:50]

Christine Traylor: So it, it varies seasonally? Um, sure. Right now we're in our high season, so the rates are a little bit higher and it ranges anywhere from like 3:49 per night all the way up to 4:70 a night, not including tax. Um, and then, you know, we vary it. So for bigger events that happen in dc, big tourist seasonality, the rates can, can increase.

[00:39:50 - 00:40:10]

Christine Traylor: Like for Cherry Blossom, we'll increase the rates a little bit. And then in the winter months the rates are quite a bit lower. Stay here for 220 per night is our, our cheapest room. And then going all the way up to, to 350 per night, I don't. Feel like that's so high.

[00:40:10 - 00:41:08]

Will Smith: I'm no expert, I don't really know. But you know, when I, when I look at what I pay for to stay in completely undifferentiated, you know, two and three star hotels, as I do in the major cities around the country, staying, having a, having a differentiated experience, staying in a lovely 150 year old building in the heart of, you know, one of the, one of the blue chip neighborhoods of a city. I, I feel like that's, that's a, those are pretty competitive rates. Yeah, but no, and that's, that's why, to go back to our discussion previously, why I do think that, you know, normally you'd have a little bit of a plateau where your occupancy rate and your average daily rate kind of max out. But I do believe once we start to get the return customer base in, we're comparable with hotels right now, but we're better known for this really unique personalized experience.

[00:41:10 - 00:41:50]

Christine Traylor: We, we can increase those daily rates continuously over the next 10 years to reach that 5% growth trajectory. Okay, so you don't feel like your pricing is optimized just yet. You're, you're, you're a little bit below where you should be based on negative reviews online sort of thing. Yeah, I, I guess I would phrase that as we're, we're priced for where we are right now in bringing back people to see an experience, have positive user experiences, get those reviews up and then we'll take it from there. Running payroll, paying your bills, closing your books and producing financials.

[00:41:50 - 00:42:28]

Will Smith: These are critical tasks every business owner must do or oversee. But spending time on them distracts you from the leadership in growth work you want to do. So let system 6 do it for you. Owned and led by a former Searcher, Chris Williams, System 6 is a leading outsourced finance team for hundreds of SMBs, including over 50 searcher acquired businesses. Chris, Tim and the System 6 team understand firsthand the challenges, the opportunities of jumping into a business as its new owner.

[00:42:29 - 00:42:55]

Will Smith: So whether you own your business already or have one under LOI, talk to System 6 about how they can give you time back and improve your financial operations. Mention acquiring minds and they'll provide a free review of your books and financial ops. A $500 value. Check out system6.com, link in the show notes or email helloystems6.com.

[00:42:57 - 00:43:18]

Will Smith: You keep talking about recurring reoccurring business. So guests who come back again and again. We would, yeah, so we would call that reoccurring revenue. So you don't have like a locked in contract where people are just, you're dinging their credit card every month. Obviously it's not that it's not this business model, but it sounds like reoccurring revenue, repeat guests is a core part of this business model.

[00:43:18 - 00:43:29]

Will Smith: Maybe give us some, some more numbers around that. Like what percentage of revenue in your case and maybe, maybe a. Broadly what a benchmark is of a. Of a high end bnb. Sure.

[00:43:29 - 00:43:54]

Christine Traylor: So return guests, what I would like the, the share of the revenue to be for, specifically for return guests right now, I would say it's about 5%. I would like to bring it up to 20 or even 25. Although 25 is really high. 25% of revenue would be from people who've been there before. That does seem high.

[00:43:54 - 00:44:13]

Will Smith: But does it, does it happen in bed and Breakf land? It does more so at bed and breakfast than any other commercial lodging. And where we are in D.C. is you really unique. We have a really neighborhood vibe, as you know, Will and you mentioned you, you know this area very well.

[00:44:15 - 00:44:42]

Christine Traylor: We're in a very residential area. A lot of people live in the row houses around Dupont Circle, have guests, parents, grandparents come and visit. There's no place to stay. So many, many people that are return guests have someone that live on Swann street or someone that lives on S Street. And every time they come to visit their, their family, they stay at Swann.

[00:44:42 - 00:45:06]

Christine Traylor: So that's a huge market for us. It's the exact kind of guest that I really, really love. Right. And they bring their family over and they, you know, have drinks on the porch and it feels almost like a second home. Those people end up being amazing stewards of the property and they end up really doing well by the business.

[00:45:06 - 00:45:30]

Christine Traylor: Right. They recommend it and they can't wait to come back. And you know, this isn't necessarily the Capitol Hilton where we have business travelers coming for a conference that will never come again, that we're, we're looking for a completely different commercial segment that's so interesting. So it's, it's real. It's really personal travel, not business travel.

[00:45:30 - 00:45:58]

Will Smith: I would have guessed just the opposite, that it would be, yes, you're in a residential neighborhood, but you're walking distance to, you know, sort of walking distance to kind of Foggy Bottom and other places where business is done in D.C. not Capitol Hill, though. So I would have just thought that you'd have, you know, diplomats who are doing, who are regularly in D.C. coming through, but it's actually more families or, or connections to families that live in the neighborhood. Interesting.

