We try and stay at 33% food cost. This includes paper products. So just in food cost you can save 13,000 a year.
But really here is what my gut is saying…why buy a place that is not operating well on any level? It would be different if there was some kind of silver lining for you…like all new equipment…great location…something which justifies paying for his failure.
355,000 are decent sales until you really get in there and look at it…How long has he been open? If he has been open for more than 5 years I think the sales are low. At 355 what kind of money can you expect to make if you ran the business completely up to snuff. 10% is a good number for profit (after you draw a reasonable salary) so that is only 35,500.
His numbers show a shortage of 15,000 grand. So he is offering you his businesss and a yearly loss of 15,000. That just doesn’t make sense to me. Why would that be a good deal to you? You might be thinking I can cut costs…even if you cut costs by 10% that is still only 20,500 (cuz he has a current loss of 15)
As great of a pizza owner as you might be, it all takes time…do you have enough back up to cover costs for a couple of years? It is not like you will be able to go in there and switch it all around and see instant results…it takes time…you are going to have your own fool’s tax to pay and I don’t think this equation allows for error.
Clearly the guy doesn’t know how to manage the operations and it makes you wonder how many customers he has lost over the years. It is so much harder to win people BACK rather than bring new customers in. Why not just open you own “new” place which gives you the opportunity to bring NEW people in. I think of restaurants I see that say under new ownership, if I have had a bad experience there I am less likely to try it…compared to a new place I am curious about.
I think our financials are a reflection of how we run our businesses and he clearly is sloppy.
This guy isn’t selling to someone else anytime soon so I would keep looking at other options. If you are going to invest 40,000 in something I would make sure I was getting something…anything!
I agree with Kris on this. To take over a failed shop is a tough one. IMO it takes a lot to win people back most won’t notice your new signage or new menu if they’ve had a bad experience they just associate it with ‘that pizza shop at xyz location’.
You either need to be 100% convinced that you can do something the other guy wasn’t doing or otherwise you face being in the same position he was?
Three times in my past I have been involved in taking over failed pizza places…It was very tough but at the end of the day the results were good…Having said that, the economics have to be right…If the lease cost is too high then you are still doomed to failure…If you buy the place for less than 50 cents on the dollar you must be willing to invest in improvements and marketing…And sooner or later even a location with a history of failure will find success with a motivated owner…Not a sure thing but neither is buying a “going concern” or starting from “scratch”…Good luck…
The location alone is really my big draw. This shop is in an affluent upper middle class area close to schools and businesses (he claims he has 17000 residental addresses in his data base). I know the product, my wife and I order all of the time (basically still like Domino’s) They have great salads and pasta dishes too. The space is 1500 sqaure feet and the rent is 1450. Its on a main road with good access and great signage (new electronic board within 2 years).
I really think he lacks marketing. I guess alot of that would have been done by corporate so I can only speculate that perhaps its a weak point for him. This guys been in this spot for more 10 years. The hard sale is why he left Dominos after over 20 years with them, I can only speculate that someone had hurt feelings. We are currently try to get that question answered.
We run food, paper, supplies combined of 29.5% on about double that sales number. I think we would run 31% if we were doing 350K (it was only a few years ago we were doing 450)
After all this discussion, I have a couple of thoughts:
You should not look at this as buying a business. A “business” makes money. This does not.
Something along these lines makes sense to me: Offer him 30K if the doors are open and let him know the offer will be reduced to 20K if he goes out of business first.
If the location is good and the equipment works and the phone is ringing , it could be a pretty good deal to build from. I would change the name, bump up the quality if needed, make sure the pricing makes sense and put on your marketing hat.
If you can trim the extra food cost that is in there the place is break-even. If you can work there for a year on $10 an hour, you have a good shot at building a good business.
Didn’t I read here a long time ago, that you could roughly gauge the sales by the number of names in the database for the last 120 days times $1?
I know we sometimes use gauges for “ballparking” a number. Does my memory serve me correctly?
I do know that you can take the food purchases and multiply by 3 or 3 1/2 to get sales.
Bubba
Bodegahwy, why would you change the name? I would assume there is some value in the name of an already established place. How many dissatisfied customers could he have made in under 2 years? Do think a change in name may cause the current customers to look elsewhere?.
Bearing in mind you have identified the business is making a loss (since being a Domino’s) then people have either tried and don’t like or don’t simply know it there.
If you keep the name - make sure you clearly advertise ‘Under new management’.
If you change name you don’t need to do this.
Think to yourself what the +'s and -'s are of keeping the name and I’m sure you’ll find there is a strong argument for dropping the name of a poor business.
If your still unsure go ask local people what they think about the shop and you’ll get an opinion base it on that.
Clearly the guy doesn’t know how to manage the operations and it makes you wonder how many customers he has lost over the years. It is so much harder to win people BACK rather than bring new customers in. Why not just open you own “new” place which gives you the opportunity to bring NEW people in. I think of restaurants I see that say under new ownership, if I have had a bad experience there I am less likely to try it…compared to a new place I am curious about.
I agree you will probably want to change the name, for the reasons mentioned above.
I think it is a great idea to ask people in town what they think of …
Just go into local gas sations or grocery store and ask if they know of a good pizza place and or have they ever been to …
I have heard for years that dissatisfied customers will tell many times the number of acquaintances of their bad experience(s), compared to the number of stories of happy experiences related by satisfied customers. Usually I hear it’s 10 times the number of bad experiences related by customers versus good experiences related by customers.