Looking to acquire existing restaurant

I am about to graduate college in a couple of months and have decided to purchase an existing pizza restaurant. Now you may think it’s a little quick for someone right out of college to jump into ownership of a pizza place, but throughout the years I have owned a few companies (ecommerce mostly - since I’m a full time student), have managed retail stores and even worked at a pizza restaurant when I was much younger. Now I have the financing lined up in order to go forward with a purchase in a few months. I have gained experience of due dilligence, reading financial statements, etc through my finance classes and working in the business banking arm of the bank I currently work for.

My question is: What advice can pizza restaurant owners such as yourselves give me? Anything at all that you would think is helpful, and the most helpful advice is something that I can’t read in a book.

Let me know what you guys think.

Ryan

Ryan,

While you’re definitely on the younger end of the scale, this can be an advantage in terms of strength and energy (I’d say my strongest years were probably my 30s, though at 42 I can still out work most 20 somethings).

The downside is not just the lack of experience (because everyone lacks experience with their first shop) but perhaps the staying power which comes with age. I say this not to discourage you but to caution you that you won’t know how much it requires until you’re chin deep, and can’t back out. (Kinda like marriage, but I mean that in a good way.)

There is an accountability which comes with ownership that cannot be delegated. Your investment is sometimes the only thing keeping you in place when the chips are down. Do you finish what you start, or do you look for an escape when things are seemingly unbearable? (It may be impossible to answer that question because some of the more difficult life issues (marriage, children, unexpected events, etc.) may not yet have occurred. ) Let’s face it , character is forged in the fire of adversity, and few of us would choose the method of character development often forced upon us (usually through our own choices).

I’m reminded of the classic Yoda line in the Empire Strikes Back before Luke’s entering the cave to face his fears, after he boldly states that he’s not afraid. "You will be! " warns Yoda solemnly.

Now for some practical advice…

Obviously you’ll be looking at all the numbers but I’d be just as interested as to why it is for sale. It would also behoove you to do some hard reflecting on where you want to be in 5 years…10 years. How will this get you there? Pay close attention to the lease and check out the businesses nearby. Have they been around and been successful? What’s the reputation of the existing location? Is it a good operation which can be improved upon or an underperforming store with serious issues, which you may or may not be able to overcome.

Lot’s to think about…talk to as many owners as possible ( as you’re already doing)

Mine are for sale. Check your PMs.

In addition to the pizza business (I started and have owned for over 9 years) I am a licensed business broker and a SCORE counselor.

Pizza Chop’s advice is good. I would add to it that the ability to read financials and write a business plan are important skills, but knowing what to do with the numbers in the statement and when to adjust the plan are at least as important. I have a lot of respect for the impulse to take risk and run your own show. Just be sure that the impulse is paired with good decisions. Asking advice here is a good idea. Ask your banker, your attorney and other experienced people you trust every step of the way.

In my work as a SCORE counselor and when working with buyers for businesses I find that many have unrealistic ideas about how much cash is required to open and operate. Elbow grease can be substituted for cash to a certain extent but there still is a base level of funding that is required and you will find that, for the most part, banks will not provide it for you. You don’t mention what your $$ situation is, but it is an important part of the plan.

You will find businesses that are for sale for a wide range of prices and motivations. Businesses that do not produce any income above a market hourly wage for the owner are not worth anything beyond the used value of the equipment and perhaps a small premium for the fact that the door are open. On the other hand, a business that produces a meaningful income are worth quite a bit. If you are looking at a business that can pay the operator a full market salary for running it and have that much again or more in profit, you will pay a premium for that cash flow… and it is worth it. (assuming you have the $$ to begin with)

Whether you get it in classroom or in the school of experience and hard knocks, all education is expensive.

Good luck.