[00:45:58 - 00:46:10]

Christine Traylor: Yeah. And we do get, we get the conference goers, we get the business travelers for sure. That's the other 75 that I love very much and, and gotta love them all. Exactly. They're in hospitality.

[00:46:10 - 00:46:11]

Will Smith: Nobody's.

[00:46:13 - 00:46:34]

Christine Traylor: But yeah, I think I, those people are less likely to be those return guests that, that you were mentioning. So. Fantastic. So let's hear a little bit more. About your living on the premises in this innkeeper, this separate building behind the the main structure.

[00:46:34 - 00:46:53]

Will Smith: Tell us about that and what your kind of day to day looks like both for you and your family living there. Yeah, so technically it's in the building. It's not a separate building. We're in the basement of Swann House. We cannot, you can't access our apartment from inside the bed and breakfast, so you still have to exit the front door and walk around.

[00:46:55 - 00:47:08]

Christine Traylor: But it's a two bedroom apartment. It's very small. It's not as grand and as luxurious as the bed and breakfast, which we knew going in and are very happy with. And we.

[00:47:10 - 00:47:17]

Christine Traylor: So I live there with my husband. Says Downton Abbey vibes. As it should. The ringing bell. No, I'm just kidding.

[00:47:19 - 00:48:02]

Christine Traylor: So I live in the apartment with my husband and my two kids who are 5 and 7 and share a room. And so we consider all of Swann House our house though. It's really just kind of a place to lay our heads at night and for my kids to store their toys. We have dinner almost every night in the bed and breakfast and it feels like our home that we just share very broadly and kindly with as many people as we can. And so one of your children is, is allowed to just go upstairs, as it were, and sit in like the solarium where you are now?

[00:48:03 - 00:48:38]

Christine Traylor: Yep. Okay. Not if a guest is here and if a guest is in the solarium, you know, they'll find someplace else. So I've had to have long talks with my kids about kind of guest service and guest management and why, why we have to cater to them over what we might want in that moment, which as you can imagine is a little bit hard for a five year old boy to understand. But they're doing really great at, at kind of learning the business and helping out and, and doing this with me, which is great.

[00:48:38 - 00:49:10]

Christine Traylor: Really great. And how does your husband, how does he feel and react to all of this? Sure. He has a full time job, he works on the hill and so he's less involved with the business, but it's his passion as much as mine. Um, I do the day to day, but I think, you know, we, we endeavored this together so he'll take advantage of, of weekends and evenings to do things around Swann.

[00:49:10 - 00:49:25]

Christine Traylor: He's much more handy maintenance wise than I am and he'll definitely help out with answering guest questions and talking to them about the hill, which as you can imagine a lot of visitors are very curious about that.

[00:49:27 - 00:50:05]

Will Smith: So let's now spend a little time on, on lifestyle and this decision because this really was a family decision first talking to guests. So this is where it takes a particular personality, I guess a hospitality oriented personality to, to, to run a business successfully. You've got to be prepared at all times to have a smile on your face and engage your guests in conversation if they want to engage you sort of. That's of course also the difference between a bed and breakfast and a hotel is that you're, you're, you're part of the, you personally are part of the experience. The experience.

[00:50:07 - 00:50:42]

Will Smith: Is the answer simply that well, I just have the personality for it or tell us honestly like does. Is that at some like the kind of feeling like your house perpetually has guests, is that not at times taxing, it's what you signed up for sort of thing? Yeah, it's what I signed up for. And I, I was surprised at how little taxed I was at kind of constant engagement and communication because I, I'm an extrovert. But I also like my quiet time where I can disassociate and, and not have to answer any questions or, or get anybody anything.

[00:50:42 - 00:51:11]

Christine Traylor: But I'm pleasantly surprised at how little it's of an issue. It's been, and I've been overwhelmingly surprised at how wonderful the guests are. Tend to be. Right. I worked in high school at a restaurant and I swore I would never do guest services again because you just have that experience where you're not really respected.

[00:51:11 - 00:51:36]

Christine Traylor: And, and so I had done a lot of self preparation to, to ex. Prepare myself for the really negative guests and the really people that put you through the ringer. And the instances that I've had since I started at Swann where that's been an issue. I can, I. There's one or two maybe.

[00:51:36 - 00:51:44]

Christine Traylor: Right. And so that's just been really amazing. And the people that have come through that I have formed relationships with make it ten times worth it.

[00:51:46 - 00:52:16]

Will Smith: And our joke about the ringing bell and the Downton Abbey and actually tying this back to the possibility of ever hiring somebody to replace yourself. What are the. Are you on call 247 sort of thing or is it can't be just simply 9 to 5. So what does that look like? Yeah, so I get in to start breakfast around seven in the morning and I'm pretty much on until about six at night on property.

