The Best way to spend 200k

I have past experience in the pizza industry (many years ago) but feel I could be successful in running an establishment. So here is the question. With 200k would you-

  1. Purchase an existing operation (franchise) who is making 90-100k a year, but working as a general manager for sure. This franchise is a lower price point establishment

  2. Purchase a middle to upper tier establishment making less money but not such a low cost grind

  3. Start from scratch and design an operation, but spend a year in doing so.

Considering what if any decision is the best and how I can maximize my investment and have the best return.

Note that I am not against doing every part of the operation from making the dough, running the line, running the ovens, cleaning the oven, cleaning the grease trap etc.

Thanks everyone.

Re:

The Best way to spend 200k
Give it to me & forget about it! :lol:

Instead of trying a pizza forum I would rather talk to a financial adviser my friend. They will start with your age, possible working,productive years etc. If you are young,willing to grow,take risk and still have time to bounce back from a loss before you r unable to work,too old. Then you could try your own concept. But “I” would go for a franchise you mentioned. 100k is a very good return on 200k. I will jump right on. As faar as low price,high price concept. Don’t involve your emotion in financial decision. Go for best return for your MONEY It is cruel world out there my friend. 200k could disappear very fast. Please just for me, for a moment. Imagine you lost it all. Then remember that thought when you make any financial decision.

I am not a financial adviser, but from a small businessman’s view for 200k an established business with 100k net is the safest investment. You can always try risky ideas after you have steady positive income/cash flow. There are a lot of smart people on this forum & they will have some good advise for you.
Good Luck Buddy

Re:

Actually I have a background in the stock market, I was a broker myself, so your advice while nice is not necessary.

I asked specific questions for a reason, thanks.

I will put my 2 cents in here. Even though I am new to the pizza industry I would say this. I have spent the last year searching for what I would enjoy, and what I would dislike to be and do in the industry. Pizza is a passion for me.This is the journey I have taken over the last year. First I had to decide if i wanted to have a cheap product, and pump out inferior product, but pump them out I would and I wouldnt have to spend quite as much time in the store, just spending my time in marketing and hiring cheap employees, or would I prefer to serve a high quality product that couldnt be compared with my competitors. It would mean higher product cost, more time in the shop and alot of marketing. I decided the later. Thinking I wanted pride in my product and service. I also had to consider if I wanted to have an already exsisting business or sign onto a franchise. I had many ideas of my own and didnt want to be dictated by a franchise or give them my hard earned cash to use their name and run my business their way, also giving them a cut of my profits for the priveledge. In the end its what you want. Is this retirement income and something to do? Is it to be a part of a whole? Is it to be the pizza master of all in your area? In the end its what you want, and what you want to be a part of. Delve into yourself and what you want. To start a pizza business from scratch takes an extreme amount of time and planning, going with a franchise is extremly easier. Do you need time to be with your family, becuase you sacrifice your time to endevour into a business on your own. All these things must be considered. What do u think, which would you prefer?

in the first scenario is the 100k net including your salary?
if so 50% ROI, if not 25% (assuming 50K/yr) ROI…either way I would think it would be impossible to do that in any other scenario immediately

Thanks for the comments.

canuckfanlady,

I am definately not an artist or gourmet chef, so my main concern is net ROI and making customers happy.

Definately young enough and know enough to jump in and get the job done and make a good product regardless.

I have experience with the lower cost franchise from younger years and I have worked at 4 other places over time that differ, but none were full service or gourmet. I do see a market for it, but I would rather have instant demand and pay for that demand than to go from scratch and worry about fighting it out on the high end demand.

Perry, that is gross and the gross would be combination of salary and profit. So if I took half salary then the ROI would still be 25% and that isnt bad.

More comments are appreciated.

Since you have a finance background…

Don’t forget the Opportunity Cost of that $200k :stuck_out_tongue:

Historically that chunk o’change ALONE would net you $20k+ annually in a no-brainer, set & forget Total Stock Market index fund, while YOU get a paycheck, bennies & less risk working a regular job.

I know this scenario is lacking risk & drama, but be absolutely sure you want to do this! :smiley:

Backwards looking I agree, forward looking I disagree, but you have a point about opportunity cost…

If you have to ask these questions, don’t invest in any aspect of the pizza industry. It’s a place for those who know what they are doing in this economy.

I say this with conviction, experience and without insult.

My question was asked because of a lack of OWNERSHIP experience, not a lack of business or pizza experience.

How exactly did that reply add anything to the thread or discussion?

Congrats on the mountain of conviction and experience, some people come here to pick thoughts and learn from others points of view, you seem to have it all worked out, so please refrain from boasting any further.

You might find the franchise too restrictive to your entrepreneurial spirit.

I’d probably go with an established store with some verifiable numbers.

You can always make your personal changes to the place when you feel the urge and you can boost those sales with your business savy.

You’d be looking at a faster ROI with an established place over a new build and of course less risk of failure.

Check out lots of places and make some lowball offers. Depending where you are there could be plenty of great opportunities out there.

I have read your post carefully & think these are reasonable questions.

You note having some experience as a stockbroker. Can we assume you did the NPV calculations of this investment? Using the current % rate on 10 yr treasuries I would pass on investing in a pizza shop. While I do own a shop myself, if I had a free 200K in cash I would not open a second location. However, it seems you are intent on doing so, so let’s try provide the insight you seek.

