How to sell a pizza store- where to start?

[Mike]

I’m looking for good information on how to sell a pizza store. My family and I operate a successful pizza operation, we currently operate 3 retail locations and wholesale to 7 “franchises” (stores that use our name and buy our dough/sauce/cheese, but not true franchises) and have been in business for over 35 years.

We are having problems with our newest location. The store has good sales numbers, however, the current operator can not seem to turn a profit. Unfortunately the store is too far away and we’re stretched a little too thin to operate it ourselves. We know that the problem is that the operator cannot properly manage his finances (ie, his payroll is around 42%). We have met with him and our accountants and he has not taken our advice on how to fix his problems and we have come to the conclusion that we need to sell the location (we own the store, the operator was going to buy it after a 2 year trial period of essentially running the store on his own).

After being in business for 35 years we still have not found a good way to find good operators or good a way to sell stores. Almost 100% of our “franchise” owners came from the inside, working at our locations for a number of years; however, for every good owner it seems like we go through 2 bad ones.

That being said, if anyone has any good advice on how to find a buyer then I would appreciate it. We’re looking to sell it as a “franchise” or to someone that wants to change the name if they like.

-Mike

 

[bodegahwy]

Your best bet is to sell it to one of your other successful operators and carry the note for them. Next best is to sell it to one of your managers or assistant managers and, again, carry the note for them. In either case, after running it successfully for a bit, they should be able to go through SBA lending to take you out.

If you decide to go that route, your buy-sell agreement should include that they can not change the name or the product as long as they owe you money and you should maintain control of the phone number and have a security interest in the equipment.

The LL will probably want to keep you on the lease too. This is not necessarily a bad thing if you are carrying the note. You can set it up so that any default on the lease is also a default on the purchase of the business.

What part of the country are you in?

 

[Mike]

Thanks for the reply! We’ve asked our other operators and no one wants to take on the store because of the distance from their current locations (its about 45 minutes from any other of our locations).

When we open up a new store we usually carry the note for one of our current managers and have them pay us back with small payments over a very long period of time. Unfortunately, we currently don’t have any managers that want the responsibility of their own store. Two of our best managers already had their own store at one point and ended up selling them back to us; I guess good managers don’t always equate to good owners.

The unique thing about this store is that we own the property and keep the rent very low and that the store has decent sales numbers (between $10-$11.5k weekly, after being in business for 3 years).

We’re in the Philadelphia, PA Suburbs

 

[bodegahwy]

With those numbers, I am surprised that you can not find a solid manager for an operation like that! Have you considered increasing what you offer a manager to take the job? You might be able to recruit a successful manager from another operation with a combination of compensation and the opportunity to buy with seller financing. In any case, it sound to me like it should be a business that could find a buyer especially if the low rent is something you could live with long term.

If you, are presenting the business to potential buyers, you should produce a financial restatement that represents what the business results are if run as an independent location and with whatever rent you would propose offering to a buyer. If that means recalculating food cost to what it would be buying from Sysco etc, then include that as well. In general, businesses of the type most of own tend to sell on a multiple of seller’s discretionary earnings. Restating the earnings to show the cash flow a new owner can reasonably expect to benefit from is an important part of the package of information a buyer will need to evaluate the opportunity. Consider whether you would sell the property too. If so, it increases the likelihood of finding a strong buyer and also the range of financing options for a buyer is better.

I googled Philadelphia business brokers and found several that look like they handle the size business you are talking about. I would suggest that you contact a 2-3 of them that look promising based on their websites and ask for a meeting. Find someone you are comfortable with and ask lots of questions about how they market businesses, selling process, history. Ask for a couple of recent seller references. A good broker should be able to help put together the financial re-statement and should have sold some similar businesses in the past. By similar I mean other restaurants of more or less similar size not necessarily pizza businesses.

 

[GotRocks]

Would it be worth having a more serious “Sit Down” with the current operator and spell it out to him very clearly that his labor costs are killing him, and help him fix the issues.
Or are you already to the point where you don’t see it being fixable?

How the heck can he even keep the doors open with a 42% labor cost ratio? I start getting bent out of shape when mine exceeds 11% (9.5% labor cost today, and thats because I had 2 trainees on today)