[00:52:16 - 00:52:46]

Christine Traylor: I have that assistant innkeeper. So I have, if I have to go and do some things. He can fill in and do things on site. Lots of grocery store runs, as you can imagine, but customarily it's kind of a seven to six kind of gig. And then after that I usually am not on site, on premise, on the premises, but guests have a code to get through the front door after hours.

[00:52:47 - 00:53:13]

Christine Traylor: They have my cell phone number in case they need anything urgently. And most people don't really have needs after six so much. And those that do, you know, I'm usually around anyway during bedtime or, or preparing breakfast for the next day or something. And so it's, it's not been too, too taxing. 11 hours a day though, is.

[00:53:13 - 00:53:21]

Will Smith: That's a long day? Yes. And so, and, and do you get weekends off? No. So, so is it really seven days a week?

[00:53:21 - 00:53:35]

Christine Traylor: Yes. Oh, well, that's a lot, Christine. Yeah, it's a, it's a full time gig and then some. And then some. And so how will it be if you want to take a vacation?

[00:53:37 - 00:54:10]

Christine Traylor: We have some very good friends that have offered to steward Swann House if, if we need to and for a vacation or if family emergencies arise or anything like that. Um, I don't know when that will happen or I not envisioning that happening within the first year, but we'll cross that bridge. Okay. And then let's, since we're on the topic of kind of lifestyle, let's tie this also back to the top of the conversation. Your motivation for doing this.

[00:54:10 - 00:54:51]

Will Smith: When you and your husband talked about this, what, what, what was the vision for your kind of family, for your building of wealth here? What was the, what was the kind of, the grand vision? And, and how did that convince you to, to take the plunge? Yeah, so the grand vision was really being the masters of our own fate and, and owning this and running it and having it, having us know very well that we were the stewards of either success or failure. That was important to me.

[00:54:51 - 00:55:18]

Christine Traylor: You know, as I said before, just because of, I was ready for that in my professional career, but important for him as well. And you know, the hours are grueling, the work is hard, but at the same time, I was working 11 or 12 hours a day previously at my other job. Oh, important point. And it wasn't necessarily for me. Right.

[00:55:18 - 00:55:55]

Christine Traylor: It was for, for another client or for someone else. So I think for him and I, it was really important that our sweat equity is put into something that's ours. And I know that's a common theme on, on this podcast and that I've heard with Other guests. So that was the grand vision. And I think we could see where family was incorporated into that sweat equity as opposed to trying to dissect and separate, okay, I'm going to work a 70 hour week and then that this is what that means then for the kids.

[00:55:55 - 00:56:13]

Christine Traylor: Right. This is much more integrated. And I think we, we were striving for that. So in fact, the, in fact that the, there's no longer a bright red line between work and home life is a feature, not a bug. Yeah, yeah.

[00:56:14 - 00:56:32]

Will Smith: And the. So, so I guess we've already talked about the real estate sacrifice, if you will, that you're living in 500 square feet. And the, the answer is that you actually allow yourselves to spread out through the entire place. Okay. And anything more to say about your kids and how you thought that this would impact them?

[00:56:32 - 00:57:12]

Will Smith: Not that it's like some huge, enormous, horrible sacrifice or something, but it's a different, it's a, it's a, it's a particular lifestyle. And anything more about how they fit. In, I would just say, you know, I, I think it is important to acknowledge and own that the fact that they can't run around the house or the fact that they have to always defer to guests and be mindful of their presence is a sacrifice. And so we do have days where I can take an afternoon and they get to choose whatever they want. They get to be as loud as they want.

[00:57:12 - 00:57:35]

Christine Traylor: Right. My daughter at this point is making us go bowling every Sunday afternoon. So either my husband and, or, or me will take her. And you know, we just, we try to afford them the opportunities of, of being the master of their fate and their environment where we can. Knowing that, that they've sacrificed a little bit of that.

[00:57:35 - 00:58:06]

Christine Traylor: So that's a very, very purposeful action that we take. Remind us the term how you put this deal together, how somebody with a, you know, with an office job bought a 7 1/2 million dollar business slash piece of real estate. I mean, this is, this is really expensive, a really expensive neighborhood in D.C. lovely, gracious, mostly row homes, as you said, hundred year, 120 year old buildings. I mean, it's really the sort of neighborhood you walk through and you're like, oh, one day I'd love to live in one of those.

[00:58:06 - 00:58:19]

Will Smith: And you live in the neighborhood mansion, the most kind of coveted structure on the block. Really. So how did you pull that off? Let's, let's unpack the deal. Sure.

[00:58:19 - 00:58:53]

Christine Traylor: Yeah. So we worked with SBA and we maxed out the SBA loan, so we have a $5 million SBA loan, a 7 a term, and then the same bank that we went through the SBA with gave us a direct loan of 779,000. And then the rest was just a mixture of seller financing, our personal contribution, and. Yeah. Additional funds for.

[00:58:53 - 00:59:08]

Christine Traylor: For working capital is. Okay, so. Sorry, what was the 779,000? That was the bank that facilitated the SBA give us another direct loan for. For 779,000.

