Please help, I am in the process of buying a pizza place

Hello everyone, as my subject line says I need advice for a first time owner operator. Let me give you some background. I have always been interested in the pizza business, I think mainly because my dad and uncles owned a few pizza places in the Chicago land area when I was younger until they decided to move into real estate. So this leads me to now when I had found this little pizza place up for sale near my house. I have just got done getting my associates degree in business administration and financial accounting, and now instead of going on to get my bachelor’s I have decided to buy this pizza place.

So this is just a list of questions that I have just in general about the business. I know your probably asking why I don’t just ask my family for advice, and I have, but I feel like I need more advice. Please if you can any bit of advice will help. most of my questions are about the change of owner situation.

1.) I am really worried that the employees will have a problem working for me. I have worked in management before but have never been in the owners role. I am young (21), and I hope that this does not make any difference to the staff that is currently working there. Do you think that my age will cause problems with the staff? Also what are some typical problems that I should plan on running into with the staff as I takeover this restaurant?

2.) I am set to start my diligence next week, but for now I am going off of what the seller is telling me about sales. If the seller is telling the truth then the place is doing decent business but it could be better. Should I make it known that there is new ownership to the public? I am torn because I would hate to lose business because people don’t like change but I can already see some changes that will be made.

3.) I still have many of the old recipes from my family’s old restaurants as well as many contacts from the suppliers that they used to use. Over the last month I have probably ate everything on the menu and I think it could be better. Should I make any and all changes that I have planned to do immediately or should I space them out?

So there are some of the things that are on my mind. Like I said any and all advice is welcome even if its not to any of my questions.

Thanks in advance.

Nasso,

Sounds like you’re excited and already thinking about the future. That’s awesome. But let’s not yet put the cart before the horse.

  1. You need to get financials of this business and copies of tax returns for the last 3 years. You cannot make a sound business decision based on what somebody tells you. You’ve got to have the numbers in black and white. Don’t hesitate to ask him for these as it’s a common business practice with the potential change of ownership. DFW would probably be a good source of advice in the handling of this procedure with his many transactions over the years.

  2. Do you have the money? Before any of this can even develop, you’ve got to have a way to pay for this business. You’re wasting everyones time if you haven’t found out a way to pay for this.

Take care of those things, bring the information back to us and I can assure you that you’ll have at least 5 or 6 EXTREMELY knowledgeable responses to help guide you through this thing. Good Luck. -J_r0kk

All I can do is tell you my theories:

  1. I don’t think you will have a problem because of age. You will have problems if you are a bad leader. I was a manager at a place at age 21 and though there were some bumps in the first 3 or 4 months, I did not have any major problems. And looking back, I was quite stupid then.

  2. I am always torn on this one as well. For me, it depends on how well the restaurant is doing. If you are buying some place with huge sales and high profits, I would probably not announce the fact that you are a new owner. I am in due diligence myself for a new, highly successful place. The seller is going to stay on for a few weeks and introduce me as his cousin to the regulars. I was very happy with that arrangement when the seller proposed it.

  3. As far as recipes, I only change them if a current menu item does not sell. Otherwise, why are you buying this place if you are going to change the top selling items? It is much cheaper to open your own place. I do like to add items to the menu though, if needed. But for the most part, I only change recipes to something not currently selling well.

I have no idea if I am in the majority or not, but those are my views.

I cannot agree more with both of these points. Do not rely on the seller’s word for anything. It is entirely too easy to manipulate these numbers. If they insist on trying to prove their numbers by monitoring there business for a couple weeks, refuse. It is very easy to generate increased traffic for a short period of time if you don’t care if it is profitable. It is very, very common for these business owners to include many personal expenses in their tax returns. But they know what they are. If you do not have the financial acumen to sit down and tear apart his P&L’s/tax returns, you are making a colossal mistake if you do not hire someone who does. Depending on where you are located, I may be able to recommend someone if need be.

If you can secure 2 or 3 years of tax returns, you have good credit, and can put together a solid business plan, you can secure financing. But you will have to have at least 20%, more likely at least 30% down. If you don’t have that, get out now and come back when you do.

I agree… if the place is putting the numbers, why fix something that is not broken?..

Thanks for all the advice so far, and I hope to see more. As for some info to help you guys understand the situation a little better:

1.) I already looked over all the financial documents from the owner for the last 3 years as well as all of last years inventory receipts to date. The place is doing between $1000-$2000 a day in sales. This includes the wholesale that the place is doing 6 days a week with a contract for a lunch truck company (a great safety net for income). The place using about 18 cases of cheese and about 1100 lb’s of flour a week.

2.) Financially I will be able to do it. I have insured a loan and also have a good chunk of money that I will use for operating costs. I have crunched the numbers and i have enough money saved to run the place in the red for at least three months and thats at worst case.

The way I see it is that I am young and very very very ready for this. I can rebound well from mistakes, but I definitely have a measure twice cut once mentality. Please fill this thread with as much information as possible for a first time owner operator.

Thanks again for all the help.

maybe you should consult with your family a little more about why they are not in the "pizza business "any more.i am sure they have a better idea than most…
b.romano

Nasso,

Age - I am 22 and opened my first pizzeria 10 months ago. I went from 22 - 40 in about 2 months. Age doesn’t matter, leadership does. You have to act 40 to make it work. It was a little different for me because I started from scratch, and so I hired and trained everyone myself, and gained respect that way. I don’t have any experience with buying an existing place. Could be an attitude problem, but good leadership skills would correct that.

