Magnolia Inn Case

The Magnolia Inn sets on a bluff over-looking the Pacific Ocean in scenic Half Moon Bay California. The sole owners of the Magnolia are Jim and Nancy Anderson. They have some necessary experience as they owned and operated a motel until approximately one year ago. This motel was sold to help raise the funds necessary to purchase and renovate the Victorian home used to house the Magnolia Inn. The owners plan on being hands on owners who will be involved in all aspects of the operation of this venture. The Andersons plan to live on the premises as well as operating the Inn. The Magnolia Inn is a seven room bed and breakfast that is designed to house 14 guests. It has been completely renovated and each room has its own individual theme and
is furnished in beautiful antiques. The Inn has a large garden with majestic magnolia trees and features a large deck overlooking the Pacific Ocean with a hot tub for the use of the guests. The Magnolia also features a beautifully renovated dining room where elegantly prepared breakfasts will be served for the guests each morning. The town of Half Moon Bay has three other bed and breakfasts and several motels.
Half Moon Bay is located on busy Highway 1 approximately 45 minutes from the San Francisco Bay Area. The owners do not foresee any problems procuring their share of the market. Jim and Nancy Anderson plan on a minimal staff including a part time cook at approximately 20 hours per week. They will also have a 40 hour per week position that includes the duties of maid service and occasional front desk and reservations duties. Nancy Anderson will be responsible for running the front desk and reservations as well as designing and maintaining the web page. She will also oversee the maid service and aid the cook in menu planning and purchasing. Jim Anderson will be responsible for maintaining the Inn and gardens and driving the shuttle bus when it is necessary. Both of the owners will be responsible for sales and promotional
duties. Advertising for the Magnolia Inn will include a large eye-catching sign on Highway 1 to alert potential customers and drop-in guests. It will also include a large Yellow Pages ad and a web page that will focus on the Inn’s features. With Nancy’s degree and knowledge of computer science the production of the Inn’s web site should be up and running within a short time. Each room will be featured in the web page as well as the outside grounds of the Inn. It will also show the various attractions within approximately 30 miles of the Inn and information about the shuttle service the Inn will provide. The Magnolia Inn expects the largest part of their revenue to be from reservations with a much smaller amount to be from drop-in guests.
Their room rate is $175.00 per night. The attention to customer satisfaction appears to be fantastic. Their goal is for 90% customer satisfaction and for each guest to feel a part of the family with the kind of customer service normally reserved for family members. The desire of the Magnolia is to target the professional couple making a combined total of $75,000 per year and looking for a place to relax and recharge. These couples are looking for someplace within a relatively short drive of the San Francisco Bay area. These couples in combination with the newly married couples looking for that “certain special place” to spend their honeymoons will make up the bulk of the Magnolia Inn’s reservations. They do also expect a relatively small percentage of the revenues to come from drop-in guests. The Magnolia’s owners expect the overall market in the Bay Area to be approximately two million persons. With expectations of ninety percent of capacity within the first year of opening, the management appears to be somewhat over exuberant. They plan for word of mouth to make a quite large increase in the expected capacity. Their projected ten percent profit increase over the first year, with similar increases in 2005 and 2006 does appear to be
feasible. The Magnolia’s owners have plenty of capital to stay open for at least six months even if they do not reach their break-even point in that time period. The property was purchased one year ago with the intention of renovating and opening for business. The start-up costs will come up to $38,000 which will be financed by the owners Jim and Nancy Anderson. Jim’s father Joe Anderson has contributed $15,000 to the venture. This will be paid back at a rate of $500 per month. The improvements to the building came up to $30,000 which leaves the balance of $13,000 in reserve, which includes the $6,000 for the start-up cash. I believe that when looking at the entire business plan that the Andersons have a very good chance of making their business plan a reality.