9 table 30 seat pizzeria
Rural location off busy 4 lane state route
Next to historic country store
plenty of parking
Seller claims business is barely breaking even
Rent $1300 month
does not advertise
open 4-9 6 days week
lease has a3 + 5 year option
I offered 55k with 50% owner finaincing
He countered with 3 different options and we agreed on these terms.
70K with 90% owner financing. (Only 7k out of pocket for me!)
30 year ammortizing @ 8% with a 10 year balloon w/ no prepayment penilties.
Payments would be $465.00 month and $55,000 pay off on the 10th year.
Hold out. You can get a much better deal. Couple of questions though:
How long has he been open?
How old is the equipment?
Are you sure what equipment is his and what belongs to vendors?
Are there any liens on the business?
Did the owner draw a salary?
How much did he spend on food (avg) per week?
How much did he spend on payroll per week?
I think the price is a little high BUT the average daily sales are around 600.00 and only open 4-9 so there is room to really grow this business. What is the population? Why is he only open 4-9? ie it because there is no lunch business? If you can make a couple of hundred bucks each day at lunch you can bring in over 60,000.00 and it may be worth it if the price is right.
OR he ain’t open longer because he ain’t making money. My place is open 5p to 9p/to 10p on Fri & Sat because our market is pretty small right now, and we lose our shirts on labor with longer hours . . . lunch is good for about $120 a WEEK. Yes, a week.
Look at your market and assess the potential market value. Remember, $20 per household spent (on average) per month on pizza. Look atyour reasonable radius of influence, find out population in that radius and do the math. You can then find out what percetnage of potential market he is claiming to draw.
We ran about $170K as year with $1000 rent and didn’t draw a paycheck for ourselves for the first three years (almost made $8000 last year, but had to put it back into the business.) We should skyrocket this coming year, so the investment will pay off, but it was a well calculated risk and took strategic efforts to build our reputation. You gotta be prepared to love and toil for this if a small market.
Since he’s an absentee owner and he says he’s barely breaking even, it sounds like he’s not taking any money out of this place at all. So it looks like you’re paying $70,000 to get nothing in return. If you want, I’ll give you nothing for half that, and I’ll finance 100% of it. Let me know when you’d like to start sending checks.
I’m being flip, but just trying to demonstrate that this appears to be a very bad investment. Now if he’s pulling say $20,000 per year out of it, then it’s not such a bad investment, if you’d be truly absentee…
But that leads to another question. If he’s making enough to make this a good investment and he’s absentee, why is he selling and willing to finance 90% of it? If he were just selling outright, I’d say fine… he’s just looking to reallocate his funds, maybe he wants to buy a boat or a bigger house, maybe he just wants to put the money in a nice stable T-bill.
But the fact that he’s willing to finance 90% of it screams red flag to me. The only way somebody would be willing to do that is if it isn’t a good investment for them.
This is a simple decision, yet I cannot give you an answer. Here’s the deal: This guy is likely losing some money. Probably not a lot, but is likely losing. Normally, that would mean this place would be worthless (taking on a lease and likely losses negates the value of equipment). However, the fact you can get into this with almost nothing down does change the story some.
The reality is this, sellers hate financing because if you go under they will never see a dime. Therefore, don’t look at it as a $70,000 investment, rather a $7,000 investment. Because we both know if you went out of business next month there is no way you will pay off the remaining $63,000 balance.
Is this place in a good location? Is it a good product? Has he poorly marketed this place?
The more yes’s you get the better this deal looks. Most absentee pizza places are poorly marketed. Poorly marketed, good product, in a good location and you could be sitting on a phenomenal opportunity where you only have to risk $7k. The best part is, since it already has the infrastructure to be absentee, you don’t even have to quit your job to take it over. Just spend your nights, every night, advertising and build this place up. You can get unlimited about of great advertising ideas on this very board.
But you need those answers to be yes. Are they? That is what you have to answer for yourself.
My thoughts as well! This could be a good deal if you can build up the business. BUT, CAN YOU? I think if it is doing bad because of an absentee owner you could do it, even if the product is so so that can be fixed but are you able to put the time and effort into it? My brother did the same thing a couple of years ago. One difference was it was only 30,000.00 so he paid cash but he started to build the business back up but then his regular job (he is a realtor) started to get to busy and he couldnt put the time into it anymore and it started to go back down, lucky for him he sold it and made some money off it but you have to be ready to put the hours in to make it go!
I have to reply to this as it sounds almost exactly like how we got into the pizza business and 8 months later feel it was the biggest mistake of our lives and we are flat broke and deep in debt. We are working our butts off door hanging and marketing trying to make it work.
Absent owner, didn’t do any marketing, open during the day and closed early in the evening (opposite of you), rural area (small town) next to a state highway, Inflated purchase price for what we really got. Owner willing to finance part of the purchase price. The only difference is that the owner showed us P & L’s that were really inflated (we found out later from former employee’s that sales were thousands less) and he would never show us his tax returns for the business - he said he had his other businesses incorporated into (farm, other pizza place, etc.). Since we were greenies we had no idea what to ask for or what to look for.
He owns another pizza place in another small town about 30 miles away and just told us yesterday that he is in the works of selling it to a guy from Indiana. I hope that guy backs out . . .I’m sure he’s paying way too much money for it.
gobpile - His situation is totally different from yours. You made the mistake of not consulting an accountant. You were asking to get ripped off and when you ask to get ripped off you usually do.
This guy would be going in with almost no risk. If the place is losing a bunch of money instead of being roughly break even, he just does not pay the seller financing. The seller probably won’t even try to sue him because he knows he will never get a dime. All that is at risk here is $7k.
Being that they are only open in the evening, he doesn’t even have to run it absentee. He can just work this as a second job.
You went in with substantial risk, this guy is going in with almost none.
Is there anyone who would disagree that what you put into this business you get out?
So the question is have you got the right stuff to put into the business to get the right stuff out of it.
Who is a successful pizza opertator? Where have they come from? What skills have they brought to the business? There is no one right answer.
Plan to succeed or fail to plan? I came across a large frachisor who really impressed on every franchisee that they must write their own business plans. Not pay someone to do it, their accountants or a consultant. Do it for yourself understand the business from the ground up what makes it profitable, whats in the control of the owner/operator and whats not.
If you’ve done your business plan the answers will be revealed. Project the sales the number of pizzas and the number of employees and the catchment area and the market share you’ll need to do 14 a week the redemention rate you’re likely need on your marketing and what the spend will need to be. Seems pretty involved. Put the time in at the start the end results will take care of itself.
I wish I was in a position to buy everyone of the stores where the owner/operators have never taken the time to understand their businesses and do a business plan. What are the strenghts, weaknesses, opportunities and threats to the business. What is the competition? Where is the road map for making the business be what you want it to be.
I thought I was doing a great job taking a store from 8k to 13.5k in around six months. In the following year my successor took the store from 13.5K to 32K. Who had the better plan. It’s not all about the volume either there was more fat to cut from the business too.
I stuck around for that year to watch my successor and learn.