My only advice - be open for change. You don’t have all of the answers, and never will. But even more so now than later. The one thing I feel that I have done right is continue to learn and never quit looking for the right answer.

Good Luck.

I know you cannot tell me the location of this place at this time due to a confidentiality agreement you almost certainly signed, but what general area are you in? Though I am “DFW”, I know far more about Illinois. Sweet home chicago will always be home. I also went to U of I, so I know the “downstate” area very well also.

mandino writes:

Age - I am 22 and opened my first pizzeria 10 months ago. I went from 22 - 40 in about 2 months. Age doesn’t matter, leadership does. You have to act 40 to make it work.

Thank you for putting 40 and not 37. You put 37 and I would’ve had to go off on ya ‘cause there ain’t nothin’ (double negative - my southern ways coming out) wrong with 37. :lol:

DFW - What happened to your mascot at your alma mater?

Nasso

First off, you stated the place is doing between $1000 - $2000 a day in sales. That’s a difference of $365,000 and $730,000 a year. Honestly, sales figures are more of a “sexy” number than anything substantial. It’s great to have them but they reailly don’t mean that much in the whole scheme of operational budgets, but if you’re getting these numbers you want to be more exact with them. Also, don’t look at the daily stuff. You want month ending financial statements (all 12… or 13 if he’s doing periods) for 2-3 years.

Here’s the reason you want P&L’s:

Scenario 1 -

Net sales/month…$45,000

Fixed costs…$16,000

Variable cost percents…65%

Break even…$45,714/month

On $45k, you’re losing money

Scenario 2 -

Net Sales/month…$25,000

Fixed costs…$8,000

Variable cost percents…60%

Break even…$20,000/month

On $25k, you’re making money

As you can plainly see, in these two scenarios sales doesn’t mean a whole lot (and remember, these are ONLY scenarios and are not true indications of what stores might produce). What is this place cash flowing per month? You can’t get this information from sales figures or even P&L’s. You need to see his entire financial statement (defined by wikipedia):

1. Balance Sheet - also referred to as statement of financial condition, reports on a company’s assets, liabilities and net equity as of a given point in time.
2. Income Statement - also referred to as Profit or loss statement, reports on a company’s results of operations over a period of time.
3. Cash Flow Statement - reports on a company’s cash flow activities, particularly its operating, investing and financing activities.
4. Statement of Retained Earnings - explains the changes in a company’s retained earnings over the reporting period.

This will tell you what his business is “worth” and will allow the two of you to agree on a fair price for his business.

As far as winning over the staff, that’s easy. Just bribe them with something at your first crew meeting and they’re yours (new shirts, incentives, a good gameplan, a defined raise structure, etc).

Hope this helps. -J_r0kk

Thanks for all the good advice guys, and please keep more coming. Everything you guys have told me is helping a lot. I have been very vague because of my confidentiality agreement but once I close I will be able to divulge a lot more. One thing I can say is that this place is in the western suburbs of Chicago. Like I said every little bit helps so please fill me full of any advice you can give a young guy about to break into the business.

Thanks again

DFW - What happened to your mascot at your alma mater?

Please don’t bring up that wound. I have never been more mad at my school’s administration than that day. It is a very sad day for this country when a very vocal but very small minority gets what they want over a great but silent majority.

Long live the Chief!!

I spent some time in the Western Suburbs. I lived in Bartlett for a while. I am going to grab me some Aurellio’s from the Addison location tomorrow.

aurelio’s sucks

coneyor oven poo-poo

Different tastes for different people I guess.

Everytime someone knocks conveyor ovens though, all I can think about is the fact that arguably the 5 best pizza places in Chicagoland use them.

which five,i would like to try them

I can help you with one of the MOST OVERLOOKED overhead items, Credit Card Fees.

We have special pricing for Pizza Rest. that will probably reduce this overhead item by 20% (if not more). I will be glad to get you some information at your request.

While in the process of getting Financials ask for the past 3 months of Credit Card processing statements and I will put together an analysis for you.

Well, Aurelios, at least two Nancy’s, at least one Giordanos.

I’ve heard rumors about some of the other bigger known places, but I cannot confirm them, so I will not post their names.

Anyway, those 3 are going to be on most top 5’s.

sorry to say, aurelios and nancy’s wouldn’t make it in the top 5. giordano’s, probably would.

nancy’s is terrible thin. it goes back to the conveyor. and if you ask anybody who has had the aurelio’s in homewood, the original, they will tell you to ask for it cooked in the old oven. which happens to be a revolving type. a “real” pizza oven. the type giordano’s uses!

i’d like to know where the giordano’s is that uses a conveyor.

also, how much are they asking for the pizza place? and what does it gross weekly? and lastly…what kind of oven do they use?

I cannot even debate with you when you say that Aurelio’s does not make it in most people’s top 5. Show me a top 5 list that does not have it, and I will show you 3 that does. Your credibility went out the window with that statement. It may not be in your top 5, but to argue it is not in most people’s top 5 is simlpy wrong.

I can name more than a dozen contests that Nancy’s stuffed has won. Again, maybe not your top 5, but if you compiled all available rankings, it is in there. I will agree though, that their thin is not highly thought of, but the stuffed is cooked in the same conveyor, and it is easily in the top 5.

At bare minimum, the Giordano’s in Greek Town (on Van Buren) and in Lake Zurich use conveyors, or at least at one point in time did. I know because I worked at both locations.