Researching places for sale

Pizza Shop Talk The Think Tank
1

Hello everyone,

New to the site and I have to say I am happy that I have found the resource. It is making my process a lot easier and more strait forward.

What I am looking at is mainly franchise pizza shops that are for sale in a very large metropolitan area in a southern state. I am not at all opposed to an independent by any means but the ones that are available in this area are a pretty decent way away from me. Knowing that I will be devoting a huge amount of time to this enterprise, I want to be as close by as possible so that is part of why I am considering a couple of franchise locations that are available and supposedly profitable at this time. Both are between 15 to 20 years in operation.

The first thing that I want to confirm with them are the numbers naturally. I am hoping that the more experienced on this board can tell me things to look for and what I should be asking in re the due diligence process when researching these locations. I know that they are paying a specific percentage to their national franchise so that number should be easy enough to verify also they must purchase the majority of their supplies from them as well (yes I know that can be a hose job) so that is another area that I should be able to verify their rate of consumption.

At this first stage I am concerned with the numbers game to see if it all adds up to a good potential direction for me and my family. Don’t mind the hard work that will be coming but don’t wish to buy a pig in a poke through ignorance of questions that I should be asking and specifics I should be investigating.

In a couple of days I will come back and post the specifics and the math so to speak and see if perhaps I can get more focused feedback and then perhaps ask for advice on more equipment and operational details I should start discussing if the numbers add up well.

Thanks one and all,

Scott

2

Once you are into the discussion and have written a letter of intent, the books should be open. Here are few quick tips:

  1. Verify sales against sales tax reporting. They should match. If they don’t match, look elsewhere.
  2. Verify books against tax return. Revenue side should match. On the expense side, you should be able to clearly see and understand any discrepancies. i.e. if the seller tells you that the phone expense on the tax return is higher than the expense on the books because they pay the family cell phone account through the business, or that travel includes a trip someplace for the weekend, that would not send me running. I just want to be sure I understand what I am looking at and can factor it in to my evaluation of the business.
  3. Confirm the terms of the lease including lease expiration, options and assignment with the Land Lord. Seller may wish to wait until there is an offer on the table and that is reasonable.
  4. If there is a key person that needs to stay on to make the deal work for you, insist that you can speak with them during the due diligence period. (Seller may want to hold off on this until there is an offer on the table and that is a fair request)
  5. In a shop that old, I would want an appliance guy to go through the equipment and give you an opinion on remaining useful life. It will cost you a hundred or two for his time.