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Could it work? doing business with family?

Z

Zerodown

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Ok, so we were having a good time at my house and suddenly we were thinking what kind of business we could do together decently and simple, the proposition, lets make a pizza store.

Now, let me talk a little about the 3 of us, we all have experience with pizzas, we all currently work at Papa John’s pizza, me being the oldest there with 5 year experience(also our uncle is a supervisor in the stores of where we live). So we know how to make them, how to charge them, how to deliver, we know everything needed to make good pizza and sell it. On the individual side, one of my cousins has $15,000, experience and knowledge and the will to work, the other one also has experience and knowledge on pizza, is getting a bachelor’s degree in art(which would help in decor, menus, signage and other stuff) and me, I am experienced in the field, willing to work hard, I can do our uniforms and whatnot since I do screen printing as a hobbie, plus im graduating in two years from business administration(accounting) which will come in handy. Some other cousins work at papa john too which we could hire, but only the three of us would own the place. My stepfather is a lawyer, he could help with permits and legal stuff, and maybe lend us some money if we fall short to start.

Now, this is an idea that we had a couple nights ago, I just started researching into it today and found this place, and I thought who better to give me a raw idea of what we’re looking at than you guys.

Could it work? I imagine we could start it and work it the three of us until it started picking up on sales. We’ve talked about taking it seriously, and reinvesting everything the first years. What can be done with 15k start up cash?

Where should we start? as in, what should we be doing at this stage, I imagine we’ll be researching into it for some time before investing a penny, what are your thoughts?

Any input is appreciated, also if there is any info you need just ask.
 
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Two things I take notice to immediately. Three people is a whole lot to split the profits of a pizza shop. Even if your shop is wildly successful, a three way split of those profits probably won’t keep all three of you happy. Prior to spending one penny on this venture, write up a formula dictating the terms that one partner can sell his share to the remaining partners. I’ll bet that before a year is up there will not be three partners left. If the terms are already written, no one feels like they got screwed.

Secondly, $15,000 is a very small amount to open a business with. Only one of the partners has any money to put into this? What about the other two? Couldn’t save up a penny when working for someone else, what makes you think you’ll be able to live until the store starts making a profit? Chances are each of three owners will be dipping into store revenues(profit or not) to pay their personal bills and strangle the cash flow out of the store.

Could it work, sure. Will it work, the odds are very much against it.
 
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Prior to spending a penny of his money read the sweat equity thread. Then read the other threads by Steveo922. Please do not take offense Steve, but most of the issues you have had could have been prevented had there been a clear written agreement. Doing business with family is not necessarily bad, but the terms MUST BE DEFINED IN WRITING. All parties must know what is expected of them and what they will get in return. How the booty will be divided when you are rolling in money, how the pain will be apportioned when the wolves are at the door. Who has the final say in which matters when you don’t agree. Yo would not hesitate to do this with a stranger, family relationships are much more complicated and that increases the need to define the terms.
That being said, 15K won’t buy you much. You may be able to get financing if you have some equity to put behind it, especially since you have experience. That could also create a situation where the rest of you also had skin in the game, which in my mind is a better way to do it anyway.
I would not want to enter into a partnership where I had no money at risk because that puts you at a disadvantage when it is decision time. I would not want to enter into a partnership where I had all the financial risk, in that situation I would look at my partners and think “What do they care they have nothing to lose, it’s not their money”

I have no degree in business management or phsycology (can’t even spell it) I’m just a pizza shop owner spouting an opinion. Take it for what its worth.
 
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Thanks, so thats the stage Im at I guess, written agreements and downsizing, well, I’ve been reading on the forum from about 3pm until now(6 hours), I think I have gotten a better grasp of things, thanks to you guys. Now, I was thinking about it more seriously and yes, I figured a 3 way split is going to be hard, but thinking more realistically I think in the end it will be just me and the one with 15k, we have talked about it more seriously. I can get more money if needed, or a loan, he has 15k because he inherited the money. Now, We’re just thinking it over and researching into it, we’re not about to spend a dime or make decisions yet, thats why Im asking for some help in deciding how to go about it.
 
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Start by reading the FAQ sticky at the top of the forum. It will answer many of your questions.

Since you have a lawyer in the family I would suggest you have him go over the finer points of a family partnership agreement including: an exit agreement (should one or more of the partners want out), the roles of each partner, how the return on investment will be divided. You will need much more than $15000 to start a pizza shop, where will this money come from?
 