Can you inform the conversation with a few more facts.
#1 Is the 200K free & clear cash?
#2 Do you have additional resources to draw on should the need arise?
#3 Which part of the country are you in
#4 What is your expected internal rate of return on your 200K investment.
#5 Most importantly, what kind of risk can you endure?

Complete agreement. I actually have about 250k laying around right now. Am I opening another pizzeria? Hell no. I’m taking 200k of it and investing in real estate, which has a signnificantly higher NPV than a pizzeria.

If you’re looking for the best return on your money in pizza, however, I’d go with #1. Starting your own place is a PITA, you probably won’t make a dime for at least two years, and you run a relatively high risk of failure.

Johnny,

Those are great questions, this is the sort of exchange that can help me and others and I thank you. Here is my reply-

  1. yes, free and clear

  2. yes, I have good credit and many options and other cash

  3. West/Southwest

  4. If I were to pursue the first option, my IRR would be probably 25% depending on if I decided to finance some of the purchase price and how well I do in comparision to historic numbers

  5. Risk I am fine with and I understand the deck is stacked against success for anyone entering the QSR business.

:?

Thanks for your response. I’ll post back tomorrow my thoughts.

Dear Guest,

The questions you pose, are quite timely for me. As I am sitting down with a two seperate gentlemen this Sunday who are in a similar position as you, I am going to layout a plan to work with one or both to open 9-stores each over them next two years. Initial investments will be $50,000.

I am located in Rural Northern Idaho, Idaho is the 3rd Fastest growing state in the nation, following closely behind Arizona, and Nevada.

Over the next two years, I intend to open stores, in Kellogg (pop. 8500), Mullan (pop. 3000), Post Falls (pop. 20,000), Couer d’ Alene (pop. 40,000), Rathdrum (pop. 12,000), Hayden (pop. 20,000), Sandpoint (pop. 8500), Bonners Ferry (pop. 4500), and Plummer whose current population is 990(However, there is a housing project beginning this Spring building 2000 homes, 1 mile north of town that should increase the population to over 10,000 in 2 to 3 years). I have another 9-stores in Central Idaho, and over 36 store locations identified in Southern Idaho.

Leases are extremely cheap up here still, and so is property. You can still buy a 4-bedroom, 3-bath for about $100K. But the landscape of Northern Idaho is changing. There are currently 5 new golf courses being built, 3 private and 2 semi-private adding over 180 new holes of play in and around Lake Couer d’ Alene. Tiger Woods, and John Elway have already bought up several tracks of land for their homesteads and I am sure we’ll see Bon Jovi soon too, lol.

You ever see the movie “A river runs through it?â€

tommie,

I think your compensation to yourself is extra generous. 75% ownership of business and profits? What is your capital contribution?

I understand you bring plenty to the table but that kind of ratio seems way unreasonable to me from an investing standpoint.

I also wonder if the strategy of a mid to high cost pizza establishment in these sparse towns will make the kind of profits you are hoping, I dont see a town of 3k, 2k, 5k,20k producing 5k a week in sales even if you were the only shop in town…especially longer term.

It sounds good on paper, but I dont see the figures you are discussing as reasonable.

Also, the figures you are discussing expense wise seem very very lean and the startup costs do as well.

Tommie,

By the way me, before Johnny rips my response, let me preface by saying that Johnny and I Johnny don’t see eye-to-eye, I respect him, and his point-of-view, but he has worked in a different environment than me. And he speaks from a different perspective than I.
I recognize he speaks highly of the low to mid-level marketplace(i.e. Little Caesars, Dominos Pizza, etc.). I enjoyed every minute of my career with Domino’s Pizza for the most part they treated me quite well, I learned allot, but I have recognized how to earn similar profits, in the mid-level to gourmet marketplace where it is all about quality not quantity that the customer is paying for. I have learned that it more enjoyable to go through back-to-back 200/pie hour and ring in $6400 in sales, than $2800. I have been in both situations before, and believe me the $6400 is more rewarding.

I don’t know that we don’t speak eye to eye. I recommended the low/m, id tier to Punjabi Guy due to his demos & experience. BTW, I don’t personally operate in this segment. I am a mid/upper tier operator & like yourself use Grande. That said, I appreciate what you are doing out there in rural Northern Idaho. Your numbers may work, however they work because you are, in some cases leasing dead kitchen space from other operators…bars & bowling alleys I beleive you mentioned. Also things are simply cheaper there…rents in particular. The majority of posters on this board will not be splitting space with an existing operations. I thionk your a good businessman as evidenced by your making money in any environment, but the numbers don’t work if your renting a building or opening up in a strip mall.

Johnny,

Good comments, there is no way I would be interested in opening multiple places in bowling alleys or conv stores, and how does he expect to earn those kind of numbers without a standalone establisment?

Oh and my IRR is more like 4% adjusted for inflation if you are asking had I invested the 200k outside the pizza industry and threw it into a bond or money market.

I would like to add that we need to use a comparable investment to find a truer NPV. In the case of pizza shops I used high yield (or junk) bonds as my comparable investment due to the risk…higher as is opening up shop,but lets set aside the NPV calcs for a moment.

Based on your posts I think you have a fair shot at success. That is as good a shot as anyone. As long as you won’t let anyone outwork you…your in the game.

Your correct in your assumption that the 200K will allow you to “buy” immediate sales. If I am putting words in your mouth, I apologize.

More to follow…