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I just tried to buy my first pizza place

“Due diligence does not mean you can hang out & see my secrets”

Yes, that is EXACTLY what due diligence means. Sellers need to wrap their heads around that one when the time comes.

Buyers should not consider black box opportunities. Businesses that make 160K for absentee owners do not sell for 200K. If it looks too good to be true…

Better yet, when you think you might want to sell in the next few years, here are a few tips to avoid these issues AND increase your selling price:
  1. Go legit. Declare every sale and accurately show every expense. No more cash wages, no more personal groceries, no more filling the family car with gas. Yes, you will pay the taxes you owe!
  2. Get rid of all the discretionary owner perks that you write off. Increase the declared income of the business as much as possible. Yes, you will pay more taxes but…
Extra 50 income will equal something like 10-15K more taxes but will net you 100-150K higher selling price. For the math impaired, that is a good deal even if you pay more taxes for 2-3 years in the run up to the sale.
 
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$840K sales, $160K net & $26K/mo. purchases, running absentee, do not add up to a $200K sales price…

When you ‘fudge’ the books, it will only bite you in the a$$ when time to sell or seek financing for future projects…

Claim all your sales, but be ‘creative’ with your expenses, but document them for future use…
 
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I assure you this is not a joke post. I am still trying to convince them to let me see the quick books. I have not recieved my deposit back yet, but I did just get the signed copy of the release form. I figure that the 160k is a pipe dream but even if it is only netting 100k, I think that is worth the price. This place is always steady with customers, and by the number of employees they have working at any given time, it is a busy place. The manager works crazy hours, but also make 1k per week. I appreciate all your input, it is great getting other points of view. I dont want to open one from scratch because i have no idea what i am doing. But I am a fast learner, and know I would have this down withing the 2 week training period. (I have owned a deli before). This place is in a larger strip mall with a major super market a few doors down, and boarders on a large area of thousands of single family homes as well as a lot of apartment buildings. I know on the weekends they run 5 delivery cars at the same time.
 
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First and foremost get your deposit back. You scared me a bit with the no pizza history comment but you have deli ownership in your past. Use that and go learn pizza from someone. Start from scratch after you learn pizza. Use your food history and maybe try to find a successful pizza shop a few towns away and see if the owner would mentor you on the pizza world and help you start up. You get pizza knowledge and he gets free labor for a couple of months. This would be worth your time and effort. Also being far away as to not have a negative impact on their sales. You want their help not their customers. Again…step back, get your money, and build from there. Best of luck my friend. :!:
 
I have a meeting set for tomorrow with the broker and sellers. They are supposed to provide me the credit card account statements, w-3’s and z tapes for 2011. My accountant thinks we should be able to get a good picture from this. We already have some other stuff. They recently sold the other shop they had, do I am going to go visit the new owner and see how truthfull the numbers were there.
I understand the shadyness of this business, and expect to make a lot less then they claim, however the food is fantastic, the customer base is unbelievable, and I will run this (if I buy it) the proper way, pay all taxes, and claim all income.
 
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Just had my meeting with sellers. 400k in credit card sales, rest cash. The week just ended did 17k again which is the average. Its hard to walk away.
 
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A talented thrower makes it hard to walk away from 3-card Monte . . . . a little game of hinky poo, 2 for me and one for you".

Of the deal makes sense, then game on and best of fortunes for you. If you can live with the reality that every deal has hidden snags and surpises . . . and some of them you already know include money that cannot be ccounted for . . . then you have your reality and desires to follow.
 
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Two things… are you 100% sure that all 3 operations do not currently operate as one and you have seen numbers that cover all 3? Then, fine…if you want this and they do also… you go spend the next month working and watching this shop. They take the time to teach you their system and you insist on just verifying nightly sales totals for 30days. No books…no conversations… just show me the money!
 
right now I am about 90% sure they are seperate. I have the food orders from all the businesses. With seperate customer numbers for each store, payroll for my store (of course a lot of the payroll is paid in cash so I will go in on pay day and see whats in the envelopes. I am going in tonight to see the z tape from today, and see whats in the drawer, as well as the weekly scedule to get an idea of all payroll. They are going to get me 18 months of daily ztapes. When I asked for the monthly z2 tapes, they told me they dont do them, only the daily. The business has been open since may 5th 2007, and as of yesterday the total sales with the running total is $3,841,368.
 
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Since you can be sure they haven’t been paying their payroll taxes right, either, than you should make sure that YOU won’t be on the hook for all the SS/medicare taxes they haven’t been withholding…
 
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It sounds like you already decided to do this and are waiting for someone to advise you to jump on it.
If you really want to do this, do not be shy about demanding they show you the entire business as part of your due diligence. Everybody here has pretty much been advising you to take a walk. You have the money in your hand, you set the terms. You don’t have to be a hard a$$ about it, just tell them you are not comfortable spending that kind of money without seeing X, Y and Z and letting a professional review certain items. If they don’t like your terms they are free to find another buyer. It is pretty hard to cut the line when you have a fish hooked, especially if the bait has issues and the fish population is a little thin.

Has anybody mentioned customer lists? Are they going to leave you any information at all?

