Is there a metric to estimate sales?

[jackistraw]

I’m looking to buy an existing pizzeria (85% pizza, 15% parms / fountain beverage) - nothing else (leases location - very good location). It has been in the same spot for 15+ years; owner started it and is now 60+ and looking to retire. I lived in the area / am very familiar w/ location and know the place to be high traffic.

Owner represents sales to be a certain level…however, I’m looking for a way to validate this representation…I’ve sat outside during peak times (12-2 / 5:30 - 7:30) and have counted the people going in and out - not knowing whether they spent $5 or $25…

Can anyone give me a good metric that I can use to support his sales representation (i.e. pizza boxes, sauce/cheese volumes, lbs of flour, etc.)

I am a 40-yr old banker making a career change to completely change it up and looking for any advice - thx in advance.

I appreciate the fact that the posts here are very focused, honest, confrontational, etc. and have found them to be insightful and thought provoking…appreciate any feedback in this topic (and sorry if I’ve missed previous discussion on the matter).

 

[jackistraw]

In addition to above, if store is open 7 days, 10-12 hrs per day, is $10k in utilities reasonable (1,200 sf store)?

What should assumption for insurance, professional exp (acctg, legal), repairs/maint, and supples be (either as % of sales or in gross $'s)?

 

[bodegahwy]

Ask for his sales tax filings. I have yet to see anyone declaring more than they really had.

Same goes for tax returns.

Financials should match the tax filings with reasonable differences. i.e. there could be some personal benefits that were deducted which you are willing to concede should be considered owner’s discretionary cash flow, but there should be NO monkey business with the sales figures. The tax filings should support them to the dollar.

The utility number you quote is high but not impossible.

Isn’t this guy providing financialS? iF NOT, WHY ARE YOU TALKING TO HIM? When buying a business, these things are not confidential, they are the primary information provided to a buyer to evaluate the purchase.

 

[Patriot_sPizza]

simple - ask to see his sales tax reports & his income tax statements…if he’s fibbing 2 the govt, then he’ll fib 2 you…only pay 2-3x positive cash flow…if he’s been honest w/govt, you’ll @ most 3x20% of what he’s paid in sales tax…

there are other methods, but try this 1st & see what response you get…

Semper Fi
U.S.M.C. Auditor

 

[bodegahwy]

Insurance: depends on some variables: You will have general business coverage, work comp and, if you deliver, vehicle coverage. The general business coverage will vary according sales volume, type of building, address and whether you serve alchohol. Work comp will be about 4% of non-exempt wages (for working number, it could be a little less or a point higher) Auto is tough. If delivery is less than 50% of sales you have more options, but it is not cheap and depends on vehicles, drivers hired and sales volume.

Professional depends on whether you do youo own book-keeping. I get buy with about 2K a year for payroll and all tax related work. If you want a book keeper to do your books every month it will be more.

Maint depends on the age of your equipment and how well you maintain it. I run about 3-4K per year.

I run supplies with my food and don’t break them out.

 

[paul7979]

10K for utilities is way too high. I have 1200 sq feet cooled by 10 tons of air, open 7 days from 10AM till 4AM and gas, water and electricity total $1800-$2300.

 

[bodegahwy]

I have 1600 feet, run two MM super 70s with make-up air and AC/Heat. My utilities are about $8000 a year. We will run $1000-$1200 a month in July, Dec and Jan and a low of $600-$700 in May and Oct.

 

[Y-yo]

The most important peace of advice I can give you is please do not let your emotions get involved. You must remain the banker that you are during your due diligence and only smile and ask to see proof when he tells you of imaginary numbers. One of the best ways, if you can do this is spend a week in the store right next to the register and check all his receipts. There is a lot of variables in food costs, labor costs so shoot for both to add up to 50-60%. The bottom line is Owner’s Discretionary Cash Flow. Ask what he is taking home? Dig deep to figure it out, that means everything he is paying through the business for his personal use, like but not limited to cell phone, car payment & insurance, health insurance, etc. Tax returns really help! Add that all up plus the cash he says he is making. There are ways to balance it all out so definitely use a savvy number crunching accountant. When you can prove his ODC flow, then you make him an offer 2x his ODCF. If the ODCF is 150k or more, expect to pay a little more. Also do not give him more than 50% down, anyone asking for his money upfront doesn’t care if you succeed. Also, put in contract that he stick around for 6 months for a salary, this way his customers get used to you while he is still there. Remember, no emotions :!: Good luck.

 

[bodegahwy]

Lots of good ideas here. There are some variables in the pricing. Around here, you can get 3X ODC because new buildouts are VERY expensive and good space is hard to come by. You can’t open a shop from srcatch for what 2X ODC amounts to in many places.

Depending on the needs of the seller, you may or may not find they are willing to take 50% down. I sure would not if I were a seller. I am not interested in sticking around for a decade hoping the buyer makes it. I might consider carrying something like 20% divided into three annual payments.

Six months is way to long to have the seller hanging around 10 days working together and 60 days availability for questions is plenty.

 

[Kyle]

Hi, Jack!

I was a banker with Chase Manhattan. I too got into pizza. My only advice would be to turn around and go back to the bank and thank God that you will get paid when you show up and work. Buying my store was even a bigger mistake than marrying my ex-wife! RUN!

JMHO,
Kyle

 

[Y-yo]

Jack,

I am fairly new to this forum and a lot of guys have great info but the bottom-line is you. What do you got in you? A business is a multi-tasking nightmare and a pizzeria even if you are a multi-tasking individual is the nightmare of all businesses! Ten years of personal experience allows me to say this. I have ‘white-collar’ friends that want me to open pizza shops but I always tell them they’re crazy. I am first generation Italian and consider my parents ‘last of the peasants’- true work horses that have suffered immensely in their first days of business. Are you ready to suffer like you never have before? Can you handle slow s…ty days and stay focused on your goals? Do you love cooking? Do you like feeling greasy at the end of the day? Can you handle irate customers telling you about mistakes? Were you born with a psychology major? No? Well you need it to handle your employees, family and the new friends that pop up wanting free food. What a balancing act! You need energy man and that energy is not the synthetic white kind but the soulful kind, PASSION! When deciding to buy that d…n pizzeria, after due-dilence, don’t offer the guy more than 2x ODC if its less than 125k and no more than 50% down with a 5 year interest bearing note. Ask him to stay for 6 months (if you have no experience) because this business is filled with details and details help you succeed; you need that time to learn the ropes, it doesn’t happen overnight. Otherwise, do yourself a favor and walk away. Don’t make a big financial mistake :shock: The pizza business is hard. Good Luck!