Potential Opportunity - Thoughts Requested

Background on myself: After graduating high school 18 years ago, I (successfully) managed two franchise pizza stores (carryout / delivery), as well as one independent over an 8 year period. I LOVED the business, but needed better money and benefits when I met my GF, now wife, and moved on to spend the last 10 years in print production management. Over the past 10 years, we have gained a lot of stability in our lives, eliminated ALL debt, and built up decent savings. While I enjoy my current job, I don’t LOVE it, and it’s really just going through the motions.

I have recently been in talks with an owner and his broker that are selling a small carry out / delivery shop, with a small 10 seat inside area. Vast majority of sales are form carry out and delivery. Central area on a main street with GREAT traffic counts. Neighboring area ranges from middle class, to very affluent.

Seller claimed numbers which will be verified (as much as possible):
$209k gross sales for 2017
COG running about 32% of sales. If we assume 35% - this equates to roughtly $73k
Rent and utilities is running 15% of sales. Round up to 20% to be conservative and you have about $42k
3 PT employess (cook and two drivers)
Husband and wife owner operators - husband is VERY hands on.

Phenomenal and plentiful Google and Yelp reviews (4.9* on Google - 60 reviews).

VERY limited current hours. Closed Monday, only open until 9pm during the week, Bar next door is busy, serves NO food, is begging current owner to stay open later on weekends (Bar open until 3am - pizza shop closes at 10pm)

Nearby community college campus and a large 50k plus resident retirement community.

No or very minimal marketing.

Bakers Pride ovens, Hobart mixer, clean shop, LOW rent.

Wife will keep fulltime job initially for benefits, so we basically need to break even while we build a brand. I currently work a 70 hour a week full time job and am totally comfortable with “Living” the business for several years to get it positioned correctly.

Seller is asking $119k.

Going to look at this later today. Owner is willing to let me show up several days “unannounced” to shadow him and watch the business in action.

Anything I should look out for, pay special attention to, or immediate concerns?

Thanks for any advice!

What do you think a fair asking price is for a business doing roughly $4000 a week?

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$4K/week is not a huge number to pay for, but it’s worth something. You are buying the equipment, good will, operations, systems, location, potential, etc.
To step in, take over, and do $4K your first week… not bad.
Lots of factors here but 120K ask is not a lot of money, depending on condition of equipment and other factors.
Having said all that, I finished up 32 years with a major delivery franchise end of 2015- and I got back in opening my own place a few months ago.
Think long and hard about what you are doing- the realities- because sometimes the worst dreams are the ones that come true.
Depending on your age, lifestyle, kids, realities- the business you remember may not match up as well with your current realities as it once did. That said, maybe it will… just think about all that first.
I ride/race dirtbikes and lots of us are into vintage dirtbikes- the ones we had as kids back in the 70’s and 80’s. Yeah, well… when you’ve ridden bikes from 2018, the ones from 1982 aren’t quite as great as you remember when you were 16 or 17! I have a saying “Old dirtbikes are like old girlfriends- best left to the memory”

Based just on the $4000/wk in sales, I’d say $119/k is slightly high. Factor in good condition equipment (ovens and mixer), brand new make line, nice layout, and VERY favorable rent - plus the bar next door, and it seems fair. I feel the $4000/wk could immediately be increased by 20% by staying open later Saturday and Sunday and doing at least some minimal advertising. There is a retirement community in a three mile radius that has nearly 4000 residents. A quarter page ad in their monthly publication is $150.

What are your thoughts?

I FULLY agree with you. I currently work 70+ hours weeks in middle management for someone else. I make solid money, but if I get fed up 10 years from now, I walk away with nothing, other than my wages for the years. I feel to invest 70 hours a week, I may as well invest it in myself (and my wife). I realize it could be SIGNIFICANT time before I am able to add staff so that I can ever really see a day off, much less a vacation, but that’s part of business ownership - any business. The trade off is, if things are done right, far down the line, I’ve created a “profit center” that could technically benefit my family for generations…

My opinion is this is an equipment sale only. There is not enough business to justify a price like this. Remember , you can only pay for existing sales , not potential. (Fools tax)

Your forgetting:
Biz insurance
Work comp insurance
Credit card fees
Etc …

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Valid points and taken into consideration for sure. Thank you. According to the seller and broker the 15% includes rent, phone, internet, gas, and electric. The area does have low utility rates, and the rent is extremely low, but obviously these numbers would need to be verified.

