Ostrander: Buying pizzeria

Big dave,

Thanks for all your help on the board. I have a question. I am moving towards buying a store. It is a working pizzeria with old bp oven and hobart 40q mixer, however has been closed for about 6 months. 1200 sq ft, $1500.00 per month and he is selling for about 180K. Has 5 years w/ 3 year option left on lease. It would take about 3 weeks to get up and running after purchase with cleaning and a little elbow grease. He has done all the buildout of the kitchen and seating area (for about 15-20). Is it worth the price? How much can you attribute to the buildout cost of the purchase price? Any thoughts at all will be an immense help.

John

I AM NOT DAVE BUT I OPENED A 1200 SF PIZZA PLACE FOR AROUND 80-100 THOUSAND, IN MY OPINION I WOULDN’T GIVE MUCH FOR A STORE THAT IS NOT UP AND RUNNING, THE SELLER NEEDS TO EAT HIS COST ON BUILTOUT AND TAKE HIS HIT ON EQUIPMENT. HE HAS A LEASE AND IS NOT GENERATING ANY INCOME SO HE IS LOSING ANYWAY, SO ALMOST ANY AMOUNT IS BETTER THAN NONE. JUST MY OPINION, GOOD LUCK
KEL

What are you paying for?
You’ve described about $8000 worth of equipment.

OK, I know (BELIEVE me, I know) you’d spend a lot of money to build your own place from scratch. But that’s not the point. The point is “What is he selling and what is it worth”? You may agree to place a value on the time saved not going through plans, permits, and from-scratch remodel…but that value is going to be market driven. And NOT driven by whatever the guy spent (as the last responder mentioned).

Sounds pretty high, honestly. Good luck.

Businesses are only worth money if they are generating cash flow. Actually, they’re pretty much always worth between 3 and 5 times annual cash flow depending on what the growth rate is.

Since this operation is closed, the cash flow is zero and there’s no goodwill to be purchased. That makes it pretty much worthless as a business; you basically have an asset sale. Like has been pointed out, there’s no way there is 180k in assets in a 1,200sf restaurant with the equipment you described. I opened a 2,000sf restaurant that has a very upscale dining room for 50 people, all brand new equipment except for a used mixer, and a pretty expensive buildout… and I still spent less than $110,000.

MM nailed something I’ve told people for years… value has nothing to do with what YOU paid for it, it only depends on what the current market is WILLING to pay for it. It sounds like the seller may not understand that.

Actually, this thing is probably worth less than the equipment and build-out if you are also buying out the lease. That’s essentially $90,000 of debt that you’re buying.

I’m going to just guess that this place is worthless. You’d be better off waiting for him to default on the lease and then negotiating with the Landlord on a new one. The tenant improvements will still be there and you’ll get them for free. Plus you can probably negotiate $5-$10 per square foot from the Landlord in an improvement allowance on a new lease to do some remodel/cleanup. You’re now in the exact same position as buying his business without the equipment and you haven’t spent a dime. $40,000 worth of equipment and you’ll be ready to go.

First of all, Dave Ostrander is no longer here, he is at another similar operation,
as for this store, compare it for what it would cost to lease another space and build it out yourself. you may end up with more how you want it at less the cost. give yourself at least a few weeks to consider this one,
I do not think there is amnother buyer waiting to buy this one,
good luck,
Otis