FAILING PIZZA SHOP FOR SALE / SHOULD WE BUY IT

Hi everyone. Were looking at a Pizza shop that is for sale. His sales are down to 4500.00 per week. The shop is a complete mess needing complete scrub down and clean all equipment. We could probably start with his equipment and maybe buy new pie ovens once we make some money. Would need paint inside and maybe newer booths just to show a change. I think spending money on a new ceramic floor would be the biggest improvement for customer appearance. He’s down to a selling price of $27,000.00 and the rent was 1900.00 and is droping to 1400.00 per month for the new owners. The cooking area is very tight but has around 6 booths for customers. I’m thinking the shop is 1000 square feet give or take. We’ve never owned a shop but my son has 15 years working for some of the best Italians. He has multiple freinds in the pizza business for him to contact.
My Question is: should I give him the ok to buy? We already have a LLC set up to pull the trigger and a line of credit to start.
Thank you
Would we be smart to close down for a week to get this place loooking clean for people to want to come back and eat here.

You didn’t mention why the shop is failing or how long it has been in decline. What is the competition in the area? These are things that I would want to know before looking at buying. I have seen it said here man times that if it is a failing business you are looking at basically a used equipment purchase.

Though it has been done before reviving someone’s dying business is not an easy thing to do.

I beleive this is an Indian owner. One reason it’s failing is when you open the door to enter you think OMG looking at the floor is enough to make you turn around and leave. His pizza is not the best and everything needs a major cleaning. This person has owned it less than two years. Like other towns there are many shops to choose from. Closest shop might be three blocks away on a street running parralel to this shop. Population is around 8000 in a one mile radius. I agree with you, we would just be purchasing a failing business with crappy equipment.
Thank you.

I bought my first shop that way 15 years ago. If you are confident there is nothing wrong with the location it can be the best way to go. I think your idea of closing for a week or so to clean up is a good idea. I would also consider re-naming the place so it is clear that this is a new enterprise. I would also ask the Landlord for a month or two of free rent or some $$ to help pay for the new floor or other upgrades you are making to HIS property.

Thank you. We would definetly rename the shop. We do not want any association with this shop. I like the idea about the landlord helping to improve. Their already dropping the rent 500.00 a month for the new owners. We would do a grand opening with some type of media burst. Hopfully the landlord will return my call today.

When asking a landlord for cost sharing it is important to focus on work that will be permanent improvements in the value of the property. Upgrading flooring is a good example. Asking for cost sharing in items that are not part of the property or simply expense items are typically a no go for landlords.

Some landlords would prefer to maintain the rent role and write a check for contributions to costs. Others will prefer to grant a rent holiday. Remember that his option is that the other business fails, closes and departs and he is left with no rent at all for a time and probably some turn over costs and possibly a leasing commission so giving you a month or two or longer is still a good deal for him if he is getting a creditworthy tenant who will operate and pay rent for a long time.

If you are not knowledgeable about leases you really should have a leasing broker or attorney (or both) working with you. There is no such thing as a “standard lease” and there are a lot more things in a lease that can cost or save you money besides the basic rent.

Hi KGS:

As a new owner you will have to bring everything up to current codes.

Best you have the Building,Health Departments and fire Marshal inspect and let you know what is to be done.

George Mills

George,
If we purchase this shop should everything you mentioned be checked before settlement to make sure there are no hidden repairs or cost?

Not sure if anyone can answer this. Is $27000.00 too much for a shop in bad shape and crappie equipment?

Thanks everyone

If the equipment is worth $27000 then it is not too much. But if the equipment is not then it is too much. You have already said you plan on a name change to disassociate from the old shop, so there is no “good will” value.

If the location is a good one and doesn’t need a significant change in floor plans, there’s a value to the build out above the value of the equipment.

Thanks.

Working equipment, installed is worth more than the price an equipment broker will pay to come pick it up. A buyer would have to buy it from a broker who came to come get it, cleaned it up, sold it again at a profit and then have it installed. This amounts to at least double what an equipment broker would pay.

To get a useful comparison, get a list of the equipment by model and search the internet for pricing on used models of the same type and age and then make some assumptions for freight and installation.

George,
If we purchase this shop should everything you mentioned be checked before settlement to make sure there are no hidden repairs or cost?

Yes you should have those departments in to inspect and let you know what improvements, if any, will be required before you make an offer to buy

George Mills

Would these companies make a special trip out to inspect before a sale?
Thanks everyone.

Health inspector and fire inspector are not companies. Contact your local authorities for those inspections. Any good commercial appliance guy can come take a look at the equipment.

Thank you

Are their cleaning companies that come to your shop and clean all the equipment? Location Harrisburg PA.
Thanks

kjs,

this is going to sound gruff and unfriendly, but it’s not meant that way, rather as a strong warning.

It sounds like you don’t have much experience with buying/selling property, and you stated you have none in restaurants.

If you have any doubts about the equipment, don’t buy. If you have any doubts about the building, don’t buy. If you have any doubts about your son’s ability to restart from scratch and make money after a while, don’t buy.

As mentioned, the city or county has inspectors for health and building. The fire marshall should be involved also, as that’s another separate area. The equipment should be checked out by a company with experience in buying/selling and repairing. You will have to pay for the equipment check, certainly, and possibly for the government checks.

A lot of these questions should be common sense to someone looking to get into the business. $27k is really much of an investment, compared to most start-ups, but if that’s your whole nest egg it could be devestating.
Does your son have experience with pizza-specific businesses, or just “the finest Italians” who do pizza as a sideline? There is a big difference. If the kitchen is tight, is there already equipment to cook pasta? Is there room to add, if not? What was the top sales of the place before it started going to pot? Ask for sales figures from the past couple of years.

With 6 booths, will you have delivery as an option? Check into insurance costs before opening, in that case. Some areas thrive on carry-out, many all but require delivery to get much business.

How will you advertise the change of ownership?

And, yes, take at least a week to change signs, clean, clean, clean, clean, and then clean some more.

Best of luck, no matter what you decide.

Point taken, We do not have experience owning a pizza shop but I do have common sense. My wife and I both own different businesses and own rental property. Ive already been in contact with the township, state inspection, cost to remodel and insurance etc. One thing I’m confident in is my son to offer a good service and good product. Will be looking into a advertizing blitz.

Thanks, Kevin

I bought a failing shop 15 years ago.

I’m proud to say that sales have gone X5 since then.

It can work, you just have to be patient