I am trying to round all numbers I’m given to a “worse case” scenario. Seller will provide me access to books / receipts from 2017, and full reports from his POS system YTD. The seller claims a NET of 90k with husband and wife full time. Since my wife would not be a full time partner, this would obviously cut into the 90k, possibly quite quickly. For it to work for me, I would need a NET of 45k as myself being a full time owner operator. I do believe in the area potential and my ability to grow sales.

To give some backround on this, I had scoped out a similar location about a year ago (Busy street, same town, bar next door that served no food). My research had me between 80k and 100k to open the doors, with a slightly less favorable rent. In my mind, I’m paying a 20-40K premium to avoid some “unknowns” associated with build-outs, and buy an existing location in a good location that is at the very least keeping it’s head above water from day 1.

Your input is very much appreciated. This may be a stupid way I’m looking at it.

I bought my business 18 years ago with lower sales then the store your looking at. I grabbed it for 25k. It was profiting , but very little . It took 3 years to grow sales to be comfortable.

Keep in mind , profit margins for these kind of businesses range from 0% - 20% , depending on owner involvement .

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Thanks RobT. Good data for sure. I have looked at some similar shops, with similar sales numbers in the same city, that are listed in the 60k-80k range, so this is definitely high on the scale. I’m sure the inflated price is due to the husband / wife management team, which basically inflates the net.

The flipside is LOCATION, layout, transferable lease terms, and quality equipment.

I just need to do a lot of analysis on whether the “turn-key” approach and good location with favorable lease terms is worth the somewhat significant premium…

I bought my first Domino’s store for $25K in 1993
Was doing $3K/week
The double conveyors were worth that.
I broke $10K/week in 6 months and averaged $11k/week the next year and $12k/week the year after. Those were impressive numbers in '93
That said, I think the fact that the store is doing $4K/week is worth something- even if it’s a somewhat intangible something.

The flipside is LOCATION, layout, transferable lease terms, and quality equipment.

That’s a big flipside!

There will be others who will chime in. Bodega has a better formula for valuing this business , but if those sales numbers are true , I would imagine you can put 30-40 grand tops in your pocket and that includes your salary . With that said, his asking price is off the wall.
If he’s claiming he is taking 90k, realistically his gross sales would be significantly higher .

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Did you get a vibe from him re the price?
You can usually get a feeling if that’s a dream number, a firm number, a “let’s talk number” etc
I know you said “asking” but curious what your feeling and/or the broker might add.

As a new operator you will need to pas a health, bulding, and fire inspection. Good Idea to have those done before buying.
George Mills


Not sure what part of Florida you live in and / or the shop is (from your profile) but I run small independent DELCO in southwest Florida. Here are my initial thoughts:

  1. You mentioned the COGS as 32% estimated. I am not sure if you’re included all Food, cleaning, packaging, etc, but make sure that you verify this number through vendor receipts.

  2. There are many costs, as pointed out earlier in the thread, that you are not accounting for. I have a simple but effective profit analysis tool I created. I would be more than happy to help go over some of the potential costs, fees, etc with you to give you a solid idea of what you are looking to possibly make.

Went in and met with them again this afternoon for lunch. Steady stream of carryout customers for 1pm on a Tuesday. Not busy by any means, but wouldn’t expect it to be.

I believe there is definitely some room on the price. Probably not as much room as there should be, or could be, but there is room.

You are basically buying the equipment and and build out with a place that does 4k a week. Which is fine as it may cost way more than 100k to build it out new. There is no profit there at this point. Even if you managed a 10% margin you are only at 20k a year. A place with those numbers in California would maybe sell for 50K. If you have the gumption to make it work its a deal though.

Price seems really high, but it does seem promising if you could get that price down to about half.
How long is the lease?

Bar next door owns the building and is the landlord. 5 plus 5 year option. Bar hosts POPULAR weekly dart and pool tournaments, most of them beginning at either 9pm or 10pm. Pizzeria closes at 9pm… bad business, IMO…

Of note, and I know it won’t be popular here, and really can’t even be used to properly value the business, the $209K Gross for 2017 is “receipts on the books.” Again, as far as valuations go, if you cheat the books, it’s hard to put much faith into “gross numbers” for any kind of accuracy.

We have a popular downtown bar scene right down the street and I thought exactly how you are thinking about the bar next door. When it came down to actually doing it, I was already there 10am-10pm 7 days a week, I sure didn’t want to stay there till 3am. Sure you can hire somebody, but how long till you find somebody trustworthy enough AND willing to work those hours. And that’s assuming that it’s profitable for you to be open those hours.

This is major issue. I would be divorced coming home at 3am

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