Advice on buying a closed store

Pizza Shop Talk The Think Tank
1

After putting the FAQ together you think I would know all the answers, but I coule use a little help evaluating an opportunity in our town.

For about 2 years we have been keepign our eyes open for the right opportunity to open our own pizzeria. One of the local indys del/co has recently closed and is for sale.

All equipment in the current location is for sale ready to open doors for $30K. The owner is willing to cash out, lease to own or just lease spot and equipment. Store closed 10/31 and the old number has been disconnected. The pizza was decent and they sold about 450 pies a week. Not the most popular in town, but they did no marketing either.

What reports (PL, Food invoices, equipment list), information, or other items should I request to make an informed decision? I have already read all the FAQ items dealing with buying a pizzeria and it is my understanding at this point with a closed store, the business is only worth the equpment. Thank you in advance for your help and answers.

2

#1 - Get his sales tax statements for at least the last year in addition to the P&L statements … if the numbers don’t match closely, start looking for a herring, I guarantee you’ll find one.

#2 - Make certain that any contract is for the assets of the business; not for the business itself. I was very fortunate that I remembered that little tidbit from college B-Law; when I purchased my place 12 years ago, the original draft of the contract called for my purchase of the business (which would have included the liabilities of the business). If I had not had that changed, my $40k investment would have put me on the hook for about $100k in unpaid bills & taxes. I would now be sending this from a padded cell somewhere.

#3 - See if you can get all the equipment running for a couple days, then have an repairmen come in to check it over. $30k seems like a good price for what’s essentially a turn=key operation (especially if it includes a POS & ready made customer list), but not if the equipment’s all crap that will only last a year or so.

#4 - Talk to the local health & building depeartments. Everything is likely fine since it’s already been set up as a pizza place, but not crossing that ‘t’ could be costly.

#5 - If possible, contact a sampling of the place’s customers - Ask what they like about the shop and what they think you ought to do to improve the business if you purchase.

#6 - Contact the landlord. Find out the exact terms of the lease, the remaining length, and if you have, or can negotiate, options to extend. If you have things you wish to do as far as leasehold improvements, ask if they’ll put any money toward them - they probably won’t, but if you present yourself properly, you may get a pleasant surprise!

#7 - Contact some of the employees that were recently let go, they can be a valuable source of what’s good and/or bad about the business.

On the surface, it sounds like a pretty good deal, but you have a good amount of homework to do to keep your backside covered. From the sound of it, you don’t have a lot more info to give us at this point, You need to find out what the sales $ are (weekly or monthly) along with labor (both hours and dollars) & food costs (and make sure the invoices match the stated cost) before you can make a more informed decision.

3

This is a purchase of equipment. (confirm that the equipment is his to sell and not leased or held as security by a bank, other lender or the LandLord) While it is very worthwhile seeking to understand why the old place failed to help determine whether you can succeed, you should be focused on your plans and numbers. Buying an equipment package in place can be a great way to open a new store.

  1. “Get his sales tax statements for at least the last year in addition to the P&L statements”

This is not the sale of a buisness. The numbers are nice if you can get them, but not relevant in the sale of equipment. I would not let failure to get these numbers stand in the way of a good deal.

  1. The should be no “contract” at all in this transaction except as it applies to the lease (see coments below). There should be a “bill of sale”. This is an important difference. It should identify the major pieces of equipment. OK to list “misc small wares and supplies” or something similar once you get to things worth less than about $1000. This takes care of the point about possible liabilities. Don’t buy the name or any other asset. Spring for a new sign.

Good points on contacting the various agencies and starting up the equipment. Good luck with finding customers and employees, but in any case, you should not be reopening a failed place, you should put another name over the door and start over. All of the numbers for food and labor will not transfer to you in any case. Don’t worry about what the other owner did, focus on YOUR business plan. If the location meets your needs and equipment is a good deal keep talking. If the location was the problem with the former business move on.

By all means get in touch with the landlord. The chances are good that the lease is terminated with respect to the old tenant’s ability to sublease or assign the lease with the closure of the other business. You will most likely want a new lease. You do not want to be a party to someone else’s contract if you don’t have to.

Ideally, you really should approach this as two separate deals; one to buy the equipment and small wares, the other with the LL to sign a new lease, each contingent upon the other.

4

Does your state/county have property tax on business property? If so, see if it has been paid.
In South Carolina property tax stays with the property when sold. If there is over due tax on equipment and you buy it, you now are liable for the tax. Not fair but true. I have have many long and frustrating conversation with our county tax collector about this. The counties position is that it is not up to them to determine if it is just or fair, it is their job to collect the tax. :evil:

Rick

5

The property tax angle is true here as well… but on 30K worth of equipment it would be about $250 per year. You can check with the taxing authority to see if all is current and, if not, require that it be either paid before the sale is transacted or that the tax is withheld from the sale.

