Potential Opportunity - Thoughts Requested

Discussion in 'The Think Tank' started by jtopicz1, Apr 24, 2018.

  1. jtopicz1

    jtopicz1 New Member

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    Absolutely. And I don't think that staying open until 3am is the best answer. But certainly, later than 9pm on Friday and Saturday to capitalize on the bar traffic. It's all things to think about and test. I KNOW, without any doubt, for at least a year or two, I will be LIVING there, like it or not. In that time, I need to figure out what's profitable, what's not, and if it is profitable, is it profitable enough to expand staffing and headaches.

    Another issue, they are totally closed Monday. I totally get an owner operator with just a few part time staff will quickly burn out working 7 days a week. On the flip side, if a regular customer wants pizza on Monday, but has to call a competitor to get it, are you risking a regular customer?
     
  2. URNUTS

    URNUTS Active Member

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    Not sure it needs to be 3am but...... could be midnight real easily or later. Back to my comment about life changing.
    I get the same comments where I am now... "you're missing the bar crowd" I'm here enough... I'll close first.
    If your model works w/o that element, fine. If that's an essential part.... better to know it now.
     
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  3. sparrowspizza

    sparrowspizza Member

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    I find it hard to believe they are making 90k a year off $208,000 or $4,000 a week. I do $4500 a week and i make about $600 bucks a week.

    Also, about 5 years ago I knew an old Greek guy selling his pizza shop of 25 years. He thought he was gonna get $125,000 easy and ended up selling for $35,000
     
  4. jtopicz1

    jtopicz1 New Member

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    Agreed. I am getting what records they have, as well as all invoices they have agreed to provide from their vendors to try to do some "backwards math." It comes down to how much cash isn't run through the books, and figuring out the TRUTH on that, well...
     
  5. Piedad

    Piedad Active Member

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    A couple of thoughts: 1) You mention a lease at "5 plus 5 year option" ... does that mean that there are 5 years remaining on the original lease, with 5 more years as an option? Paying a premium for the business when there is a below market lease in place (that is also fixed for many years) is something that should be factored into your decision. 2) You've indicated that there may be some price flexibility ... you need to collect the thoughts of Think Tank commenters here, relative to a lower realistic price, and lay those negotiating points on the table, but with flexibility also on your side of the table to account for the beneficial lease terms, 3) The seller needs to understand that his "claims", that he and his wife take $90K yearly from the business, can't be equaled by you, because you will have to pay someone to replace his wife ... essentially, you will replace him, but you can't replace both of them to pocket the full $90 claimed if part of that amout must be paid to a new employee to replace his wife. 4) In negotiating a price, don't bring up your thoughts on extending hours, marketing, etc. ... that has nothing whatever to do with the current value of what it is that he's selling. 5) Accept Uncle Nick's offer to share his "profit analysis tool" ... it will provide a sound basis for a realistic purchase offer.

    As an aside, I agree with your personal thought process relative to "taking the plunge", and I like your vision relative to growing the business,but I also don't want you to "leave anything on the table, when it comes to the purchase price. It sounds like you've embarked on getting as much input from others as possible. Good luck, and keep us informed.
     
  6. bodegahwy

    bodegahwy Well-Known Member

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    To be kind I will call this highly improbable. I could see the two of them working full time and taking 50K out (plus eating a ton of pizza) but that is all.

    I would start by asking for his 2017 federal tax return. Look at profit, look at any W2 wages he or his wife took. Add back anything like personal cell phone bill paid through the business. Add back the cost of replacing one or the other of them (least expensive) On an income based multiple this business is worth at best 1.5X that result. Considering that replacing one of them has to cost at least 30K that would give you an indicated value of 30K.

    Bottom line is that 200K stores do not make money and they are not worth 100K. Listen to the other comments above. If the equipment is decent and the lease attractive I could see perhaps as much as 40K for the equipment in place but even then only if you think you can double the sales... and why would you believe you can do that if they have been hands on full time and only got to 200K?

    Sorry to pour cold water on this idea, but you can find delcos for sale doing more than double that volume that really do earn 90K for that price. No way a store doing 200K earns that much for a single owner working unless it is a tiny slice operation that rocks with just a couple of people and has sub25% COGS and 5% occupancy expense.
     
    Last edited: May 5, 2018
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  7. pizzapirate

    pizzapirate Active Member

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    You are definitely just paying for a build-out. There is no way they are making $90k based on the numbers you provided. To properly value the profits, you need to account for a paid staff -- not owners living there. Revisit the lease.

    Closing at 9:00 and 10:00 is very common. Staying open past that invites many other issues. I'm not sure I would count on those after hours sales in evaluating the potential of the site. Plus jumping into this business is going to be a big time investment. Throwing in the extra hours at the outset will put a lot of extra stress on you.

