Identifying my startup costs

Hey everyone. Ive been reading these forums for a while now. Tons of great information. Im glad there is a forum like this with so many helpful people.

So heres what ive got going on. My brother has worked in pizza for about 15 years now. He’s done it all. At one point in time he had the makings of his own business but couldnt secure the funding to get into a brick and mortar. He took a few years off from pizza and worked with burgers. I was going to college while he was doing all of this and have since then gradutaed with a bachelors degree. After graduating I worked a few different jobs and eventually ended up becoming a shift manager with corp. pizza. After a short time, I was offered a job as GM of another store. So, this is where im at now. GM for someone elses store. My brother is Assistant GM at the same store.

My brother and I have kicked around the idea of opening our own shop for quite a while now… years really. Now, I think we are ready to do this. Here are the details of what we have so far:

We plan to rent a place that was previously a pizza shop. This shop was in business for at least 20 years. It was very popular and did very well. The man running the shop got too old and passed the business to his children. They attempted to keep the place open for about a year then just closed the doors. They said they didnt want to operate a pizza shop or even run a business. It has been closed for about 2 years now. Now the place is for sale or lease.

  • 1100/month with all equipment (everything that was used in previous business minus 1 pepsi cooler, said to be in working order)
  • dining room with at least 60 seats plus a party room larger than the dining room.
  • first month free with 2 year lease
  • offering lower rent for first 3 months to give us time to get some business($800)
  • great location
  • a crew ready and willing to move on this( 2 experienced drivers, 2 cook/servers and my brother)

Heres the way I want to do this. I will be securing the funds myself. I plan to keep my current position as GM and my brother will run the new store. If the business does well, I will then quit this job and go there. I will be handling all the finances from the start.

So, what are your thoughts on this idea? What kind of startup costs will I be running into? What should my first step be? With the equipment already there, a huge chunk of the startup should be taken care of. I am realistic though, and I realize that we may need so equipment or repairs. To me it seems like a very viable business opportunity. We both want this very bad and are ready to get started planning. Thanks for any help you can give me.

Slim

I hope you have thought out the reaction of the place where you and your brother are working now. As an owner I would most likely not keep you on as GM if I knew you and your family were going to be competing with me. (I have made the assumption your are in the same market).

The above aside. The best plan of attack is to write a detailed business plan. I would start with making sure all aspects of the building and equipment are up to current health, building and fire code specifications. As George has often stated the codes are not grandfathered to the new owners in most cases. The costs to bring everything up to code are likely going to be you biggest expense.

If the building has been sitting 2 years, i would want to get in and make sure all the equipment was working properly (let refrigeration run at least overnight if possible) or in easily repairable shape before i signed the lease on the place. I can attest to this because the building we rented had a walkin cooler with it that was working when the previous store closed (about 6 months before we moved in), yet when we turned it on about 2 weeks before we opened, we discovered that the compressor was shorted out and we ended up replacing the entire cooling system.

As for expenses, these come to mind:
POS System
liquor license (if you are selling alcohol)
Food License
Insurance (building and drivers)
Security system (if you choose to have one)
Marketing
Initial food orders
Uniforms (we supply T-shirts and hats to our employees)

I’m with Daddio on the employers reaction. If I found out one of my staff was working on a project to compete with me, they would be shown the door pretty quick. There’s always that thought they would run my place into the ground right before theirs opened up to help them get more business.

Don’t forget to have a pre-inspection to see what you will need to do to get the place up to code. Don’t assume it’s all up to code, that would be a costly mistake. Most likely you will need to change things, or replace things.

Don’t forget to plan for slow sales at the beginning. Don’t expect to make money or break even right off the bat. It could take months, if not a year or years.

Hi Slim:

Steveo and Stebby make excellent points.

Refrigeration units started and run for a couple of years then shut down for a period of time have a pronounced tendency to fail shortly after restarting.

Any shop that has been existence for a number of years will no doubt need substantial upgrading to meet current Building dept Health dept and Fire Marshall requirements.

Do not let anyone tell you things are grand fathered in. You will have to bring everything up to the latest codes.

George Mills

Thanks everyone. You all make very good points.

First of all, the store I work for now is not in the same market. It is over ten miles away from the location we will be opening. Neither store will be delivering anywhere close to each other. I couldnt really do anything to hurt the business where I work because that would only hurt me. That being said… I dont want to work for someone else. This is the only way I can see this working for us. Im kinda looking at it like the saying says, “dont quit your day job.” I do intend to quit once the business picks up a little at the new store though. So, do you think there would there still be a conflict?

I do understand that everything will need to be brought up to code. So this is where I should start. Does anyone have any ballpark figures on these expenses in small town USA?

I understand some equipment may not work and the refrigeration/freezer equipment is my biggest concern. The utilities are turned off at the place now. What would be the best way to find out how everything is working? Should I ask the owner of the building and equipment to turn on the electric or should I ask if I can have the electric turned on? Im not sure how this process should go. I would hate to sign a lease and turn on the utilities only to find out that nothing works. Its strange because I will need financing to open the place but I cant get financing without getting in there and checking things out. Any advice here?

