Buying a pizza establishment

Friends,

I have a pizza restaraunt (mainly take-out and delivery). It is curently doing approx 20-24K per month. Rent is pretty cheap at approx 2K per month. About what should be the apporx net income from a place like this. I believe that using % of sales for teh expenses should give some data for analysis. Can someone who has been in teh industry give me some rules of thumb for expenses ie COGS, paper product, utilities, rent, and all teh major expenses? Unfortunatly teh seller does not keepgood books, however he does have teh sales reciepts and sale have been verified. I am thinking that it will generate approx 15-20% of sales as profit. Is this accurate or am I smoking something.

Please help!!!

I am sorry. I forgot to mention in the first sentence that I do not own it but I am considering buying it.

You probably are smoking something to be considering the purchase of a place with no recordkeeping and a potential upside of earning 50K per year. I’ve got delivery drivers earning 2/3rds of that with no stress of the taxman haunting them for previously unpaid taxes, not likely to need to declare bankruptcy due to a lawsuit related to the job ect ect.

15-20% may be realistic, depending where food and labor costs are. Figure at this volume rent is close to 10%. Electricity/gas will be 5-10%. Insurance will run about 2% not counting any hired non owned for delivery drivers. 1-2% for equipment upkeep and repair in a good year. Advertising? My store spends about $3000/month, but most experts suggest 7%. Phones, garbage ect ect add up quick. It’ll make a big difference if food and labor are 50% or 60%.

The key if you do this is you need to increase sales. 250,000-300,000 in sales doesn’t leave much room for error. I would take a good look at this business and be sure to weigh the fact that sales tax and payroll taxes have probably not been paid, and consider starting a place from scratch knowing if you do it right, you should be able to quickly grow the sales to this amount.

I purchased a computer business some years ago. My lawyer advised me as follows:

Do NOT buy the “company” as such. Set up a brand new business entity and then have your new company separately purchase the physical assets of his company such as the ovens, furniture, etc. The price can be whatever you want, and you can also buy “goodwill” (customer list, location, etc.) but if you actually buy the corporation or LLC he has, you then become liable for all the mistakes he made since he started it, including lawsuits, back taxes, everything.

I suggest getting a good lawyer to help you with this. Shouldn’t cost that much to get an LLC or S-Corp set up and get you started off on the right foot.

Hire a lawyer AND an accountant.

No matter how much you want it, and how good a deal it seems, be ready to walk away.

I have a competitor across the street. They are going on the 6th owner in 6 years. Be careful!