[00:59:09 - 00:59:14]

Will Smith: Oh, I see. So that was. That was in addition to the sba. I see. And it kind of as.

[00:59:14 - 00:59:26]

Will Smith: And that was a conventional loan or just kind of a bank loan. Okay, so that's probably Perry pursue is what that probably was. Does that sound right? Yes. Okay, so 700, or call it $800,000.

[00:59:26 - 00:59:40]

Will Smith: On top of that, you max out the SBA loan. That gets us to 5.8 million. And then so there's still. What is that, 5.8 to. To 7.5 to 1.7 to account for.

[00:59:41 - 00:59:46]

Will Smith: That came between seller note and your own cash? Yes. Can you break that apart?

[00:59:49 - 01:00:00]

Christine Traylor: I. The seller doesn't want me to get into any specifics, but it's. It's roughly half and half. Okay. Okay, so that's a.

[01:00:00 - 01:00:06]

Will Smith: That was a consider. You brought a considerable amount of cash to this. Yes. Hundreds of thousands of dollars. Yes.

[01:00:06 - 01:00:13]

Will Smith: Which you had in savings. Yes. Yeah. And so did that kind of clear. Clear you out?

[01:00:13 - 01:00:24]

Will Smith: I mean, did you put kind of everything on the line to do this? Yep, definitely. You say it so matter of factly. Good for you. Great.

[01:00:26 - 01:00:37]

Will Smith: Okay, so hundreds of thousands of dollars from you. Hundreds of thousands of dollars in seller note. $800,000. Call it for a conventional loan, fully $5 million SBA loan. Okay.

[01:00:37 - 01:01:10]

Will Smith: And the business, after paying you and understanding that you, frankly, you're underpaid, but after paying you, the business generates $115,000 a year in. So the return on your cash is if you put, you know, a few hundred thousand dollars in. Well, we don't know the number, but that is going to be, you know, 10 to 20%, I guess. Am I doing the math right? Probably.

[01:01:10 - 01:01:11]

Will Smith: Or more like probably 15 to 20%.

[01:01:14 - 01:01:35]

Will Smith: But you also told me, and we didn't get to that you expect that 115 number to grow. Yes. So as the business realizes grows and, you know, your rates maybe go up and your occupancy goes up, you think that the profitability number will expand pretty quickly. Yes. Yeah.

[01:01:35 - 01:02:01]

Will Smith: To what? So by year five, I'm hoping, or at least we've projected that the profitability after all loan payments and everything is up to 350k. And after paying you and after paying me, although if it's, if it's that profitable, you'll probably pay yourself more than 60. You'll probably start getting into 100. Yeah.

[01:02:01 - 01:02:38]

Will Smith: So, so let's say, let's say it's, it'll be more like 250 to 300 after paying yourself a real salary. So. And so, so you've got a business that's generating 250 to 300,000 of what we call SDE. Well, actually, no, that would actually be EBITDA because you're, you're accounted for you operator salary and you're paying down a piece of real estate that is worth, we don't know what percentage of the seven and a half million, but that, that real piece of real estate I feel like is probably worth five to six. Yeah.

[01:02:38 - 01:02:43]

Will Smith: To seven. Yeah. I think that's a safe assumption. Yeah. I mean that's a wide range.

[01:02:43 - 01:03:02]

Will Smith: 5 to 7. Admittedly so. But, but. So over 10 years of doing this, you've got 250 to $300,000 of cash flow that you can put toward retirement, whatever you know, save. And you're paying down a property that you will own at the end of 10 years.

[01:03:02 - 01:03:11]

Will Smith: That's a, let's call it $6 million property. Mm. And you will have been the master of your own destiny, which was really priority number one in all of this.

[01:03:14 - 01:03:50]

Will Smith: I'm no real estate investor, so there is a way to think about this from a real estate perspective. So I don't want to act like it's, it's, it's an amazing real estate acquisition. I can't really tell, but from where you were and what you were trying to escape to, what you, what you're, how you're spending the next 10 years, it seems like really a dream. You will build real wealth here doing, being the captain of your own ship and earning great income. Not yet, but if you can hit those numbers, you'll be earning a great, just, just pure year to year income.

[01:03:50 - 01:04:03]

Christine Traylor: Yep. That, that's the goal. That's the hope, and that's what makes the, the long days worth it. And, and all of the sacrifices that, that are there. That's.

[01:04:03 - 01:04:12]

Christine Traylor: We're willing to go on that ride. Mm. Mm. Can I ask how old you are? I turned 40 this year.

[01:04:12 - 01:04:30]

Will Smith: Okay. So you, you spend your 40s doing this. So by the time you're 50, you may have a piece of real estate worth, with inflation and probably Growth in the real estate appreciation. That could be a 6, 7, 8 million dollar property then, and a business. Wonderful.

[01:04:30 - 01:04:39]

Will Smith: Good for you, Christine. Thank you. And it's just such a cool business. Right. It's different and unique, but fun and.

