just a quick background… i have been a managing partner for many years now and i now may have the oppurtunity to buy out the owner. my question is how much cash should i have in the bank. i do not mean purchase price but more of how much cash should i have on hand when i open. most of what i have read is 3 months worth of expenses but i think this is for a startup. obviously the more the better but just curious what the brilliant minds on the tt have to say.
Is the current owner behind on his bills? Is the business profiting. I wouldn’t really call it start up cash, your buying the place your working in you should know right away ifnyour gonna need money to back you up or not.
i guess that was obvious the business is profitable and has positive cash flow. i guess i was just double checking my train of thought.everything i have read says a major downfall is not starting with enough capital and i wanted to make sure i was thinking corectlly. i have read this forum for years and like many posters have said its different when your signing the checks. just trying to triple check my thoughts.
I would like to know the answer to this question too.
Enough for the business for 6 months and the expectation that you won’t take a check for up to a year.
Tweak that however you want depending on sales, cash flow, profits, expenses, etc.
Under-capitalization is, indeed, the downfall for many.
This should be easy in an established business. Create a weekly cash flow model for the last couple of years using the actual numbers from the business. Assume some reasonable amount for starting cash. Each week is one column on the spreadsheet. Sales, taxes and expenses are the rows. Enter the income and the expenses (In this example you must include sales taxes both in sale and when the payment to the taxing authority is due)
COGS (actual $$)
Etc Etc Etc
Ending cash becomes the starting cash for the next week.
Expenses come from actual checks written as of the date of check, CC payments as of date when you paid the card, and cash payments from the POS as of the date spent.
Your spreadsheet will show you when your cash goes negative. In most businesses this is reasonably predictable.
The amount you need is enough to cover the biggest shortfall plus some amount for unforeseen or irregular costs. I would budget irregular costs weekly. For example, if your repairs budget is $2,600 per year I would put it in as $50 per week rather than whatever random dates the money was spent in the last year. If you are worried about being closed for some period of time I suggest business interruption coverage rather than holding cash just in case.
You do not need to have all of this in cash. If you have a line of credit you can draw on it and replace. For example, in my business we always went negative on cash flow in the mud-season. I could either hold enough cash to cover it or draw down the credit line and pay it back. As an example, if you needed to draw 10K to cover a 6 week shortfall and your interest rate was 6% it would cost you about $70 if you waited until the end to pay it all back. Less if you paid it back as you went. In slower seasons I often would draw down my credit line on a Thursday for payroll and pay it back by Tuesday when the weekend business posted or pay down my line all month and then draw it back for the CC payment… and then pay it down again.
Let’s say i start with average store delivery,co,few dine in seats that has a potential of 520k/yr gross,new to the market,somewhere in Chicago suburbs let’s say.
How much roughly gross sales can i expect first 6 months?
I think that’s a bit vague and too many unknowns for an answer…
I would say whatever amount you start with, make sure you have some sort of backup plan in case of an emergency like a savings account or a line of credit. Things will happen, guaranteed.
Best way to make a small fortune in the pizza biz is to start w/ a big one.
Never gets old…!
Be here all week, folks.