Thoughts on this deal?

Hi everyone,

I used this link for reference but this situation is a little different than a startup. Thanks for that post Jrokk.

http://www.pmq.com/tt/viewtopic.php?t=1054&highlight=

Before Move

  1. Meet with Ice cream owner and negotiate final sales price, financing terms, and date.
  2. Meet with landlord regarding lease.
  3. Floor plans for kitchen area. Dining room plans.
  4. Have attorney draw up purchase contract. Or does the seller have the contract drawn up?
  5. Have attorney setup new business entity. Or can I just be added to the current one?
  6. Contact health department for approval.
  7. Plan out the moving of all equipment.
  8. Update accounts with distributors, utilities, bank accounts.
  9. Meet with insurance agent and accountant.
  10. Setup facade plans.
  11. Meet with employees for both stores and work on scheduling.
  12. Launch website
  13. Advertising game plan.
  14. Updated menus.
  15. Order smallwares for dine in customers.
  16. Hire additional staff.

During move

  1. Move in equipment and move out what isn’t needed.
  2. Update POS.
  3. Transfer utilities.
  4. Arrange dining area and front counter area.
  5. Arrange inventory.
  6. Train all employees and update employee ppwk.
  7. Product prep and fill inventory.
  8. Health dept approval. Fire dept approval.
  9. Have ads hit. press release
  10. Final operational tweaks.

I’ve been reading through some posts and thought I’d post my opportunity on here to see if I can get some of the excellent feedback others have got.

During college I worked at an independent pizzeria as a driver, cook, and then assistant manager. After that I was a general manager of a chain pizzeria for about a year until I got job in the finance industry. About 5 years later now the owner of the indy place has asked me to come in as a co-owner and purchase an existing ice cream shop around the corner to move the pizza place into. I’ll try to list as many facts as I can to see what your thoughts are.

Community-
14k with an additional 10k in students.

Pizza Place-
Delivery/carry out only.
4pm-3am
Tiny lobby. Lease-650 per month
300k per year sales.
40% food cost. 26% labor including mgr salary.
Located on side street.
No advertising.
Pizza, sandwiches, appetizers and pastas.
Sales slump during summer when college is out.
Asking 140k. My buyin 70k.
No website.

Ice Cream-
Del/CO/DI-15-20 tables
Triple kitchen size. Bathrooms. Large front counter area where all desserts are produced. Already has one pizza oven in operation.
240-260k in sales last 3 years.
11am-8pm
lease 1k per month
Soup/salad bar
Office
Nice location. Right around corner and on the downtown main street.
Sales peak during summer
42% food. 29% Labor
asking 80k with 50% financing

I see no reason why we can’t retain 100% of the current pizza place sales and add sales by opening for lunch, offering ice cream, and start spending a little on advertising. Main competitor is not located downtown and there really isn’t any food competition for post-bar crowd. I’m also sure we can cut food costs down to at least 35%. Labor cost worry me a little bit because of the extra duties and sales growth.

I’m pretty set on doing this and willing to make the sacrifice. Just need a little guidance of where to go from here. Here is my current to-do list. Currently not sure how long we will have to be closed for the move but what we need to do during that time is in the 2nd list. I’d appreciate any thoughts. As you will see we are pretty early in the process but I plan on starting from the top and going from there.

Nice post.

Can you clarify who is buying what & how much. As I understand it, your paying 70K for half the pizza shop. Also, you are buying the ice cream shop with 40K down & are on the hook 40k more.

When the businesses are combined, ,what is the split & who is making the payment on the balance of the ice cream shop.

How much are you making a year in the financing industry?

edit your to-do list to insert at the very top:

Request and review financial documents from current owner to assure the current valuation of the pizza joint is fair at $140K. Due diligence is a habit of successful people. It is very possibly or likely on the up and up . . . no time like before spending the $70K to be sure. Trust . . . but verify.

A couple of questions:
Are you creating a corporate or LLC entity to manage all of this? Or is one already in place? Are you buying interest in an existing entity or entering into a partnership arrangement?

“How much are you making a year in the financing industry?”

