By the way, the reason I do not include things like debt service and depreciation in my cash flow projections is because they will be addbacks when I sell the business. I will not own my place for 20 years, I probably will only own it another two or three before I move onto the next one. I know how to value my business based on actual current multiples (not the ones business brokers try telling you). I am always interested in that number. I have my goal for my business, once I get it there, I sell and reap a huge gain.
I also know that the license (B&W only) will only cost me $750 annually state & local total. That is a huge difference over some bigger markets. I could make that back in month one! It is truly a no-brainer once I get the insurance, training, staffing and coolers lined up.
The one to every person is mostly the “vision of perfection” to which I aspire. The unreachable star that inspires some of my enthusiasm. I’m in it for the long haul, so I’ll hold onto my equity if I get any built
I have a few comments after reading this thread.
The figures shown by a few, they dont seem to be IRS figures, meaning what you report on taxes, it also doesnt include paying yourself or paying taxes on the business (not sales taxes).
I think a more representive number should be what is GAAP, what includes salary and net of business taxes, depreciation and interest expense.
I also have a small issue with forming cash flow numbers which are not accurate just for the purpose of selling the business. It scares me to think that business owners shape or massage numbers for the purpose of misrepresenting profits to increase a sales price.
I think Nicks response is more what this forum needs to see, take home numbers net of ALL costs.
Gee, I guess only the fortune 500 companies with their “independent” auditors are the only ones who “massage” numbers then…all financials are a joke and can be easily manipulated
If this is scary then what do you call Enron, Worldcom, etc…this is chump change!
At least any prospective buyer of a pizzeria with adequate due diligence can verify the numbers presented to them by a seller…stock market is a totally different story.
In my county in eastern pa, a liquour license goes for $170,000. No typo. In Philly, an hour away, I just read that they’re going for $60,000. It would take me a long a$$ time to pay for that, I’d never be able to get a loan in the first place. You have to purchase a license in your county, they don’t transfer easily.
I’m just interested in the insurance number. Our quotes for Workmen’s Comp were over $5,000 a year and Non owned auto was higher - we couldn’t figure insurance for less than $1,000 a month. We own the property so no rent there, but we will have to repay a business loan. I can’t imagine how somebody has insurance for $230 a month!!!
I’m not sure if this in the case in PA but here you can get a restaurant license or a full blown liqour license. The restaurant license allows you to serve alcohol, but your sales have to be within a certain threshold. 50% food / 50% alcohol… or whatever percentage is determined by the county.
The restaurant license is significantly cheaper then a full blown liqour license. I don’t recall what we paid but I think it was around $1,500 for the year. And there is a seperate fee for Sunday sales…
Also serving alcohol raised our insurance $400 more per month for the added coverage.
I’m a CPA, and this statement is not at all how a business should be valued. These numbers are added back because they are not real expenses. IRS tax law allows for depreciation that is simply not real. I have items that have a 0 book value, but have significant real value. Interest is added back because that is my expense and if I am selling to someone else he/she may not have that expense. If they do all cash there is no interest expense.
Everything else is in my and every other reputable seller’s numbers. All taxes are in there.
Depreciation and interest have no place in a business valuation and it is standard practice to add those back.
These cash flow numbers are accurate. They are the amount of cash I put in my pocket every month. That tells you a whole lot more than a GAAP net income ever would. If you are going to come criticize, at least understand the issue.
Furthermore, confusion only arises when you have some buyer who doesn’t know the first thing about accounting, and who refuses to consult an accountant.
Look around, you will not find anyone in the business world who uses “GAAP Net Income” to value a business. NO ONE.
So at 18% labor, are you running the shifts 24/7?
Also, what percent are you putting the bank acct per month? To hell with cash flow…
I really think this is a matter of semantics of sales value of a business versus operational “net profit” of someone owning the place and planning to own it.
It really does seem just a matter of definitions of what we are counting and looking at. The ‘snapshot’, if you will, is slightly different for some of the rest of us that for DCW. He is focused very clearly on resale of a business, which is a different monkey than developing a business as a primary operational livelihood. Neither is better than the other, just different.
