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I just tried to buy my first pizza place

Popi.

You’ve heard it here, and you just stated another reason to run. THEY want YOU to prove your financial state, but they won’t give you any hardfast information about the BUSINESS’ financial state? Making you go over tapes etc…I throw down the BS flag on that one. Big time.

You’re going to do whatever you want, obviously. But, for $200k, you could get into a building and build up a heckuva restaurant from scratch.
 
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I knew a group of three guys who would start new businesses all the time. The financial risks were split 3 ways, they each had different skills to contribute and they sometimes just got bored with a business after a few years (after having made a good return on their money), so they sold it and moved on to something else.

I’m not as much in the “run away” camp as it seems many here are. Every deal is different and it seems like you’re savvy enough to understand the life or death importance of protecting and isolating yourself from tax liability from the current business. I would rate that as the prime risk in this deal.

If your area has a sales tax, that data may be public and could help you verify sales.

I hope you’ll keep updating this thread. The outcome will be interesting, either way. 😃
 
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If the books don’t account for all the sales, why would they report said sales for sales tax purposes?
 
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I just finished doing two months of z tapes and the recurring theme is 5k less in gross sales than the spread sheet indicates each month. (sales are still way of 60k per month though.) 60k less for the year in gross. HMMMMMMMM.
 
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So there is another cash register (or something) for which you are not getting the Z tapes…I’m sure this is the $$ which they don’t report…of course, by including this money on their spreadsheet, they are creating the paper trail which could put them in jail…
 
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You were going to see the new owner of the other location. Did that happen?

I don’t understand this quote: “…sales are still way of 60k per month though.” Is that “way off” $60k? What are the sales from the tapes?

What is equipment and valuation? Any liens?
Is a there a building permit issued for new construction of a major competitor?
What is the current competitive landscape? Is there growth potential? Is it in a declining area?
Is it a true absentee ownership? Who is running it now?
You don’t really know enough about the business to answer an important question, “Is it a well-run operation or are there opportunities to improve sales and lower costs?”

Most sellers try to inflate sales and profit. Nothing unusual there. It’s up to you to figure out if you can make money without even knowing their true sales. That comes from having the nose for the pizza business/market and fast food in general.

Pizza is fast food and many people get into the business because of the cash flow. Credit cards have altered the terrain, but if all food businesses reported every single penny of cash, you’d have about 2 restaurants open per town.
 
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I did not go talk to the other owner yet. But I will soon. The quote was supposed to say “way over 60k”. There are no liens, however I have not recieved the equipment list yet. The only two items not owned are the ice machine that they lease, and the pepsi cooler. It is true absentee owned. One partner lives about an hour away, and never shows up. The other partner would stop in before it opens sometimes, but never works there. They have a manager who puts in more than 50hrs a week, but is paid very good to do so. He is the cook “a real trained cook from NY”. Who also handles the staff, payouts, opening and closing. I know the problems of counting on somebody else too much, I plan on being there. I spoke to the manager at length and he really wants to stay (like i said, they pay him alot). I dont know if there is much room for growth yet, but I would be very happy if it is making near what they say. I would have a much better handle on areas of improvement once I have been there for some time.
 
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I’m not certain the deal, as outlined so far, is something to run away from just yet. That’s a view contrary to everyone else here, but I think a little contrary thinking is good in situations like this.

Motivated buyers and motivated sellers can sometimes find compromise. I’m not crazy about everything being black and white or talking in absolutes. Those customers are paying money every day, so there’s some value in them.

Once again, good luck in whichever path you take.
 
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I’m basically repeating my earlier post…

They’re really trying to tell you that if you give them 200k, in one year, even if you do nothing since this apparently what the current owner does, you’ll make 80% of your investment back. So in 1.25 years, you’ll have made 100% of your investment back?! That’s the greatest deal I’ve ever heard of, even better than those investments from Bernie Madoff!!
 
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OK…your head count and just guessing sales does give you the $2k for the night without question. I will even give them their fear of showing you the real books. BUT…why not let you around the other employees working front and back? Where is this absentee owner if these are 2 of the guys? Is it possible to do the $160k net off $800k gross…sure. The problem that I am reading and that a lot of others agree with is that they are hiding something…and it seems BIG! You might be a business wizz but everyone can get tunnel vision and then it’s all over for ya! Be really careful and if they are really wanting to sell… walk in with your lawyer and all the contracts and non-disclosure…etc… that you can imagine and say…“Here ya go…I want your commitment to sell and provide the real business info!” If they want out and you want too buy… this should not be an issue at all.