    Unless I missed it, you didn't mention how long they've been in business. Are sales low because they just opened last year? Are sales low because its a poor product? poor service? both?? Put marketing aside and figure what you are going to do operationally to improve the business. If the food is fantastic, quality through the roof, service exceptional and the place is spotless what is wrong? What is their selling angle? Are they a discount place? Quality and portion? Sounds like its in a good area so maybe their product is not up to par for the neighborhood.

    Good reviews, but not many. That says something in itself.

    Go through all their inventory and figure where its coming from. Is it all low end Smart & Final/Rest Depo stuff? What is fresh, canned and pre-made?

    A good POS system is a must and its an expensive purchase. Do they have one?

    How visible is the location? Good signage?

    Sales are from Take-out, deliveries and dine-in. There are 2 out of 3 revenue streams to develop here. Not a deal breaker, but you will always have that limitation unless there is more space available in the future?

    Just some more thoughts I'm throwing out there. You are basically starting from scratch with this purchase and need to plan accordingly. How much business will you potentially loose from your changes and how much will you potentially gain?
     
  8. bodegahwy

    bodegahwy Well-Known Member

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    PP is dead right on this issue and if anything understates it. Potential sales, not yet achieved are NOT part of the valuation model. If the seller wants value for that potential they should take the restaurant off the market, start staying open later and put it back up when they can include those results in the picture.

    Bottom line if YOU change things and they succeed YOU get paid for that not the seller.
     
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  9. Rich Fray

    Rich Fray New Member

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    That asking price is off the chain. I bought a delco 3 and a half months ago that was doing $5,300 week, for $45k.

    The highlights on equipment are a double deck Marsal and Sons oven, an 8x8 walk-in, dough mixer, steam table, slicer, sub/salad station/cooler, 2 pizza prep coolers, two upright reach ins, an upright and a chest freezer, and a three terminal Dinerware POS.

    I run 30.5 COGS, 30.9 labor including all payroll taxes and workers comp. Rent and utilities come in at $3,400/month, credit card processing about $500/month. Throw in another $500/month for miscellaneous like insurance, maintenance/repair, accounting and whatnot.

    I work about 63 out of the 68 hours per week the store is open and will net about $65k my first year. Sales are up about $500/week from previous owner. That $45k paid is for a store that will do $300k for the year with a rough $65k owner benefit

    No way that guy is legitimately making $90k on a little over $200k in sales.
     
  10. Georgiascp

    Georgiascp Active Member

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    Just chiming in on the bar scene. We have 5 bars located literally right next door to us. This is where the whole town congregates after hours including all the marines from camp Pendleton as there is nothing else to do in our town. We close at 11 on the weekends and we don't get much action from the bars it's too early. There is a Mexican restaurant down the street from us that is 24 hours and from what I hear they deal with all the drunks and their fights. They even have an Instagram page dedicated to them called adolfos at night it's a bunch of videos of drunk people getting into fights. So long story short unless you stay open until the bars close you won't see business. And then there are the drunks to deal with.

    Sent from my SM-N920V using Tapatalk
     
  11. Rick G

    Rick G Active Member

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    Rich,
    If you don't mind me asking, what place did you buy?
     
  12. Rich Fray

    Rich Fray New Member

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    Pizza Kovachi on N Lake Drive, next to the Speedway gas station. Do you own something in Lexington?
     
  13. RobT

    RobT Active Member

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    Rich , your credit card processing seems high. What’s your overall % for it. Divide monthly cost ($500) into monthly volume


    Sent from my iPhone using Tapatalk
     
  14. Rich Fray

    Rich Fray New Member

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    effective rate is 2.4-2.6%....i check it every statement
     
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  15. Anonymous

    Anonymous Guest

    Just for comparison.
    I just listed my DELCO for $250,000, last year net sales were $700.000 with $8500 direct operating cost in South Florida.
    Sounds like a lot of money to pay for a job doing only 4K a week.
     
  16. sparrowspizza

    sparrowspizza Member

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    what is direct operating cost?
     
  17. URNUTS

    URNUTS Active Member

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    C'mon, man... you don't know what "DOC" is?
    Yeah... me, either :)
    Thought rent, utilities, etc but then.... $8500? Can't be that, though that'd be nice!
     
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  18. woodfiredandrew

    woodfiredandrew New Member

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    here in houston they ask for 50-70 k for the store doing 6-8 k /week in sales, it's crazy!!
    Edit: it is a month not week
     
    Last edited: Jun 13, 2018
  19. rtwpizza

    rtwpizza New Member

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    Yes rent utilities and insurance.
     
  20. URNUTS

    URNUTS Active Member

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    Rent/Util/Ins is $8500 for the year? That's $700/month.