[01:04:40 - 01:05:01]

Christine Traylor: And there every day is different. And I know that's the same with a lot of people in business, but there truly is no, no two days alike. It's actually in. In small business land, yes, there are. There's often chaos and unforeseen problems, but also a monotony to it, especially once the transition.

[01:05:01 - 01:05:22]

Will Smith: They're. An entrepreneur is on the other side of the transition and they're a year or two into the business. It can actually be quite repetitive. I'm sure there's an aspect of that for you as well, but because you're having such personal dealings with all the guests, it probably feels less repetitive, maybe less monotonous than other small businesses. Absolutely.

[01:05:22 - 01:05:53]

Christine Traylor: And this may come across as a bad thing, but it's not necessarily that, you know, the roof leaking one day or this toilet breaking the other day or, you know, talking to someone about extra landscaping that will really beef up this part of the outside of the house. Right. Like, those are the things that are unforeseen and sometimes stressful, but also make it, you know, really interesting. Yeah. There's probably.

[01:05:53 - 01:06:01]

Will Smith: I have to. This is totally. Who knows? But I, I wonder if there is a sense of. This is such a gorgeous piece of property.

[01:06:02 - 01:06:15]

Will Smith: It's so old now that when you repair things, there's a sense of you. I've heard you use the word steward. That you're. You're really taking care of something that has a soul. Forgive me if it gets too woo woo.

[01:06:15 - 01:06:23]

Will Smith: But. But I, I can imagine that there's a sense of kind of. Yeah. That you're really caring for something important. Absolutely.

[01:06:24 - 01:06:44]

Christine Traylor: You know, we have original wood floors. Who can say that? Right. And, you know, we do events here, and I just shudder to think that people are maybe dragging a couch and scratching these otherwise, you know, gorgeous restored wood floors. But, um, I.

[01:06:44 - 01:07:09]

Christine Traylor: Absolutely. I want to do right by the people in Dupont that have, you know, seen this house as kind of a staple of the community for so long. I want to do right by, you know, D.C. historical designation for the less bureaucratic side. But, you know, the, the wants of people in the community to kind of really make sure DC is restored to a certain extent.

[01:07:10 - 01:07:26]

Christine Traylor: And I feel extremely responsible to. To do that. And it's a challenge. Right. Because the crown molding has about six layers of gloss paint on it and is probably disintegrating from inside, but is original.

[01:07:26 - 01:08:02]

Christine Traylor: And so you just have to, you know, luckily we're in D.C. and I can speak to the best of the best when it comes to restoring and rehabbing and, and managing historical infrastructure. So. Yeah. Although I will say, just hearing you talk, Christine, and knowing, you know, spending a years in a former life, kind of in the real estate orbit of DC when you have such a visible and prominent business and property in a neighborhood like Dupont Circle, you said you're trying to do right by the neighbors.

[01:08:02 - 01:08:14]

Will Smith: Trying to do right by, you know, the preservationists. Like they're also. It must chafe a little bit that everyone feels like they're stakeholders in your business. After all, wasn't that what you were trying to escape? Yes.

[01:08:15 - 01:08:26]

Will Smith: This is not their ship that you are the captain of. This is your ship. So, so there's got to be a little bit of, of, you know, hold on everybody. This is my business. Yes, yes.

[01:08:26 - 01:08:46]

Christine Traylor: Yeah, there's absolutely some of that. And you know, we get knocked on the door all the time of neighbors saying, I don't like that bush or take care of that. Right. So there's absolutely. Oh yeah, there's absolutely an extent to that that can get a little grating.

[01:08:46 - 01:09:24]

Christine Traylor: But I, I wouldn't have it any other way. You know, I think part of what's going to make this business successful is it not just feeling like another hotel that goes around the corner is that that everybody is invested in its success. We have a neighborhood book club that has been meeting here for the last 10 years and they come the first Tuesday of every month. And you know, I'm talking to restaurant owners about using the dining room for a pop up experience and. Oh, that'd be so cool.

[01:09:24 - 01:09:49]

Christine Traylor: I think it's just if it's not a part of that neighborhood culture, it loses, loses some of its kind of majesty a little bit. It's well put. Christine, why do you think that bed and breakfast businesses are often kind of retirement fantasy businesses, but those types of businesses are also notoriously bad businesses? As businesses. Yes.

[01:09:51 - 01:10:30]

Christine Traylor: Why. Now that you're on the inside, do you see that? Do you feel like it's a difficult and bad business and it would be easy to fail at say something about the category of bed and bed and breakfasts, apart from maybe the specifics of Swann House. Sure. So not to kind of broadly judge or stereotype anyone, but the classic retirement run, a BNB model, I think is, is sacrificing almost wholly the entrepreneurship angle of what might make it successful.

[01:10:30 - 01:11:03]

Christine Traylor: Right. So if you're retired and you just want to, you know, have people stay in a room and make them a breakfast every once in a while and cater to them. Sure. But maybe not striving to make their experience an absolute luxurious one, you're sacrificing part of what could grow that business. And so from my perspective, I think that's why bed and breakfasts have been seen a little bit on the less, less successful side of the scale.

