The owner of this pizzeria is retiring next year and wants to sell. I worked with him for 5 years in high school and college. I now have my degree in restaurant management and am thinking of buying a pizzeria. I’m 25. I would be buying the business only, not a building. He will accept $70,000 for the business, includes good will, inventory, old equipment, and noncompete covenant. He will accept $20,000 down and hold $50,000 mortgage at 6% for five years, a payment of $966/month for me. Then I’ll have to take out a $30,000 loan to remodel, pay upfront costs, some more equipment.
His tax returns show he grosses $185,000 a year and nets about $23,000. He tells me it really grosses around $300,000 a year, and he takes home $1,000 a week, $52,000/year. He only claims 60% of his sales, and he also pays some employees off the books. I have seen last weeks register receipts showing $5500 for the week in sales. I’ve seen bills for his food suppliers for the one week - total of $2300. Wages are $1,100 a week, and at least $500 of that is under the table. That $500 a week is for the manager.
The pizzeria has not been well taken care of, it’s a little run down. Hasn’t been painted, greasy ceiling tiles, needs a new floor, new booths, that kind of thing. He’s missed out on some business because of this. I would have to put about $7500 into a remodel. Rent will be $1600 a month.
So he grosses $300K a year and nets $52K a year. After paying the mortgage and other loan, I would net about $27,000 a year. But if I don’t keep the manager, that would be an extra $500/week for me, or $18,000 a year, so a total of $42,000. I would be working 12 - 14 hour days at least 6, maybe 7 days a week.
After the loans are paid off, I would be making $60,000 a year, but still working long hours.
Should I be worried about him not claiming all of the money and paying people under the table? I would not want the IRS and creditors to come back on me for the money he should have paid.
Another pizzeria just went out of business this week. The seller of the pizzeria I’m thinking of buying thinks he will gross around $7,000/month, or $364,000/year, but there are no guarantees and there can always be more competition. This is a small village of around $6,000 people.
My parents would have to cosign for about $50,000 worth of loans.
What do you think about this deal? Go forward or pass. Either way, can you give me reasons why?
Thanks in advance.