Long term owners looking at managing day to day operations have to include debt service into the mixture, while it is accepted practice to handle that differently in valuing a business. Potato vs. some other starchy root vegetable . . . similar and not exactly the same.
Sorry it took so long to get in on this post…
When I generate my P&L’s I use the E.B.I.T.D.A. format. Meaning, I can see how much profit my business is generating first. Then I add:
- Interest I’m paying on my business loan
- Any taxes that are paid on profits.
- Depriciation and Amortization pretty much cover the loan payments before interest.
After these numbers are subtracted from my revenue I come up with my “Net Profit”, which gives me a more accurate idea of how my business did for the month.
Just remember one thing… “Net Profit” and “Cash Flow” are two different animals. I can have a P&L stating I made $5,000 in a month with $10,000 in the bank, or I can have a P&L stating I made $10,000 a month with $5,000 in the bank. P&L’s are just a snapshot. They give you a somewhat reliable view of your business but the real telltale sign is your bank account. Is it increasing or decreasing? That will tell you how well your business is doing. -J_r0kk
It’s really 19%, but no, I have shift leaders. I work about 50 hours a week. We’re only open 60, so maybe that’s another cost advantage I have.
I will soon be hiring a manager to take over. I will still be very hands on, I just won’t be doing the grunt work anymore.
That is exactly what I wanted to say. As I said before, I am a CPA. I can do all sorts of interesting things on a P&L to make my business look very profitable. However, my bank account does not lie. That is where the real numbers are.
Those numbers are approximated by the cash flow I’ve been discussing. The only exception at that point are debt service, which I’ve already explained why I do not include.
dfw… how long have you been out of the chicago market? i’m curious if you make pizza in dallas like it is in chicago. i have always thought of relocating but fear that in any other part of the country, my pizza might not be as poplular since they might be used to eating papa johns style crap on a conveyor. anyway, this is an entirely new subject, but just wondering.
i do not make Chicago style, I actually make NY style which kind of kills me inside.
There are a couple Chicago style places around here, and they do alright.
I get Giordano’s shipped to me every now and then, so I get my fill of the stuffed, but I really miss Chicago style thin crust. Most non-Chicagoans don’t even realize that thin in Chicago outsells stuffed by at least a 3-1 margin.
My next restaurant is going to be a Chicago style place. The places around here are rather poor imitations. And they advertise poorly. I really think someone with a good product and business acumen could do well selling that pizza.
You know what I would love to open around here? A Portillo’s type place. Portillo’s, Mr. Beef, whatever.
who in your area knows what an italian beef sandwich is? i am from the south side and i’m amazed whenever i travel outside of this area at the poor quality of food. my real concern would be making food like i do and people just aren’t used to it. it would be like j rock or whatever his name is opening his pizza place near midway. it wouldn’t go over that well.
how come evryone that visits florida tells me there is no good pizza.
people are used to eating crappy food i guess.
what made you relocate anyway?
We have a transplanted Chicagoan around here who has a mini chain deli that has italian beefs. He uses Vienna beef, which I think is just an average product. It certainly is not in the upper echelon of beef.
Beefs by themselves would probably not be a huge hit here, but that kind of place - a huge hot dog stand that has burgers, beefs, dogs, ribs, sausages, etc is completely non-existent here. I would have to think one would do well.
I originally relocated for a job transfer. I since left the corporate world and instead of moving back I stuck it out here. DFW has “solid” pizza, but nothing like you get in Chicago. Most good places around here are NY style. The place I own I think is alright. I would never eat there in Chicago, but I ate there for years before I bought it down here.
There is a place going out of business just down the street from me that has a great location. They did no marketing though and even if they did their product was brutal. They actually aren’t even failing, they are just at break even and the lease is up and the owner has had enough. I have been thinking long and hard about opening up an authentic Chicago place there, but I haven’t found the stones yet to start one from scratch. That and I do not have a good recipe finalized yet.
Why do you want to relocate?