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I just tried to buy my first pizza place

Interesting thread and some good advice here. There may be a reasonable deal here but I would ignore what the owner is telling you and just focus on what is provable to formulate a purchase price. And, adjust for what you see in sales from customer counts, selling prices, neighborhood competitor observations and counts. Make your own projections as if this was a startup and compare your assumption to the cost of building out yourself with used equipment. I think you would be wise to say “I can only see evidence of $400k in annual sales, so assuming you make the average owner’s profit of 10% of gross sales, the most I am willing to offer you is $100k”. In this economy you should focus on getting a great deal.

Review the lease - how long is left in the current term, and what are the renewal rights and terms? How much is CAM and all the other occupancy costs in addition to monthly base rent? Are there transfer restrictions on the lease? Most least require landlord approval. Are personal guarantees required?

You said he had a few franchisees. I would want to look into that because they could have licenses and rights to the name, recipes, etc. If the franchisee’s quickly got a judgment against the franchisor/seller a judge could void your purchase as a fraudulent conveyance.

There are a lot of stupid owners out there selling. I tried buying one pizza operator that spent $400k on a build out a couple years ago, and he recently tried selling the business by asking $300k which was way overpriced, I offered $125k which he rejected. 6 months later and no buyers he lowered the asking price to $150k, I offered $75k because sales were trending down which he rejected. A few months later he closed and has the landlord and creditors suing him, and some other guy leased the space and got a free build out.

An option is to put sizable part of the asset purchase price in escrow for 1.5 years that can be used to deduct any legal claims against the business, and is only payable if sales hit a certain level.

Look at their operations too and see if it matches what you view as best practices? Do they make their own dough? What is their dough management system? Are you happy with their Point of Sale system? What type of ovens do they have, do you prefer conveyor over deck or rotoflex? If you prefer the simplicity and consistency of conveyor then that can be a big issue.

Good luck and let us know how things progress!
 
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Well, not quite “everyone” is saying to run away as fast as you can.

What we know so far is: the prospective buyer has found the business does about $750,000+ per year gross with absentee ownership.

If food costs are 30% (a high estimate), that leaves about $43,000 per month for fixed and variable overhead.

I wouldn’t be walking away, yet.

The buyer doesn’t seem naive about due diligence for any liens, outstanding debts or protecting himself from any potential tax liabilities e.g., the purchase is for buying out lease and equipment and creating a new company.

There are a host of reasons why the sellers may be motivated and qualified prospective buyers may be few.

I look forward to reading the outcome of this.
 
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Again, thanks for the feedback. I will keep you updated on everything. The ovens are four stack gas in the front for all pizza, and most everything during the week, and another 3 stack in the rear for overflow and weekends. I am still having difficulties with the owners in getting everything i need to make me comfortable with the financials but I am hopefull we will get what we need.
 
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The four stack oven is a gas fired Bakers Pride, and the three stack is a blodget. I dont know model numbers.
 
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Just to update, the numbers we are finding are not as good as advertised, but good enough. Jan and Feb of this year are way down from 2011 March is looking good. The food is a rediculous 50% but apparently a lot of food was purchased that wasn’t sold there. Even with that the owner benifit is very nice.
 
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Just in terms of knowing the equipment you are going into . . . . . Blodgett 981 series ovens with metal decks are not really suited to be pizza ovens. They are easily identified as double deck units with single fire boxes heating both. If there are 4 decks and 2 fire compartments, then yo could have underpowered units. they are designed to be baking/roasting decks with little door opening action. They’ll burn themselves up performing inadequately in a high volume setting baking pizzas. I ran one of these when my shop was growing up.

Be sure to know what equipment you are actually buying and whether it will be sufficient to the needs of the shop (if the needs can be accurately projected). Could lead to additional $10K to $20K getting ovens just to keep up with current volume. Excrutiatingly hard to have an accurate business plan without accurate inventory of equipment being purchased.
 
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Ok so you found 2 months of numbers that dont add up. They have purchases of product sold elsewhere? Now a better month. You still repeat your faith that it is a good deal. Sorry but this is just one thing after another and sellers that are OBVIOUSLY HIDING THING FROM YOU! Some here might think there is still a possibility here but not even YOU know the real numbers here. Last time I will say it… THIS DEAL SUCKS! Maybe there is a goldmine here but so far it is all double books, tax issues, numbers that dont match anywhere. I agree with Nick…those 4 deck with single or double burners on steel decks…not pizza ovens and you say they have 8 decks. A store with those sale numbers should and could get by with 2 decks or conveyors. Why 8 ovens??? Last time…keep looking! :roll:
 
Super high food costs is often an indicator of a lot of undeclared sales. This is often accompanied by cash under the table wages.

Good news: Sales could be better than the books show as your seller is telling you.

Bad news: Possible tax liabilities. Make damn sure your attorney is making this asset purchase bullet proof. You do not need the sales tax or state or federal wage tax people taking an interest in the assets…

You need to cook up your own set of books, perhaps with the help of an accountant, to show what this business would make if run on a legit basis. Any fool can make money when they cheat on sales tax, unemployment, work comp, employers share of fica, various insurance costs etc.
 
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I went and talked to the guy that bought the other store a half hour away and he says the sellers never lied about anything. He has owned it for about two months now and it does exactly what they said it would. He did get rid of the daily specials that seller runs because the are not cost effective. He did change some other things that he didn’t like but he swears by the sellers.
 
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If I only read this thread, I’d think that the pizza business motto is: “If you aren’t struggling and almost bankrupt, you aren’t trying hard enough.”

Thanks for keeping us posted on this (ad)venture. I look forward to reading how this turns out and what your decision will be.
 
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The stones in the ovens are in good condition, the verifiable sales for 2011 are 772k with all catering not put in the register and no way to verify them. The manager who is staying with me says it is never less than 1k per month, and usually around 2.5k per month. That would be 100% profit since all the expenses have already been calculated. After all the info received, we are going to purchase the shop. The closing date was April 9th, but we have a lot to do. I will keep you posted as to the take over, and then if profits were as good as I expect. Thank you all for other points of view.
 
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Well, I am now the proud owner of my first pizza place. We opened yesterday, and it was a hectic day. We did $1800, right where they said we would be.
 
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Keep your ears open and your mouth shut for a while.

Very often there are good reasons for why things are done the way they are done. (not that there are not also things that are done because “that is how we have always done it”) Asking “why” before judging or changing is a good idea.
 
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Unless the ovens you have are not working, I think run the place for a while (several months) and see what you learn. You may find that is the first thing you need to do… but if things have been working well as they are, maybe not?
 
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