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I have been in the restaurant business for over 15 years mostly as a investor partner. 4 years ago I started a take out business with my brother, wife and best friend. My brother left in the 1st year, my wife went back to her old job in a year and a half, my best friend would like to sell his interest in our place and get a job and I love it and want to open a second location. When people ask me how is the restaurant business, I tell them “everyone wants to be in the restaurant business until they get into it.” Working in the business is not like owning your own business. When you make a mistake at Papppa Johns it’s o well sorry, when it’s your own it’s o well sorry now pay 🙂 Having said that 15k even with experience would be tough. Since you have a relative that’s a lawyer, one thing you want to make sure is that if you go through with this you have buyouts really researched and done very clearly. It’s bad enough losing a partner, try not to lose a friend or family member because I guarantee you that with 3 of you, 5 years from now there wont’t be 3 left. Like I said everyone wants to be in our business til after they get here. Then next thing is research. Do lots of research on the type of place you want to have, menu etc. Do this before you spend any moeny. Next formulate your busiess plan and have it looked over before you spend any money.
Good luck
CaptnSammy
 
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"[b:
Zerodown[/b]"]Ok, so we were having a good time at my house and suddenly we were thinking what kind of business we could do together decently and simple, the proposition, lets make a pizza store…

…On the individual side, one of my cousins has $15,000, experience and knowledge and the will to work…
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Hi Zerodown, welcome to the forum. I want to let you know up front, I’m known around here as quite an optimist when it comes to these types of questions. :lol:

I’ve taken the time to highlight 3 words from your post that exemplify the first hurdles you will need to overcome before you move even one step further.

Zerodown - well, that’s going to be a show stopper.

Simple - a major misconception. These is nothing easy about making money in this business. It may be easy to own a pizza shop, but making money is whole 'nuther thing.

$15,000 - You are going to need 10+ times that to start and have some working capital to survive more than 6 months.
 
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After a fully developed business plan incuding a budget created with the help of someone who knows what they are doing (working in a PJ’s does not begin to qualify one to do this) 15K would be a good amount to add for small things you did not think of.

Despite stories of stores that opened on a shoe string, the reality is that even a smallish, simple store will cost many times that much after including operating losses and other start up expenses.

Also, after you are open, successful etc a couple of years from now, you will be able to pay yourself more or less what you make now at PJs and have enough left over to make one of you happy… not three.
 
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Zerodown,

Some pretty savvy operators have given you awesome information to consider while planning your venture. I’ll give my opinion on 2 topics: 1) Working with family 2) Capital
  1. Working with Family. Very few concerns actually pull this off. It hasn’t worked for me. It didn’t work for another 12 people that I know. Even on TT, its the exception. For some, marriage cannot survive the rigors of the pizza business.
  2. Capital. $15,000 is not nearly enough! There are those RARE success stories where the operator started the biz for less than $5K, but lets face it: that operator was in a far different situation, he threw down $5K & some work (most likely did not need to succeed or get paid) and it worked out. I’d recommend having capital & LOCs for $150K-$200K in place BEFORE you spend one penny. I mean, really, what does $15K buy you?? First month’s rent & deposit, first month’s payroll & insurance, an oven, a small initial stock, and start-up advertising??
It sounds like the work for yourself bug has bitten you. Continue researching, perhaps get to know your PJ owner better, and start saving some CASH. If you can concentrate on your goal, you should be able to do it by YOURSELF in a couple of years. Good luck!!
 
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I would strongly advise against going into business with a partner and especially family. The pizza business is a tough business to get into, that’s why there is such a high failure rate. The percentage of sales that is actual profit is very small. I’m sure if you polled the members of this forum, you would see that the majority of owners with one shop make less than $70,000 a year. Try splitting that 3 ways or even 2 ways. Now what you’ve got yourself is a low paying job with a lot more stress and responsibilities.

Another problem with having a partner or partners, is that unless everyone is getting rich you’re going to run into problems. You might come into this business venture as a happy loving family, but the odds are that down the road you will be 3 family members that barely speak to each other. Business with family members is risky. There’s always going to be one partner who feels that they are working more and getting very little money for it, while their partner isn’t doing as much and is taking more money. Also if the business starts to fail you might start blaming each other. I’m not saying these situations are always the case but they are very common. Like I said, if you guys get rich everybody’s happy!