Hey I have a used car I want to sell you. Runs great! Yeah it is 7 years old but trust me it has been kept up 100% and although I have no records… at least none that I will show you… trust me! Test drive…well I will drive by you and you just watch from across the street!

Sorry but this sounds like their plan to sell the place…and you wouldn’t buy the car like that…right? :idea:
 
Just an update, I am still waiting on the rest of 2011 z tapes (daily). So far, the four months I have for 2011 are about 20k off the stated income. They claim there is about 2k worth of catering each month they dont put on the books, but I am not buying that. As soon as I get the rest of the tapes and get a real number to compare the stated income I will let you know. When it was discovered on Friday that the numbers dont match after I was told they were numbers directly off of z tapes, they said they would contact the accountant who put them together and find out why they are different. Well today they said the accountant advised them the numbers came from one of the owners over the phone.
 
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Do you have cash to buy this place?..If not, your bank might have a problem with the “informality” of the data being provided…
 
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Please, run. Now. Far and fast as you can. Give it no more consideration. You have said several times that the data you have been given is incomplete, wrong, or questionable. All you are considering is thriving your money away. Legal implications should be frightening you. Please, run.
 
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This deal is absurd. If you add the reported high wage for the manager to the 160 reported you have a discretionary cash flow over 200K. A pizza place that really made this kind of money often would sell for more than 2X this price and sometimes 3X. Why wouldn’t they go legit on the books and get that price. It makes no sense.

As a business broker, I would not even accept a listing where the seller will not or can’t show the numbers. Can I get comfortable with explaining expense numbers that appear on a tax return? Sure. But unreported sales are a minefield. With them come unreported expenses like cash wages and unpaid liabilities tied to both the reported sales and the unreported wages: Sales tax on unreported sales, employer share of fica, work comp & unemployment on unreported wages, higher insurance premiums owed on higher sales volume, possible liquor license violations if they serve liquor (many licenses require accurate reporting of sales) possible breach of lease agreement if it requires sales reporting…

Could this be a good deal? I suppose it is possible, but the simple fact is that even if you get comfortable with the revenue number… you still don’t know.
 
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Dishonest people are dishonest people and yet you are inclined to trust them? As the old saying goes: caveat emptor.
 
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I can’t see why they are selling? 160k and not having to do anything!

What makes this pizza place so popular? Could you not open a store nearby, as they obviously need some competition.
 
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It seats 50 inside. Today, we ate lunch there again for the 3rd time this week, and again every table was taken, this place is always busy. The best part is the food is unbelievably good. Unfortunatly at this point, all the workers know who I am so I am probably getting better service then most, but it really is a great place. And also, I have never seen either of the owners there during my unanounced visits. It is absolutely absentee owned.
 
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Ok I have to add what you just said…about the owners being never there but the place is packed and food is great… and your comment is you do not know if you can afford to retain the current manager that obviously runs the place! I think and hope I read that wrong…but you repeat that he is paid very well… sorry for being MR. OBVIOUS…but he is paid well because he makes money for the owners and they are not there! This deal has joke, garbage, high-risk, STUPID!..writen all over it. I will agree that all deals should be looked at from different angles like some have stated…but there is just one thing after another here. The selling price is oiff like Steve has pointed out if the sales are what they say. You will do what you want no matter what is said…and maybe this is just a great deal. Maybe the sellers are idiots and do not realize they are selling very cheap. Maybe the loan shark wants to collect? I wish you the best of luck with it and hope you can later post how well it all worked out…but my business gut is yelling at me to say RUN RUN RUN! Good luck!
 
I agree with everyone - this deal smells bad. If its seems too good, then it probably is too good. Pass it up. Any legitimate business earning $160K (net??) is not going to sell (to an outsider) for less than 2.5x, owner present or not. I value my business at 4.0+.

Having said this, whichever direction you take, please let us know the outcome, and as always, I wish the best for you. (business is hard work, luck, capital, and more hard work - not a wish)
 
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