Thanks again guys. Your help is invaluable.

Slim

Unfortunately I would have to answer yes to that question. You see if you worked in my store, even though you are the most honest person to walk the face of the earth, there would be the concern as to whether you were using my supplies to stock your store.

I would just tell the people you are dealing with that in order for you to make a good business decission you MUST be able to know what state the equipment is in. This would include allowing you to have it checked while operating. Let the landlord and the seller figure out which of them is going to turn on the power and water etc.

I understand what you are saying but to me the theft risk is no different than with any employee that could easily carry out cups, meats, or cleaning supplies. So as long as I dont steal from the company(which I would never do), it should be fine. I do inventory weekly as well as daily counts on high cost items and could be audited at any time. So anything missing will show up immediately. When im bonusing based on food cost, I dont think this will be an issue. Another thing, I would not have the ability to purchase any of the same products for my own store as I would from the franchise I work for. These products would stick out like a sore thumb in my own store with logos everywhere. If the owner, who by the way owns about 30 stores, sees a problem with my inventory I would be glad to show him my receipts and make him a pizza. What about all the info on this site and every where else that says you should gain experience in another pizza place before you open your own? Is this not what I am doing? I have had employees that work for me and other shops in town before.

Thanks for the tips. Ill talk to them about turning on the utilities and hopefully theyll go for it. They really want to rent the place out so they may go for it.

IF you have not done so. go to FAQ and start reading. I have a good chunk of it taged. I also have spent 17 years in the pizza biz. Part of that as a GM and a whole mix of other positions. The FAQ def gave me more to chew on.
There is a section on opening a shop, also a great opening store checklist.

Thanks baughman! I have been digging through the FAQ. Now thats a plethora of information! I have learned tons already. Thanks again.

My first steps will be:

  1. Asking the owners to turn on the utilities so equipment can be evaluated
  2. Contacting city building inspector

Hopefully, this will lead to a better financial understanding of the situation. My estimations are leading me to think I can open the place with $10,000. Thats based on spending $2000 on equipment. This figure could be way off so ill find out more soon.

Slim

Lets look at the conflict issue from another perspective.

You are now in business and things are going well. You take on a trusted employee as a shift manager. A few months down the line you find out he will be leaving to to set up his own shop. How will you react and what issues will you have.

As a GM your impact on the shop is going to be greater and most employer’s will be hesitant at having someone at such a senior level going into business (albeit not in direct competition).

I’m sure/hoping when you look at things from your new ‘business owner’ perspective you will see that things are so straight forward. As a business owner you will soon learn to trust no one 100% and to question everthing - if you don’t you’ll soon wish you had!

Good luck

Ok… so lets say I do what everyone says I should do. Things would be one of two ways:

  1. I stay in my current position until im 50… or until ive been with the company long enough to make too much money and be fired.
  2. I quit my current job and cant make ends meet let alone start a new business

I suppose I could go get a job in an entirely different industry. But, common sense and everyone that has ever given advice on starting a pizza shop says work in pizza first. I guess they leave out the part about living in a homeless shelter in between ‘working in pizza’ and ‘starting your own shop.’

I do a good job for the owner of my store. If he found out that I was opening my own store, I dont think his first reaction would be, “Youre stealing my products!” Just from the experience I already have with the business and the world in general, I do not trust anyone and do not expect anyone to trust me. Like I said, if I was stealing food or materials it would be immediately apparent, I would go to jail and my business would fail. So I won’t steal! Its not a trust issue. Its more of a, if you steal, your screwed issue. And once again, the overlap between working at the two places will be most likely around 3 months. I can deal with this issue. So, can we please treat this the same way I will be treating it? The two have nothing to do with one another. I just happen to work some job in a different city while starting a pizza shop.

Thanks for the advice. I cant quit my job though. Can anyone understand this?

Slim

First off, start up costs were your original question:

Insurance-$500 to $6000
signage- $1000-$5000
opening inventory- $1000-$5000
utility deposit- $0-$5000
Legal- $0- $1000
advertising-$1000-$5000
plus many many other expenses.

I really don’t think trying to open with an $11,000 budget is smart. If that’s all you can aford, it’s probably not the right time to do this. If you do open underfunded, don’t expect $3000-$4000 per month from another job the keep this business afloat. Most likely the only way to make an underfunded business succesful is outworking all the competition. Your business will need you there just to get through the financial pitfalls. If you don’t have the stomach to risk that, why bother opening a business that most likely is doomed for failure?

Yep I can totally understand it I am just trying (as others are) to give you some perspective as a current business owner of the kind of responce you MAY get from your current boss. We may well be wrong but all we are doing is flag things to you to consider. If your whole business plan is based on you being in the job and lets say they do let you go then what happens to your new business??

I think Paul’s post raises some really key points. You’ve not mentioned how much cash you have behind you but bearing in mind (poor) cashflow is one of the key reasons people go out of business in the first year then its more to think about.