My biggest concern about your situation is that you have little money to get the business started. $15,000 is not nearly enough. I’ve owned 3 pizza shops (currently 2). The first was already in operation and I purchased it for $30,000. The second I opened in a small town in a building that used to be a pizza shop. I went to restaurant auctions and bought some equipment off of ebay. I got all of my equipment for pennies on the dollar and was able to open this shop for $25,000. it is in a small town that is very lax on building code enforcements. I never once had a code enforcer stop by. This was a relatively small town and there were no other pizza shops. I would say that this was a best case scenario situation. I was making money from the first day I opened the doors. I had this shop paid for within 4 months.

The third shop I opened was a totally different story than the other 2. Because of my easy experience with opening the 2nd shop, I was very naive. I found a location that used to be a restaurant in a busy and booming town. I thought that all I needed to do was clean it up, paint, install my equipment, get my health inspection, and I would be ready to open. Boy was I ever wrong! The 2nd day a code enforcer showed up and made me aware that there would be a lot more work involved. There were a lot of rules that the small town I opened my 2nd shop didn’t have. I had to start by getting blue prints made up using a licensed architect which costs me $1000. I wasn’t allowed to hook my own sinks up. I had to hire a licensed plumber just to screw some water lines on and glue some drains. This cost me $1000 as well. I had to pay for plumbing, sprinkler and electrical inspections. I had to have a sprinkler head put inside my walk in cooler and the list went on and on. The biggest nightmare was trying to get my building permit. So many things had to be done and so much more money was spent before they ever gave me my building permit. When all was said and done, it took me 10 months to get open. I had originally thought I would be open within 3, so I only negotiated 3 free months of rent on my lease. Like I said, I was very naive. You say that you have $15,000 to invest? I spent $15,000 alone on rent before I ever was able to open my doors for business! This put me in a hole that I was never able to get out of. In the beginning I had gotten a loan for an additional $12,000 that I was going to put in the bank and use for advertising and back up funding in case business was slow. I never got to use this money for what I intended. It ended up all going to my rent. By the time I opened I had very little money in the bank and was barely able to advertise. I was underfunded and losing $1,600 a week for a while. I managed to keep this pizza shop opened for 8 months before I finally closed it and put an end to the bleeding. I was out of money and because of this my other 2 shops were starting to suffer. I ended up losing $85,000 with this failed shop. This is definitely an example of a worse case scenario which happens quite often to people.

If you are going to go through with opening a pizza shop, make sure you have enough money in the bank and do your homework ahead of time. Know exactly what has to be done to get opened. Check with your code enforcer before you do anything. Figure out how much money everything is going to cost and then double it. That will most likely be the real amount of money that you will need.

Hopefully I didn’t bore you with my long winded stories. I wanted to give you some real life examples of what can happen. I’ve been on both sides of the fence. I’ve had success and I’ve failed. Also be aware that supply prices are higher than they have ever been. I’m spending over $1,000 more a week on supplies than I did 10 years ago when I first got into the pizza business. One last word of advice, if you do choose to go through with it and have a partner, make sure your roles are clearly defined. Have a lawyer write up each person’s responsibilities and like someone else mentioned, an exit strategy (buy out clause).
 
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It wasn’t boring Roger, thats what I was looking for, a realistic description of the game, I will definitely do a lot of reseach before doing anything, like I said, we just thought about it, and we’re looking for some crude advice like you guys have given, thank you.
 
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bodegahwy:
15K would be a good amount to add for small things you did not think of.
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We just finished our second store and spent about $12,000 in the final week for all of the “small stuff” that we didn’t even bother to budget for. Granted this is probably a bigger restaurant and concept than you’re envisioning, but that should help put things into perspective as far as money goes.

Heck, my security deposits and building permits alone were close to $15,000.

You probably would need to 1) save more money or 2) find an investor with deep pockets. It’s very likely that borrowing from a bank will not be an option, especially in the current environment.
 
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On the opposite side, we’ve been in business for 36 years and family has played a giant role in it. My grandfather started the business and my grandmother worked with him. My uncle and mother eventually joined in, and when my uncle left to run a second restaurant my grandfather bought, my father was welcomed in. My parents eventually bought the place from my grandparents and now my brother and I doing a lot of the day to day operations.

It hasn’t been without its headaches, but it can work.
 
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I’ll make mine short. Family make excellent, reliable, trustworthy employees. As far as partners, I’ll never do it again. I bought out my Uncle as fast as I could. People with money and no knowledge of what you are in business to do drive you crazy! Peace!
 
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