[01:11:05 - 01:11:36]

Christine Traylor: And I think that there's a model for that too. Right. Where if you don't want to grow the business, but you just kind of want to maybe make a certain amount every year in addition to a 401k, absolutely fine. That's not our vision for First One House. And I think to what we were talking about earlier, I've had guests that come in and they are higher end customers.

[01:11:37 - 01:12:31]

Christine Traylor: They tend to stay at the Omnis or the Ritz's and they marvel at how much more personalized and high end this experience is because I'm catering to max 24 guests as opposed to a Ritz that is catering to hundreds. And I think you only get that feedback from those higher end clientele if you're truly exhausting every opportunity to make that experience what you want it to be. And so I think that entrepreneurial vision and effort is, at least for our business case, 100% required. That was just so, so well said. And so you are, you see yourself here as an entrepreneur.

[01:12:31 - 01:12:52]

Will Smith: You are trying to grow a business. Yes, with a lot of tenderness and love and so on, but that, but delivering service is a business mandate. Yes, absolutely. Is there some Empire vision here or is it the one. It's the one for us.

[01:12:52 - 01:13:21]

Christine Traylor: Yeah. I mean, I can't speak into year 15 if my husband quits his job and we open place in Shenandoah, but it wouldn't be a franchise. It's not going to be like that because for us it's just, it's the uniqueness of this building, it's the neighborhood. And so franchising that out and, and making that into a multi property affair is just. I see it as almost impossible.

[01:13:21 - 01:13:32]

Christine Traylor: But. Well, it also goes counter to the whole value prop that you just articulated, that it's personalized. And so franchises by definition are not that. Yeah. And what of.

[01:13:32 - 01:13:59]

Will Smith: Let, let's talk for a minute and we're going to start wrapping up here. What of the hospitality industry or maybe the BNB industry and how it's been impacted by Airbnb? What, what, what are the. What was kind of the lay of the land there? So that was one of the big risks when we decided to, to go into hospitality was, you know, you're contending there, the lodging sector in D.C.

[01:13:59 - 01:14:24]

Christine Traylor: is very, very robust and a very crowded sector, and then add on to it the Airbnb market, which is even more of a competitive state to contend with. So it was a risk, I think, to what we've been talking about. The experience here is so unique that we cut that competitive edge quite a bit. You know, I.

[01:14:27 - 01:14:46]

Christine Traylor: I've had a lot of guests recently. In fact, I was just talking to someone this morning say that they'll never stay at an Airbnb again. That, you know, the to do list of what you have to do before you check out was enough that they had hardly free time for. For their stay. And.

[01:14:46 - 01:15:17]

Christine Traylor: Or, you know, you just are in that space that is not as well maintained or as well managed as you'd ideally like. And so I think, I think we can make a case for a lot of people staying that your dollar goes so much farther at a place like Swann House than an Airbnb. But it's, you know, we have to make that case. And that's where the, like, communications marketing stuff comes into play quite a bit. Yeah.

[01:15:17 - 01:15:32]

Will Smith: Yeah. Well, it's. So. It's been so interesting to watch the trajectory of Airbnb because I, I feel like its reputation is really suffering these days because of what you just cited. That, you know, the to do list that you're delivered when you're as.

[01:15:32 - 01:15:58]

Will Smith: As the client. You get all this to do stuff, and it no longer seems price competitive. Often, I'm sure I'm. I'm wrong there, but I don't know when I've. When I have looked at Airbnb a few times over the last year, I feel like I may as well just stay in a hotel, but especially because the promise or the vision of Airbnb was that it would facilitate the very kinds of interactions that you have with your guests.

[01:15:58 - 01:16:10]

Will Smith: That, you know, we'd all be staying in houses of locals and the connections that would be made. And maybe that's what it was like in the beginning, but I haven't had that experience. No. For a long time. So.

[01:16:10 - 01:16:35]

Will Smith: So it really just feels like kind of a messy way to monetize. Monetize excess capacity of a guest room or, or, of course, people. You know, it has. It has enabled entrepreneurs to become Airbnb businesses, which I'm all about entrepreneurship, but again, that doesn't really capture the humanity that the business was supposed to. Was supposed to bring to travel in hospitality 100.

[01:16:35 - 01:17:16]

Christine Traylor: Yeah. So, so kind of ironic that here, you know, the anti Airbnb play is just the regular, the original Christine. Anything that we haven't talked on either, the mechanics of the acquisition, the process of the acquisition, the transition, running the business or numbers or the lifestyle, anything that I'm missing that you think some other person out there who really is. Admires what you've done and would want to do it themselves should know. I guess I would just say, you know, I, I don't have a business school background, and acquiring a business was absolutely, completely foreign to me.

[01:17:16 - 01:17:40]

Christine Traylor: And I had no idea what the, the terminology was and the, the structure and the timelines and Lois and all of that was. I had to learn very quickly, and it was a steep hill to climb. A great one. It was fascinating and I loved a lot of. Part of it.