As I say these are just thoughts and advice - take them or leave them but better to consider them before you jump into the business ‘fire’

Here’s another thought.
If you don’t think your present employer will mind…tell him what you want to do.
If you are infact a credible and hard worker, he may not mind you doing a duel role. It is better for him to know now than later.

Slim
There is a difference in someone working for me while they are gaining experience in the industry and someone who is working in a managment position that owns their own store. The things that would red flag the arrangement would include questions like: Are you conducting your business on my time? Are you using your position at my store to advance your standing with creditors and/or suppliers. Like others have mentioned there is no accusation here just a bit of thought from the other side of the fence.

I can chime in my two cents from a business owner’s perspective “outside” the industry. Sorry, but no way I’m keeping even the best of managers at my own store and paying his way to learn the ropes getting his own place up and running. Whether in direct competition with my location or not is not really the only parameter to consider.

When I pay my manager, I’m buying “all of him”…I’m not going to fund him planning, dreaming about, handling the multitude of daily problems that arise in a store of any kind. When you’re the owner, you hire managers that will “treat it like their own”, not one that is using you till his “own” gets off the ground and then will flee leaving you the high and dry one.

Thanks guys. I really do understand where you’re coming from on this. I understand the questions that may come up by an owner.

The things that would red flag the arrangement would include questions like: Are you conducting your business on my time? Are you using your position at my store to advance your standing with creditors and/or suppliers.

These questions are easily answered. I wouldn’t have time to do business while at work. My brother would be handling all of the ordering of supplies. He would be managing the business. Im basically just securing the financing, setting a budget and letting him handle controls. That is unless I see things out of control. Also, I could become best friends with suppliers from my job and know them for years, but without spending an outrageous amount of money buy into the franchise, I will never have access to these suppliers. My boss is concerned with one thing mainly and its what we are all ultimately concerned about… the bottom line. If I can bring in the bottom line, to him, I must be doing my job. If something is going awry in the store and im too concerned with other things, this will show in my performance, which will show in controls, which will affect the bottom line. Im not too worried about this really. Its only a jumping off point. If I borrow money, my brother runs the business and its not hitting even the bare min. projections needed, ill have to dump the business quickly and get out. Basically, if we cant do at least $600 per day after two or three months then Ill have to cut my losses and stick with my job. If the marketing works out and business is decent after 2 to 3 months, ill put in my notice and devote all of my time to my store. Chances are, I wont last 2 to 3 months and would make the switch much faster. So lets say the owner does have a problem with it. Then ill just be out a little faster. No one can really get hurt except(if I lose my job and the business fails.) So, there is no problem.

Now back to the topic. The great location that has been empty for almost 2 years has been leased already. I found this out today. So, that changes everything. Its back to the drawing board on a location and how we will get equipment. How would I find someone that leases equipment? Is it better to lease or buy equipment? I know that most people say they buy used equipment which saves a lot of initial investment. Im kind of discouraged though. Every dream of the shop has been inside that location. Oh well I guess…

When I pay my manager, I’m buying “all of him”…I’m not going to fund him planning, dreaming about, handling the multitude of daily problems that arise in a store of any kind. When you’re the owner, you hire managers that will “treat it like their own”, not one that is using you till his “own” gets off the ground and then will flee leaving you the high and dry one.

Well, first of all… no one buys “all of me.” That’s just ridiculous. I dont plan my business while at work. A person can dream about whatever they choose. Handling the multitude of daily problems that arise in a store is done by the manager. Do you think the owner of the store I run knows anything what so ever about the daily problems that arise. No, because I handle them. I see this guy maybe once every two months, if even that often. I have spoken with him on the phone once in the entire time I have worked for his franchise. When you are the owner you WANT managers that will treat it like their own. But how can you possibly expect this from someone? He doesn’t get paid like it is his own. I would not be USING the owner of the store I own. I am paid to do a job and I do it. Its a trade. An unequal one at that. Either one of us can terminate employment at anytime for any reason. Im not leaving anyone high and dry. I will give him much more notice than he gave me before I was thrown into the s.h.i.t heap. Im not asking for, nor am I going to ask for permission from the owner or anyone else. Im going to do my job as I have always and im going to work on plans for my own shop. MY manager will run it. I realize this makes me s.u.c.k in some way… whatever.

Thanks to everyone for the advice.

I have to agree with Slim on certain points. It seems that there are alot of contradicting statements. I have read on here where several of you have said to prepare for owning your own business you should work in that field until you gain experience and are ready to go into business for yourself. I did exactly the same thing Slim did I was a GM of Little Caesars for several years when the idea of opening my own place came to me and at least a year after I started planning. Not once did it interfer with my job. I’m sure that several of you dreamed and even started planning your own place while working for someone else. And even if you just started working for someone just to get some type of pizza experience weren’t you just using them and adapting some of their recipes and systems as your own? When I worked for an independant for several years even customers and the salesmen for our suppliers kept telling me that I should own my own place since I seemed to run and care more than the owner did. As far as buying “all of him” do we every really pay exactly what that person is worth??