Pay close attention to what smeagol8 said about payroll taxes. The IRS is not very understanding and most state governments are not either. I was stuck with an old business personal property tax bill from the previous owner of our shop. I paid property tax on the ovens, coolers, mixer etc for 2 years before i owned it. According to state law here the tax liability stays with the equipment, not the prior owner when the equipment is sold. I fought it for a long time, but in the end they wore me down.
 
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I agree with smeagol. Are you buying name and all in a full buyout or just taking a running business and making it your own? New name. Now you are nothing other than a new business owner with a new lease that has purchased some used equipment. If you and they are seriously selling you a turn-key op with name and all…then all those books, taxes, etc… HAVE TO BE PUT ON THE TABLE AND LOOKED AT BY A TAX/BUSINESS LAWYER!!! If you do not… you will need luck the first time one of their and now your ex or current employees gets audited for his 6-figure work expense deduction that his BOSS…now YOU said was the way to do it. Then the IRS says show me the books, records, timecards, purchase orders, etc… BIG ETC!!! You need to decide if you are wanting to run a successful legit operation or what they are doing. There are smart ways to depreciate equipment. Write off additional expenses. Earn your money in a more wisely way. Everything you describe here yells illegal and you then become part of it all once your first pissed off worker turns you in.

Sorry but I will go back to my original thoughts here…RUN AWAY AND IF SERIOUS PUT TOGETHER YOUR OWN PLAN OR FIND A REAL LEGIT OPERATION TO PURCHASE. THIS ONE IS NOT IT!!! :!:
 
One last thing… like Rick and myself and many have said…well walk away… but you have your mind made up since your first post. That is obvious and we will only try so hard to help direct you in a safer way. All that said…ask yourself one last question before you proceed please. It is a two parter. #1…why is everything they want you to see or have shown or told you about this place described a money making pot of gold with no problems or headaches? #2… why is it that every document or piece of info that would make you question all the wonderful reasons to pay what they want for this place being hidden or withheld? I agree…1+2=jailtime here! I guess best of luck to you since the people here that have bought MANY places in many forms of business have ALL said walk away! It’s all good…you know best! (Note: Sarcasm and you do not know best here!)
 
When I first posted, I had already walked away and requested my deposit back. Since then, my accountant who had initially asked for all the proper paperwork has stated we can still verify the business income/expenses without some of the stuff they dont want to share. As far as me being on the hook for income taxes that they didnt pay, I will check with my lawyer but I am pretty sure that the corp that owns it now will be the one that will be on the hook. I am not buying the corporation, just the Assets, even though I am also buying the rights to the name. I just got home from the shop and they did just shy of 2k today. Even though you guys sound disappointed in me, I do appreciate all your input, and I have implemented some of your ideas. I am a decent businessman (I am paying for this in cash). I think I have a good nose for a good deal, and this is it. We dont close the deal for another month so anything can happen. I will let you know Thanks guys.
 
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What was their reasoning for not allowing you to sit inside the store and view the amount of people that came in and out throughout the day? If they don’t want you in on their trade secrets, couldn’t they just restrict you to certain areas where you can at least view the cash flow for the day so you can gauge how accurate the sales #'s they give you are?

Another question. What’s the reason for sale? An absentee owner is netting 160k/year, but doesn’t want the place anymore? He’s also willing to sell it for only 200k? If the owner is truly absentee we’re talking about a 200k investment with an 80% return? Holy smokes! That means in 1.25 years you’d have made 100% of your investment back, assuming you have 200k cash, not a loan at x% interest. Even if they exaggerated by close to 40% and it was only netting an absentee owner 100k, that would mean you’re making 50% per year on your investment! IMO, those numbers are just completely unrealistic.

If these #'s are actually true, watch out, cause i’m gonna be knocking on that door offering the guy $250k!!! Haha. Then I’ll just give my current pizzeria away to charity and retire off the 160k a year I’ll be making for doing nothing.

Seems too good to be true. Whatever decision you make, years from now you’ll be in a better place. You’ll either be sitting on your couch at home that’s made of dollar bills collecting money, or you’ll be wiser and have hopefully learned from any mistakes you made. Either way, I wish you the best of luck.
 
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We are currently pouring over the daily z tapes and spread sheets they provided last night.
I sat outside and did a head count last night from 5:45 pm until I went inside at 9:30 pm to count the drawer. from 5:45 to 7pm 34 people walked in, and 27 people walked out (i did not count how many was inside the shop when i got there as i was parked a little away. From 7 pm to 8 pm 31 people went in and 30 exited. From 8pm until closing at 10pm 14 entered and 41 people left. I didnt differentiate beween pickups and eat ins so 7 people entering to eat in might have only spent $50 where one person picking up also could have spent $50. They dont have a problem with me sitting in the customer area for an extended time, they just dont want me where the employees and register are.
The owners are a couple of guys that had tried to make a franchise chain, and when they realized that wasnt likely (they did sell a couple of franchises but not what they had hoped). They have since started a different company that is apparently exploding and just want out of the pizza business. They were asking a lot more than the 200k I am under contract with, but they are tired of waiting for a qualified buyer that is willing to do the hard work to prove the income they claim.
 
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Just me, but I prefer them to PROVE their income. The banks always make me PROVE my income.
 
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It would make it a lot easier, but if they did, somebody else would have bought it a long time ago.
 
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