This is a red flag. No pos, no team. It takes a good team to be successful . Also, How much staff do you see there?The reason is the the shop appears to have a good product, good sales and profit margins. The downside is that owners are there ALL the time, they have no team (revolving door of workers), no POS etc.
I.
I wasn’t making fun of you. That just made me laugh. Good, competent, reliable help is not so easy to find.I am not from the food or pizza industry… can you please clarify why it is hard to have a manager?
Sorry I missed this message, Rob.This is a red flag. No pos, no team. It takes a good team to be successful . Also, How much staff do you see there?
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Do you think it could be because of the (low) wages they are paid that doesnt motivate them enough?I wasn’t making fun of you. That just made me laugh. Good, competent, reliable help is not so easy to find.
4-5 staff per shift? Doing 1.35 million in sales, this is an even bigger red flag.Sorry I missed this message, Rob.
I agree team is critical.
I see about 4 - 5 people per shift. There probably are 2 shifts. One between 11 AM - 8PM and 8PM to 2 AM.
But I dont know how long the staff has been there, or if it is a revolving door.
The owner only manages the cash and the front customer service. They have some one else who does the pizza. Which makes me feel that the product itself is not reliant on the owners.
Thank you for helping me dig into this further, Rob. Here are the answers.4-5 staff per shift? Doing 1.35 million in sales, this is an even bigger red flag.
Questions:
1). Is there delivery
2). Dine in / table service
3). What kind of prep are they doing( making own dough , shredding cheese , making own sauce?). And how much prep are they doing?
4). What are fixed costs ? Rent , utilities , marketing , insurance, payroll taxes, etc…)
5). How many bags of flour do they get a week , how many cases of cheese per week. (This will give you a good idea of volume)
I️ don’t do anywhere the numbers that the place your looking at does, but I️ keep my staffing and vendors tight and I️ profit around 20%. I️ work 62 hours a week.
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Me thinks at best they’re doing 1mil. That would bring the food cost to 34%. I think a lot of people on this board would be happy with that food cost. If you’re alluding to a food cost of 25% (assuming $345 FC on $1.35k revenue) I think most people on this board would ask what you’re smoking…And whatever it is send it on over…Thank you for helping me dig into this further, Rob. Here are the answers.
850K of its revenues are accounted for via transactions from cash and credit card etc.
The rest of the 450K is cash sales that are not recorded. Bringing the total to 1.35K.
But I have the accountant’s financials for last 2 years and they show 885K/year in revenues and 39% food cost. (assumption is that 19% of food costs (approx 160K) go towards the supposed cash sales that are not recorded, which should generate 420K in additional revenue.)
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Thanks capecodder.Me thinks at best they’re doing 1mil. That would bring the food cost to 34%. I think a lot of people on this board would be happy with that food cost. If you’re alluding to a food cost of 25% (assuming $345 FC on $1.35k revenue) I think most people on this board would ask what you’re smoking…And whatever it is send it on over…
Great points PieDad.I would never accept the operating numbers from anyone who tries to justify their selling price by asking me to believe their under the table, off the record, beat the tax guy, cash sales puffing fiction. If they would obfuscate their sales numbers to cheat the tax guys, why wouldn’t they also mislead and cheat you with unverifiable cash sales numbers??? That’s not a question. Several responses here have encouraged you to use their purchases of flour to arive at a reasonable figure for gross sales, and that’s not nearly as difficult as it may sound … when they tell you they don’t keep those purchase numbers (and they will), simply ask if you can contact their food distributor who sells them flour … then call them and ask for the numbers (prefferably in writing) you need … distributors keep detailed records of everything that is sold to each of their accounts. And if they say they use multiple food distributors, call em all. It might be even better to have the sellers request those purchase numbers, in writting. Better that you should have to jump through hoops to justify paying them an off-the-books over-value amount, than later having to regret not being an informed buyer. Surely you’ve heard that it’s unwise to “buy a pig in a poke”.
Can you please clarify what do you mean by “cash wages are being paid”.I’m sure there are cash wages being paid also.
I’ll repeat : Ask for 1 year of payroll records (941s) & state if applicable & 3 months of vendor invoices. If they really want to sell , they will disclose it. If not, they are hiding something.
Doing that kind of volume , depending on their menu and stuff they offer , I️ would project around 15-25 bags of flour & 15-20 cases of cheese. (Don’t hold me to it)
You don’t sound stupid , so don’t make a mistake.
Industry averages:
Food cost - 30%
Labor - 20%-35%
Try to take a look at their storage area and look, ideally after their delivery comes in
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Hi Paul, Thanks for your input. Sorry I missed this post earlier too.pizzaboi, determining actual revenue should be pretty easy. It should be pretty straight forward to look at their dough recipe/procedure and figure out how many pizzas they go through based upon their flour purchases over time. Look at their invoices over a relatively long period of time, not just last week. If they are doing that much in unreported sales, you may decide to put a value on those but keep in mind there may be some liability for unpaid sales taxes if an audit happens.