[01:17:40 - 01:18:17]

Christine Traylor: Parts of it. Oh, good. But I think what came most surprising and most difficult for me in particular was just the well and caveat. We did do an SBA loan, and so that adds an amount of kind of due diligence and, and delays and considerations that aren't necessarily in every business acquisition. But I didn't fully realize how critical that is to the entire deal.

[01:18:17 - 01:18:51]

Christine Traylor: Right. That the delays and the additional due diligence and all of that, when you're trying to manage kind of the seller and their requirements and their needs and their commitments, those two sides don't speak to each other at all. I was really fortunate that the seller had had previous small business loans himself, and so he kind of knew about it and was more gracious than he probably had to be. But it was. It was tough.

[01:18:51 - 01:19:14]

Christine Traylor: And for about four months, I think we thought this whole thing was just going to falter and, and not be successful, but. So the, The SBA loan was taken forever. Yes. Meanwhile, your seller was. I mean, had done SBA loans his own, so he was patient, but also losing patience.

[01:19:15 - 01:19:52]

Christine Traylor: Losing patience and, and ready to step out of the deal. Right. And that's the most stressful because we had already released funds to, you know, extend purchase agreements several times. And, and so I guess going through that, my. The biggest lesson I learned was, well, one, never take an SBA timeline at its word and to, you know, just power through and, and grin and bear it and just.

[01:19:52 - 01:19:53]

Christine Traylor: Yeah.

[01:19:55 - 01:20:11]

Will Smith: But if the deal had collapsed, you would have lost a significant amount of money. A significant amount of money. Yeah, because you, because there was. What was the word you used, we. Were releasing once every time we had to extend the purchase agreement with the seller.

[01:20:11 - 01:20:34]

Will Smith: Extending the purchase agreement and releasing funds. Okay, so you were basically just kind of, these were kind of deposits, if you will. Yeah. To, to demonstrate seriousness and then the deal wouldn't close and then you'd have to put in more money to, to, for continued seriousness and so that they didn't pull out of the deal and take it back to market. Yeah, exactly.

[01:20:34 - 01:20:45]

Will Smith: Yeah. And I never anticipated SBA to take eight months to approve the deal. I know we were at the, the absolute max threshold of the SBA loan, but we could not have done this deal without those terms.

[01:20:48 - 01:21:06]

Christine Traylor: But there was definitely a sacrifice to, to that because the eight month time frame was very difficult for the seller. And when you say you couldn't have otherwise done the deal, what do you mean? Did you look at other ways to put this deal together? What did you look at? Why wouldn't they have worked?

[01:21:07 - 01:21:48]

Christine Traylor: The interest rates were, were much more manageable with the sba and because, because we didn't have the operating statements because Swann was closed for some time and the person, the company we were buying it from had only owned it for, for two and a half years. So most lenders wanted to see three to four years of financial statements and we were unable to provide, provide that SBA was willing to work with us without that. Ah, there must have been in your favor the fact that there was a gigantic piece of property. I mean the, the, the vast majority of the purchase price was really. Yes.

[01:21:48 - 01:22:12]

Will Smith: Attributed to the real estate. Many of my guests buy businesses, so called airball businesses, where there's no there there other than the employees doing the work. So if, if a bank is to foreclose on the business because the loan payments aren't met, there's really nothing to seize. In your case, real estate is, you know, bank's favorite thing to seize. So that, that must have given them comfort.

[01:22:12 - 01:22:30]

Will Smith: But it sounds like, in fact, why, why do you think it was taking so long? Well, sorry, you've, you've said because you didn't have the, they didn't like the fact that the, the business had no performance documentation. Yeah. Any other reasons it was taking so long? I think it was the end of the year.

[01:22:30 - 01:22:40]

Christine Traylor: Right. We got pre approved in July, approved at the end of October. It was. So it was pre approved by the bank and then was submitted to SBA in November. Right.

[01:22:40 - 01:23:04]

Christine Traylor: And so that, then you're getting into the holiday season, which is just unfortunate. And then it had to go to special committee at the SBA because of the nature of my husband's job. So that, can you say more about that? Sure. So it was referred to the SBA standard of conduct committee because my husband works on the Hill.

[01:23:06 - 01:23:30]

Christine Traylor: And so that added, I think so. Like an ethics audit of the situation or conflict of interest audit sort of thing. Yeah. And going back to a point that I kind of want glanced off earlier, do you think that this is a piece of real estate with a business attached or a business with a piece of real estate attached? It's, it's obviously it's, it's more a real estate purchase.

[01:23:31 - 01:23:47]

Will Smith: What it is, it feels like, is. You were able to buy a huge, beautiful, expensive piece of real estate because it had a, a business that enabled paying down the loan and the real estate. Absolutely. You put it beautifully. That's exactly how I think of it.

