How much to buy a pizzeria for?

Does it go solely on sales?How much does the building and or equipment factor in?I understand if the equipment is new and top name stuff,but what about just everyday things.I have a chance to purchase another pizzeria that is currently for sale back in my hometown.Only pizzeria in town as well but only about 2500 in the town.Is turn key and I believe currently open for business.Asking $110K.Of course it would all depend on how this new venture takes off.
Derek

Only pizzeria in town as well but only about 2500 in the town.Is turn key and I believe currently open for business.Asking $110K

If they’re asking $110k for the place, it should be cash-flowing about $31k per year. This figure, of course, is for the business ONLY. Is he selling the building also? The equipment doesn’t matter. If the place is closed or is losing money, and he is renting, I wouldn’t offer any more than $30k-$40k for the equipment, because his business, unfortunately, isn’t worth anything. It’s a tough game but that’s business. -J_r0kk

He owns the building, equip, name, everything.
If that helps
Derek

Derek,

I think the hardest part for you is projecting sales. $110k for the building (free-standing I take it) and equipment is a good deal as long as everything’s in good shape. To give you an average here in middle Kansas, commercial property is selling for about $240/ square foot, depending on location, of course.

Based on the numbers you gave me, and projecting your basic costs (i.e. 28% Food, 20% Labor, $26k/yr. manager salary, 5% advertising, etc.) your break-even should be around $3,600/wk.

So, what kind of sales are you projecting? 2,500 population seems kind of small and I personally like to stay away from such small towns, though there are a couple operators in this forum that do business in towns that size and make a living at it.

If you can hit $4k-$5k/week, you’ll be fine, but you go below $3,600 and you’re in trouble. There’s always a risk, so be honest with yourself and figure out exactly what you can expect. Go to the previous owner and ask him what kind of sales HE was getting out of that place. That would be a start. -J_r0kk

I normally agree with everything that j_r0kk has to say, but I must disagree and disagree strongly on this one. I would never, pay $110k for a business cash flowing $31k. Buying businesses is what I do, and in no instance would I even even think about paying 3.5x cash flow for a pizza place. I don’t know the market you are in, but in the DFW area, pizza places typically sell for anywhere between 1.5x and 2.5x cash flow. It would have to be something extraordinary to get 3.5x.

is it cash flow=profit?
I think most of the price is the building itself.
Derek

Okay, appraise the building, appraise the equipment, and appraise how much you want THAT business in THAT location.

If you pay $110 for an existing place that has $70k in true real estate value, $10k in auctionable assets, then you’re paying $30k for the business itself. If it’s a good build-out, and in a location worth having, $30k is cheaper than building out a building yourself (kitchen set up, nice fixtures and floorplan, etc).

More interesting discussion here: viewtopic.php?f=6&t=13300