6

Hi Pazzo:

NY Pizza makes good points.

I wish to expand on item 4. You do not indicate how many years the shop has been open. Check with both the building and health department. There may have been changes in the building and or health codes that the old operator was immune to because of the grand father clause.

You will not be grand fathered, as you will be a new operation and you will be required to bring everything up to the very latest code changes.

George Mills

7

Thanks everyone, you are awesome. Great information for me to start working on.

As for the business from the times we have purchased pizza at this location, they only used a register, no POS system so I highly doubt they have a database of any type to work with. Come to think of it, no one in our town uses a POS for customer data. They are really missing the boat.

The name has to be changed, as the owner still has several other location with the pizza name. He has told me he is planning to open a new location about 10 miles south. The store was open at least 5 years, maybe a little longer. The traffic on the street is not what is used to be so I am concerned if this lead to their demise or something else.

Previous owner has also stated he would give a 1 year warranty on all equipment (will have to make sure to get this in writing with details).

I will keep you posted as this moves along or not. Thanks.

8

I have sent an email asking for additional information as described above. I also found this new listing on craigslist from two days ago. Looks like he has dropped his price $10K; everything for $20K very tempting

Double stack of Bakers Pride Model #451. Great shape, will warranty for one year. Delivery and set-up available. Can send a pic if you need, just didnt take one yet. Other equipment: True T72G 3 door reach in, True 72" Prep table, True GDM54 2 Door door reach in, Triple sink, Complete 7’ Captive-Air hood system with exhast and make-up, Misc furniture and cabinetry and utensils, 30q hobart mixer, Hand wash sink, 7’ stainless table, 4’ stainless table, 3’ stainless table. Everything you need to open pizza shop. $20k delivers all. OR Leave all where it sits and open tomarrow.

Thoughts?

9

Hi Pazzio;

Everything you need to open pizza shop?

Not to discourage you but just to raise some questions to witch you may wish to seek answers.

I would think as a minimum you will also need a pizza prep table (make line) and a walk in cooler.

How old are the refrigerated units?

How old is the hood and make up air unit? Codes have been changing. You will be required to meet the latest codes even if you take over an existing operation.

What type and size is the make up air unit? They can be expensive to operate and can drop very hot air off your roof into your shop in the summer time while the hood is pulling air conditioning out.

We would not use a make up air unit for a double stack 450 BP ovens.

George Mills

10

Howdy, I’m a newb here.

This post is pertinent, as I am going to look at a closed shop on very busy road. It had been open until recently. The current owner found a bigger place closer to his home, so he is looking to sell this business for a reasonable(to me) amount of money.

This will be our first store, where do I start as far as advertising, etc. That’s assuming it is turnkey as stated and I won’t have any issues.

Thanks, awesome board here.

11

George - I do believe a prep line is included as noted “True 72” Prep table".

I did call our local health department and at the very least I would have to submit a sire review plan detailing layout, equipment etc. at $152 even though they just closed less than a month ago and I would really change anything.

Skargo - A good place to start is the FAQ at the top of the page. I spent several weeks if not a month going through all the back topics and putting it together in a document listed by subject. There is a lot to read but almost anything is covered. It is actually about time for me to do it again and update with a new list.

Thanks to everyone for your replies and insight. I guess the biggest thing that scares me, is the fact that I thought I was ready to do this when working on the idea, business plan etc. But now that it is time to money where my mouth is I am second guessing myself, do I really have what it takes? I just don’t want to step into something and pay the fools tax because I didn’t do enough due diligence.

12

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[quote=“Pazzo di Pizza”]
George - I did call our local health department and at the very least I would have to submit a sire review plan detailing layout, equipment etc. at $152 even though they just closed less than a month ago and I would really change anything.

Hi Pazzo:
Just because a shop just closed is no guarantee that there are not a lot of up grades and improvements you may have to make. Best example is ventilation. The codes are vastly different that they were a few years ago.
The building department cannot force an operator to up grade but they can require a new owner to bring everything up to code.

The above is true with the fire Marshall and the health department. All three agencies need to inspect and make their recommendations before you can feel safe in taking over an existing operation.

George mills

13

George - Thanks, this is my biggest fear on this whole thing, too god to be true. I have called the health department and was told all I need is to submit a plan review form detailing the layout, equipment, menu items etc. I called the building department and they looked up the permits and said nothing is out of place.

However inexperience in knowing what to ask is a big fear. Asking the right questions to get the answers I need is critical, I just don’t know what I should be asking. Thus my need for help for all the fine smart folks on this site.