Looking at the numbers posted, I’d be pretty suspicious of someone claiming 40% profit from a pizza business. I’ll do about 50% more than this stores revenue with their unreported sales and I won’t profit near the 600K they claim.
I agree with the other posters as far as the cash vs credit card breakdown. It would seem far fetched to have that much cash sales. Last month credit card sales and credit card tips amounted to 78% of my sales. 100% of my cash wouldn’t equal the $550K that this place supposedly hides. That brings up the question do they deposit any cash in the $800K of declared revenue? If not, I would say this place must be ripe for an audit by the state and/or the feds.
Lastly, the credit card companies will take more of your money than armed robbers will. My credit card fees will be over $40K this year. You can minimize the risk of armed robberies with video cameras, safes and cash handling procedures. The less vigilant you are, the more likely you’ll become a target. Your staff knows your weaknesses and my experience is that burglary and robbery are related to current or former staff more often than not .
Yea these guys appear to be in their 50s and most likely not the tech savvy kind. I think they are there all the time cause it a lot of their transations are cash based and they dont have any systems, processes or tech in place to monitor that.as everyone else is saying not showing sales is a big red flag, but its not a deal breaker. It was also the norm a generation or two ago. all the old school family run pizza shops did it. nowadays with most business going through as credit cards it is impossible to hide sales. use the methods of checking how much cheese or flour they use. those are two ingredients of a pizza they can’t lie about.
also remember the owners are there all the time. that means the place most likely won’t run right without an owner present. you will have to put an all new set of processes in place to make it run smoothly without an owner present.
Cash wages could be either a or b.Can you please clarify what do you mean by “cash wages are being paid”.
Is it that
a) wages are paid in cash and off the record, so there is under reporting of wages in the accountant’s financials, or
b) that cash wages being paid, that are recorded in the financials, but saves the owner from paying the extras (insurance, pension plan contributions etc) as mandated by the government?
I just want to make sure tthat I dont make blind assumptions and interpret things incorrectly.
Thank you very much for the flour and cheese bags numbers. That is tremendously helpful. Curious though, how much does a bag of flour and cheese weigh, according to your math?
Also with food cost being 30%, does that include food alone, or does it include wastage, paper/supplies etc.
Would you happen to have math for cogs (food, wastage, paper), preferably with a breakdown for each of the subitems, if possible?
Other points noted:
Thank you VERY much, RobT!
- Ask for 1 year of payroll records (941s) & state if applicable & 3 months of vendor invoices.
- Check their storage area
Thanks Rob.Cash wages could be either a or b.
If he’s hiding 400k , he is most likely paying under the table wages.
Standard flour bags are 50lbs. I’ve seen bakeries use 100lbs. Cheese cases range from 40-60lbs depending on the brand.
30% food cost can include Paper and other stuff. It depends how and where the restaurant categorizes it. Since it’s a slice operation , I assume their box cost isn’t too bad . 16inch-18inch boxes price in around 50 cents a piece depending on color and flute size. I’m not sure what kind of paper stuff they are using.
Also, There is probably a big waste amount from being a slice operation. Depending on the state health departments laws, Certain things can only be out for 2-4 hours before bacteria starts . Also , Pizza left out for long will lose it’s color and appeal. So you have to kinda keep it fresh.
Any word on vendor invoices and 941s?
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Exactly.If they want top dollar for a sale , they would have to show documented proof.
If I were that seller and I knew I was bluffing you on a 30%+ “unreported cash” income I would also beef up what I told you my cheese / flour consumption was in order to make the numbers jive. DO NOT believe him. If it were true get all invoices from his supplier from him. Obviously he has to keep those for the taxes he does file. If he “can’t find” them…well there’s your answer… If you go through with this please keep the board informed over the coming months what the real numbers turn out to be.Thanks Rob.
They are willing to give me access to everything during my due diligence phase once I put in an offer. The offer contract will have contigencies that need to be removed before it becomes final and binding. Proving their claims to my satisfaction, will be one of the contingencies.
I have asked my broker to set up a meeting with the seller so I can get more info directly from the seller. I will ask the seller about how much flour & cheese he goes through weekly. All this knowledge I have learnt here from you guys, gives me confidence that I will have a productive meeting.
Do these numbers for a “pizza by slice” operation, look acceptable to you?
Food cost: 25%
Food Wastage : 5%
Supplies: 5%
Total cogs: 35%
Big thanks!
IF I go, I will most likely pay only for the reported numbers.If I were that seller and I knew I was bluffing you on a 30%+ “unreported cash” income I would also beef up what I told you my cheese / flour consumption was in order to make the numbers jive. DO NOT believe him. If it were true get all invoices from his supplier from him. Obviously he has to keep those for the taxes he does file. If he “can’t find” them…well there’s your answer… If you go through with this please keep the board informed over the coming months what the real numbers turn out to be.