We are thinking of purchasing an existing pizza place, with over 1.2 mill in sales, but showing significant losses. The current owner is not an premises manager, he is allowing 2 full time managers and several shift managers make all decisions. Looking at the books, there is a large amount of monies going to labor and of course COG’s. What is the normal ratio for these two items in the business.
Any help would be greatly appreciated.
when I worked for Pizza hut the typical food cost was under 24 percent and the typical labor cost was under 19 percent
A restaurant this size should be operating with Food, Labor and Occupancy in the 60 to 70 % range of Net Sales excluding sales tax. Separately, food costs typically run 22 to 35% and Labor costs generally range from a little below 20% to 29%.
Your occupancy costs need to be below 8% including CAM charges or triple net.
When your prime costs such as these get above these ratios and a person typically will finance the purchase of a restaurant the margins and cash flow shrink to service the debt with available cash.
If you have the ability to retrieve income statements or financial statements for the past three years by month that would greatly help for you to observe any trends in the operational results.
Hope this helps.