[01:23:50 - 01:24:12]

Will Smith: Yeah. Because, because fundamentally the, the business, the, the, the, the real estate is, we've already said it's worth, let's, let's cut we kind of roughly 6ish million bucks. And if, if you get the business to throwing off $300,000 a year, even then a business like that only trades. For a million dollars. But that business, the BNB service hospitality aspect of the business isn't even there yet.

[01:24:13 - 01:24:20]

Will Smith: So. Yeah, so the, the. Okay. Exactly, exactly. So this was a Trojan horse into owning some awesome real estate.

[01:24:22 - 01:24:23]

Christine Traylor: Yes, but don't tell anybody.

[01:24:26 - 01:24:34]

Will Smith: One of the things that we talk about a lot on this podcast is valuation. The business that you're contemplating buying, is it, are you getting, you know, is it a fair price? Is it a good price?

[01:24:37 - 01:24:54]

Will Smith: How did you assess if you were paying a fair price for this? Because it's your first time doing this, It's a ton of money. And there's again, there's two assets here. There's an operating business, and then there's this gorgeous piece of real estate. It's a lot for anybody to disentangle, let alone a first timer.

[01:24:54 - 01:25:13]

Christine Traylor: We went into this in a little bit of an interesting light where I did have a conversation with the seller that he basically said, it's this or nothing. I'm not gonna negotiate. I'm not going to entertain any other kind of arrangements. It's this or bust. So that was part of the first conversation I actually had with the seller.

[01:25:13 - 01:25:49]

Christine Traylor: So in order to make sure, kind of we did that valued exercise, we looked at the comparable properties that have like, similar square footage. I even looked at a few, like, historical designated properties in D.C. and you know, it was very clear that that wasn't necessarily going to be what anybody else looked at to, to consider the valuation of the business or the property. But we just wanted to have that as our context. We looked at kind of the ongoing financial statements of the seller.

[01:25:49 - 01:26:17]

Christine Traylor: And then a big thing for us during the valuation was reviewing the renovation costs and the asset costs. So we acquired this fully furnished, everything conveyed with the acquisition. And they had just done a full scale cosmetic renovation of everything on site. Right. So it's really hard to attach a value to that.

[01:26:17 - 01:26:41]

Christine Traylor: Right. And he wasn't going to send us every contractor invoice, nor did I want it. Um, but, you know, having every single piece of furniture, every single dish, every single shampoo included in that sale was also. So totaling all of that up, we felt very comfortable with. With what it was priced at.

[01:26:42 - 01:26:52]

Will Smith: Yeah, yeah, it was, it was a, you know, a business in a box, really. Off the shelf. Ready to, ready to go. Yeah, yeah. And I guess the analysis is like, look here, all.

[01:26:52 - 01:27:17]

Will Smith: Here's the expenses and here's what the business generates. It pays me, and we'll have, you know, hopefully $100,000 left over at the end of the year. That, that will grow to $300,000 or more over the next few years. And again, all the while almost thinking about it also through the homeowner lens, which is we're also. Most homeowners spend 30 years paying down their mortgage.

[01:27:17 - 01:27:36]

Will Smith: We have the opportunity to own the nicest piece of property in Dupont circle over over 10 years. And I get to operate my own business and stop. Get it, step out of a career that I don't like. So that, that, that's kind of a first principles analysis and, and a strong one. That's so neat.

[01:27:36 - 01:27:43]

Will Smith: That's so. Well, congratulations to you guys again, Christine. What a neat story. Thank you. The business is the, the, the.

[01:27:43 - 01:27:55]

Will Smith: The. The BNB is Swann House, everybody. That's Swann with two ends, Heart of Dupont. Lovely place. How can people reach out to you, Christine, if they have questions?

[01:27:55 - 01:28:22]

Christine Traylor: Sure, you can email me@christinewanhouse.com Again, that's swan with two n's. You can also call the bed and breakfast if you want to talk to me. I answer the phone and it's publicly listed, but it's 202-265-4414 and also follow us on Instagram if you'd like. It's Swann House BB is our handle. Swann House bb.

[01:28:22 - 01:28:34]

Will Smith: Great. Well, maybe one day I'll, I'll. You'll see a reservation come across for for me and my wife. I'm so eager to to get in there and experience it. Christine Traylor, thank you so much for sharing so, so transparently with us.

[01:28:34 - 01:28:46]

Will Smith: Again, congratulations to you and your family on a really neat business acquisition. Thank you so much Will. It was great being here. Hope you enjoyed that interview. Don't forget to subscribe to the Acquiring Minds newsletter.

[01:28:46 - 01:29:14]

Will Smith: We send an email for every episode with an introduction to the interview, a link to the video version on YouTube, and soon key takeaways, numbers and more. Essentials from the interview. Interview. For those of you who don't have time to listen or watch it, subscribe at acquiringminds Co. You'll also find all our webinars there on the website, both those we have coming up and recordings of past webinars.

[01:29:14 - 01:29:25]

Will Smith: At this point There are over 30 webinar recordings, a wealth of information on all the technical nitty gritty of buying a business. Acquiringminds Co.