Newbie start up question...

Okay, here it goes:

I have a signed asset agreement for a pizza shop with the purchase taking place in 6 weeks. The current owner (who I’ve known for 6 years) is buying a property and taking the telephone number and name to the new location.

His current numbers are 42k/month gross. (not that is matters because it’s an asset purchase but it makes me feel better knowing he was doing decent numbers)

He’s leaving all the equipment which is roughly 5 years old and in good working order.

The current location is 2400 sq feet with seating for 40 people. There are 14 years left on the lease which is currently $2300/month.

Purchase price is 80k.

I have a friend who currently works at a different shop close by that wants to come work for me. He’s been in the business for 10 years as a manager. The shop he’s at now is doing 60k/month with great margins so I know he’ll be a great person to start out with.

I’ve been reading through this forum for a few weeks now and it seems like a fantastic site for info.

A few questions to start:

  1. Cash reserves after start up?

  2. For advertising, I plan on door knockers and direct mailing menus to everyone in town. The question is when would I start the advertising? The same week we open? Or a week after so most of the kinks are worked out?

  3. Do a grand opening a month after the actual opening?

Any and all help/advice is appreciated!

I would start the doorhangers on day one and keep putting them out daily unless the business is getting too much to handle. I would wait at least a week or two before having the first part of the mailing hit. Grand Opening should be sometime in the first few months when you’re confident that all recipes and processes are perfect.

On another note, I would be very concerned in buying a place with 14 years remaining on the lease. You are signing a half million dollar contract when annual rent increases are factored in with that lease.

Where is the new location the seller is moving to? Since he is taking the name and phone number, if he is staying in the area, he will will taking most of the sales with him.

This is why you are getting to buy a 500K store for 80K… you are not buying the store, you are just buying a bunch of equipment.

There is not really enough info here to comment on the lease. The seller had a very attractive occupancy cost which begs the question… why is he leaving? You can not count on doing that 40K per month any time soon. You will open with some sales for sure just because people will come to the same location, discover things have changed and eat anyway but whatever business he had for delivery and carryout will follow the phone number.

If your goal is to reach the 500K number in annual sales, my suggestion would be that you budget 50K for your first year ad budget, 40K for the second and then settle in at 6-7%.

How much do you need in cash for backup? Enough for your household to survive for a year plus 30-40K might be a good place to start.

Couple of thoughts…

You are buying equipment since he is taking the phone no. and name. The equipment likely is not worth $80k. To be sure what the cost is, you will need model no.s of all the big equipment pieces. Call around and get a 5 yr price.
I think you will be surprised at the requested price and “today’s price”.

Renegotiate the lease and have it in your name. Your terms and your way. If you are wanting to acquire the lease, have the previous owner put his name on the lease along with yours. This way he is less likely to manipulate the numbers.

Few folks have a real grand opening. Wait a month or 2 and when all the procedures are ingrained and the employees are “seasoned”, have one then. Just remember to remove all the stops and do it over a weekend.

Talk to tv stations and the newspaper about mentions the week of or before.

I kinda disagree with the other posters, at this time, based on some of the known facts…but I might change my mind…lol!

I understand this an ‘asset’ sale only, but it really is an ‘opportunity’ sale, as it was a successful business, so I feel there is some monetary merit there…I feel you might be able to crank up the business quickly via a hard hitting marketing campaign…

The equipment is probably worth less than $15K, but the buildout and former business has value…how much we’ll never know…but the start up cost is less than a new unproven location…the trick is, can he generate a good R.O.I with this investment?

A new lease might not be as good as the old lease and the landlord may not grant home a new lease, preferring to keep the old leasee on the hook…if the lease is truly assumable, that might be the way to go…

I say, based on what has been reveled so far, I’d go for it…

Thanks for all the info. Much appreciated!

I gave him a 15k deposit and have already signed the agreement. The current owner is moving about 5 miles across town to his own building. He’s started the buildout and has about 6-8 weeks till the new spot opens. He will stay at the current spot until he’s ready to make the move. At that time I will take about 2 weeks to get up and running. In the meantime I will get menus made, website up, facebook page, doorknockers made, outside sign ordered, menu boards made etc…

Anything else I’m missing that I could do in the next 8 weeks??

Here are things that you will need to do in no particular order:
[list]Develop a menu
Calculate food costs
Contact and secure suppliers
Get all permits (not all aspects of a place will be grandfathered)
Get insurance
Arrange for utilities transfer
Arrange for signage
Program POS
Arrange for all government related item (payroll taxes, sales taxes, etc)
[/list]

This is not by any means a complete list but I’m sure other will add to it.

hire an accountant, It’s been a long time and New York state, but I believe we had to pay sales tax on all the equipment (tangible) items we purchased. So if the agreement is written up as equipment (no good-will, non-compete, etc) you may be responsible for all the tax. Also, I don’t know if the accountant can help you or you’ll need a lawyer, you will want to make sure that none of the previous owners liability debt can be transferred to you. (such as any liens already in place on the equipment – bank loans, sales tax, payroll taxes). I am not an accountant nor lawyer, but believe it may be in your best interest to make sure of these items before going forward with this deal.

Other than that good luck.

Good luck it sounds like a great opportunity. My experience with door knockers was not a Good one. I think if you are already looking into menu mailing go with it. I use grande cheese and my rep was able to get me into a menu mailer that got great results. Besides the cheese being the best in the biz the menus are too. Good luck!