Going through the process of buying a pizza parlor! Need motivation or realism

Okay, so I have finally made the big step into future ownership. Saved up for my down payment, looked the place over from top to bottom and I’m ready to move forward. I have the green light from the bank that they will lend me the rest of the funds required. Now I just need a little bit of knowledge from you guys. I’ll give you guys some background of the place I am buying:

The place opened up for business in 2001 by two brothers. They have since been successful enough to open up their own catering service which makes them a ton more money than the parlor did and thats why theyre selling. So since their catering business took off they closed down their parlor about 6 months ago. So if I purchase I will be buying all their assets and their knowledge. They appear to be great people and will train me along the way (that is in writing). I went and talked to one of them this last Sunday and looked the place over real well and I have a appliance guy coming to look over the equipment. He gave me their tax forms for 2016 and said they are still in the process of filing for the 2017 taxes. Numbers go as follows:

Gross: $400k
Cogs: $219k

Wages: $38k
Rent: $22k
Misc: $65k

In a college/military base town of about 200k people, located 1 mile away from the main gate to the largest army base in the US. How much do you think is possible for me to net as a owner operator? My employees will all be family who have agreed to not gauge me for wages in my starting months.

Can I make enough to provide a decent living? My personal expenses are $2200/month. I’m not scared of risk, but it is a big move from my current day job .

You will have to get approval from the building, health and fire department. Suggest you request those inspections before buying so there are no surprises.
George Mills

$5500 as in Property Tax… Payroll Tax?
CGS seems high for sales?

How many years have you worked in the restaurant business?

I have worked in the restaurant side for a couple years, but I have never worked the business side. I went to school for business entrepreneur .

Yes, thats all in the works

Just doing quick math in my head, wages of 38K for sales of 400K seems rather low. Now this will depend on what your local min wage is, but to me this seems rather low. I would prefer to see there PNL for at least 2 years to verify how they managed that.

When I talked to them, they split shifts. One brother worked days the other worked nights. With only 2-3 other employees each shift. We have the lowest minimum wage at 7.25/hr .

I don’t know your family but have a contingency ($) for that NOT working out. Either sooner or later.

Yes, I have more money saved up other than my down payment that will be readily available. I’m not dumping 100% of the money I have into this business. I have my safety net, so to say

COGS over 50%? That is absurd. This is 100K higher than it should be.

Wages 38K? Also absurd. Our sales are about that level and wages (includes a manager that runs the place) are 130K.

You need to look this over VERY carefully. Something is really screwy with these numbers. They cannot be right.

Message me with an email address and will send you some stuff to look for.

Yes, I also noticed this. But my thinkings is that this is the combined cogs of the pizzeria and the catering that really took off in 2015 and 2016 .I have requested the profit and loss for the last 3 year’s and they will have that to me very soon. I will pm you soon

Also, they never hired a manager .They operated it between the two

So where are their wages? Not part of the 38k for sure.
There might be some sales off the top missing if there is a cogs of 55%. That should be in the low to mid 30’s. 40% really if they were doing a bad job managing prices/costs. 40% COGS on 218k purchases is $575k sales. What is going on here?

Thank you everyone for your insight. You guys gave me a lot to ask the owners. If they cannot explain their numbers that is a big enough red flag for me to back out. Much appreciated.

Even without my manager wages on 400K would be 85K.

Highest COGS (including all supplies, paper etc) cost for a well run operation doing 400K should be maybe 150K but I would hope to see it under 120K. For a slice operation (no delivery etc) it could easily be as low as 100K.

Yeah, some of Bodega’s comments and questions are spot on. These numbers don’t give me any confidence whatever. You mentioned that it’s possible that some of the pizzeria and catering costs have been intermixed, and this gives rise to so many more questions about the likelyhood that ANY of the pizzeria’s numbers can be taken as facts. Moreover, if the pizzeria was profitable, why close it, when the introduction of a manager could’ve provided the freedom that they wanted to concentrate on the catering element.

Also, the rent figure sounds reasonable for an operation doing this volume of sales, but is the lease assumable? Lease extension possible? You also haven’t told us if this is all delivery or is there also some seating, etc.

I suggest that you sit down with a sharp pencil and do a comprehensive pro-forma profit and loss projection based on what the sellers tell you was the sales volume for the pizzeria ONLY. This still isn’t foolproof stuff, but it will force you to think intoevery cost detail for the store … include EVERYTHING!! I don’t know what you’ll want to use for “cost of goods sold” but you need to do some more research … or ask more operators here on the Think Tank. You probably need to slow down the process and think your way through this thing more. Give us feedback. We are generally helpful type folks.

You could also contact their food supplier, and ask for copies of the invoices or get the actual invoices from the owners. That would be the quickest and easiest way to judge the COG numbers and true sales.

The food vendor is not going to do that for you. They can not just give out the confidential information about a customer to anyone that asks. What you need to do is have the seller ask the vendor for a printed out summary of their purchases for the last 12 months or for calendar 2017. The vendor will do it for them.

I also was looking to buy a lpcation, the owner said the gross sales were about $400,000. payroll $36,000. He was paying cash only to workers, and drivers (illegal). The actual wages should be around $140,000 and remember you need to pay Soc.Sec. Unemployment, liability insurance about 14%. I have a spread sheet to see an approx. if you like you can use it to change as you need. I could not upload it so here is a pdf attached.