I like your attitude in this economy, I’m a huge fan of opportunity. I just bought my first place, it was a pizza shop that I totally remodeled into a family restaurant that serves pizza. This has been a move that is paying of big time. I believe you should put a new face on whatever you buy, unless it’s a franchise then you really need to do your homework on why its for sale. The biggest issue was for me in this economy was that I wanted to “own” my property not just the business. Leases are the biggest waste of money I have ever seen. Most of the time you can find property or exsisting buildings for sale just outside the strip mall areas that are more accessable and people don’t have to hassle with all the traffic. I incorporated and have two of them, one is the land managemant company the other runs the restaurants. So, when it comes time to pay my lease, I pay it to myself thus making every dollar I earn worth two, one in cash the other in equity. When I made my business plan I made goals for myself to open 4 locations of my concept in 3 years and the fastest way to do that was to own all my peoperties.
Next your gonna want to get more experience in the corporate side of the business. I don’t know where you worked before, but most independant owners do not have the corporate dicipline needed to compete in todays market. Your gonna want to learn all about food and labor costs, the use of POS systems to track hourly income to labor ratios and inventory control. You want your guests to feel very comfortable as well as confident about coming into your store and eating your food. By applying a lot of corporate standards this will be fairly easy. Going back to the POS system, its a item that can’t be ignored anymore. I use one that is integrated with my website and I offer online ordering, a must in todays market. I also got rid of the old deck ovens and replaced them with energy efficient conveyor ovens, I have used this to promote my stores as eco friendly, and the thousands of dollars I save a year helps as well. I can turn out twice as many pizzas as my competitors an hour and the money I save on energy and labor I use to buy the best quality ingredients for my pizzas.
You’ll find very quickly that your competition has no choice but to spend money to keep up with you, that’s exactly what you want. The more money they have to spend keeps them on the defense, keep rolling out new features and products till they have no choice but to close or sell out. I’m overlapping my delivery areas with my next locations to surround my territories, I also promote that all my drivers are properly insured through the company, this is huge when guests start asking other store if their drivers are insudred, which they aren’t. I can go on and on, and depending on your area you may have as many opportunities as I to use your new found knowledge to your advantage.
One thing is for sure, YOU NEED TO SPEND MONEY TO MAKE MONEY. Whatever you have projected in opening or aquiring costs, double it. Find a manager from Applebees, Outback, red Lobster or any other corporate store that is not happy, strike a deal and bring them on baord to help you and you won’t regret it. I hoper all this helps if you need anything else please feel free to ask me.

Sorry about the spelling, I have to get back to work.

Hannah,

It looks like you have a lot of energy and good ideas. I hope they all work out for you in your up-coming business launch. You have certainly hit a lot of important points for someone who is not even open for business yet.

A great example of good startup planning. I will be curious to see what your thoughts are a year into it… which ideas worked and which did not. Flexibility is an asset in a start-up.

On the more day-to-day side of purchasing a business, I would add to the already offered wisdom that you need to get some quick and vastly important education about food and pizzeria kitchens. You will find it invaluable to learn about dough, mixers, flour, food safety, equipment maintenance, sauces, cheeses, menu design and pricing theories, product management, OVENS . . . marketing for pizza industry, etc. If you buy an operation that already has an educated general manager or manager of some sort, then you get a big jump forward, and can figure out the business, and learn as you go a little bit.

your college education should be a big help with essentials of marketing, and will be a good foundation to learn how to market a pizzeria effectively. Seems it is unlike any business I’ve been in before or since.

I also recommend getting someone in the pizza, or at least restaurant, industry to review the financials with you. They will be able to see more readily any clear flags in terms of ratios of occupancy costs, labor percentages, Cost of goods, and the like. The inside knowledge will tell you if they are ignoring key elements like third party driver insurance, and thereby making the picture rosier than it truly is.

Welcome to our little world of pizza, and hope you find that it is as vast and thrilling as many of us find it. Remember that “It ain’t rocket science . . . its pizza”. NASA scientists got no clue how to run a pizzeria.

We got into this business 2 years ago with little experince. It took a lot of mistakes, long hours, and months of no days off. We used this site a lot for research, paid attention to the little details, and talked with customers for feedback constantly. It took about 8-10 months to get into the flow. The toughest areas were food ordering, pricing, and employee management. If you have the time, I would recommend an internship.

I know we are looking for someone to run the complete day to day operations and would trade the experience and training for someone to help us out. We have 2 pizzarias combined in the $20k range and it’s quite a challenge to run. It would definately give experience. Contact me if you’re interested.

I seem to have a different view on this than most of you guys…First id like to say that I am probably the same age as you…I went to a 2 year culinary school and would be graduating college this year or next year depending on what major i would have went with…Being 23 i had no money saved up my parents and my freind (pro poker player) took a gamble on me…I have worked in restaurants and bakerys basically my whole life coming from a food oriented family and spending the last 7 years in a couple different pizza places it was definatly my calling…

My partner the poker player knew nothing about this business but had a work ethic and we were off and running…We took over a doomed location (5 owners in 5 years). We did some shaping up put some pizza ovens in (formerly a deli) and we were off up and running into last years busy season…Since the first week we started at around 8000 a week and have slowly climed up to around 10000 Avg and 11000 on a good week…We take home about 23% of the business after all expenses are totally paid…With all that said there are tons of blood, Sweat, and tears involved…for example right now I have 0 delivery people and 4 main people who basically work 7 days all day…My partner and I are 50% of our staff, which increases our 23% but takes away or life…

besides the actually attachment you have to have to succeed there is also dealing with people (employees and customers), manage your books, sales tax, staffing, ordering…etc…It is hard work and it takes dedication…
if you do decide to do it good luck, everyone is here to help…in the mean time go work in a restaurant like the one your gonna buy…see if it is for you