Hahaha, that really is the first question to ask.

Here’s another, “Do you own a house? Do you like it?”

Why not approach the ice cream owner and buy from him for 80K. If your going to buy into a partnership for 70K, why not for an extra 10K have your own place. plus, the guy will finance. If his sales are 240K-260K a year, you can have the place for yourself. Of course, as Nick says. Request financials and review them. Request Tax Returns, Sales Tax Returns, etc… The store is only worth what they are reporting.

If they won’t show tax returns, I’ll say it before Nick.

Don’t WALK from this deal. RUN.

Have to agree with RobT. Of course you will have to buy equipment, etc. but maybe the existing business’s sales can help finance it. Plus, you are not talking great sales in either location, so why would you want to split it? Personally, I would not want a business that is open to 3 am in the morning. If you think that just when its slow and you can have a manager be there that will be the stealing time. Sounds like this potential partner was not very savvy with marketing but with that kind of population count, it doesn’t sound like there is much room for growth anyway.

Dual Concept: I’ve been involved with other chains and duals, and while you can add sales by doing a dual concept, ice cream & pizza shop, I have never seen the separate concepts do as well as they would separately. To think you are going to keep the current sales of the ice cream shop is a bit of wishful thinking. Anything is possible, but I would not base any decision on the assumption sales are going to remain the same. It takes a lot of expertise and $$$ to design a store with dual concepts that gives enough credit to both – and based on your numbers that is not in the deal. People are going to walk in and either see it as a pizza shop with ice cream or worse, an ice cream shop with pizza.

So basically, you are buying in for $110k plus whatever your portion of the financing is, plus your share of the moving expenses. Have to figure you are in for at least $150 to $160. If the business is all yours it sounds like the numbers work. I don’t know what the cost of living is where you are at, but I could not live off splitting that – especially with a family. The restaurant business is hard work and I personally would not go into something like this unless I though I could “significantly” increase sales and in the interim you will be in the poor house.

This is all assuming the numbers you given are on the up and up. Never seen a deal where “everything” was disclosed or there weren’t surprises.

Thanks for the quick replies. To answer your questions:

I have reviewed the books and tax returns for the pizza joint. I am comfortable with the 140k asking price.

The balance for the ice cream shop will be paid from sales.

For the entity, I have no idea yet. It might be easiest to buy into the one currently in place. We will have to discuss it with the accountant and lawyer. I know there are some posts on this board about this too.

To be clear, my total personal investment is 70k and will have a 50% split. This is an all or nothing deal. I won’t be buying the ice cream shop only and I’m not looking for the stress of starting from scratch either.

No house, single, and I’m done with the cubicle life.

I don’t plan on sustaining the ice cream shop sales but see no reason why we won’t sustain the pizza sales.

Lunch 50k
Ice cream 40k
Dine in-?
I think if done right we can be over 500k the first year.

I like this deal. For 70K your buying 1/2 an interest in about 550K in gross sales, all to be under one roof with experienced operator as a partner. Around here, shops doing 10k per week go for 150k plus easy. My point is, you can probably get your money back out of this deal if you want out.
Hours are tough as your store will be 11am-3am combined now, but dropping $8000 right down to the bottom line with rent for just one location. There have been much worse deals presented here. Good luck to you.

Hi; marz0629

Those who operate shops are giving you good advise.

The only help I can offer is that when you are ready to plan your move we will do an equipment floor plan for you no charge.

George Mills

Man… sure is refreshing to see someone have an idea and actually investigate it before jumping in. Sounds to me like you both have a need the other can fill. I would make sure to iron out in writing what the process will be when you don’t agree on something…how will it be decided. I would make sure to have a lawyer only you pay look over things.

Make sure to go over all the details and put them in writing so everyone is very clear on duties and expectations.

Keep us posted

Kris

Well then, this is the time to take those risks! No worries, mate, lol.

Just make sure you analyze the top end of this. Its one thing to figure if you can make it based on current sales but another entirely if you don’t see much room for improvement. The small population and cyclic school activity would just concern me here.

40% food cost??