Not Exactly New - Costs of Starting Up

[Workhorse]

You guys probably get a lot of this, but I’m not exactly new to the Pizza Business. I have also a struggling father who’s got over 25 years experience in full service restaurants.

23 years old, and I’ve got to make my mark.

Along with a couple of others who are also desperate to own their own store one day, I have about 60K to 80K to start with, and obviously finding some location that’s shutting down for reasons of their own is our target. A General Manager with 15 years experience in both independent Pizza stores and franchise names, along with another regional manager with roughly 10 years experience, with my added 6 years, along with the 25 year full service restaurant experience. We know what to do, but what I’m really curious about, what I want to know of at least ask a few of you seasoned veterans of the industry is … efficiency in start ups.

Sure, we would love to merge our efforts into one pile and open up a brand new store, but that 250K cost having to be paid back with my at best 80K cash up front, is a daunting task, so for us finding a location within the Chicago area a store for less than that, say maybe an owner willing to get out and lease for 30K, leaving me 30K to 40K as backup funds, for new equipment and or starting payroll for employees and food costs, pretty much all the overhead you can think of, is what I’m personally trying to best prepare myself for.

I guess the best way to ask for any kind of advice would be, put yourself in my shoes, what would you do ?

Appreciate any solid advice in advance !

 

[paul7979]

Workhorse:

I guess the best way to ask for any kind of advice would be, put yourself in my shoes, what would you do ?

Appreciate any solid advice in advance !

I had three of my employees recently looking to open up their own place so I’ll tell you pretty much what I told them: There’s not enough money to split three ways and keep everyone happy in this business. Imagine having an extremely successful store that after years of busting your a$$ to build is profiting $150K annually. How satisfied are you going to be splitting that 3 ways and walking with your $50K. You could cut your hours back and be a driver and nearly take home as much. I don’t know about you, but I’m not on call 24/7 to make barely more than my drivers. There were years that I made less than them, but the upside potential was there and now I’m reaping the benefits. If I had to split my profit with two others, there would have never been an upside.

 

[Kris]

We converted a building 17 years ago. Had about 80,000 start up costs. Lucky for us we were debt free so our home overhead could support the ups and downs the first few years. Spent several years picking up hours as a waitress or driver. (After all we were there hours upon hours…LOL) We were paid a manager’s salary. With the hours we spent there building our business probably came to 1.00 an hour. LOL Worth every moment. Never could I have imagined our little mom and pop pizza place would turn into the favorite town pizzeria. It has been a great experience.

My advice to you would be to go into this business adventure with the least amount of risk possible. Heard it said somewhere that 3 out of 5 restaurants go under within 5 years. Out of those 3 I think it is safe to say money was the problem for at least 2. The more you have the better your chances.

This business is tough. The more money you have, the less you borrow the better your chances of survival are gonna be.

Check out http://www.daveramsey.com

I think you will be able to find some great deals out there. Lots of people think they can borrow their way into the biz…I disagree. Pay Cash.

 

[Workhorse]

Kris:

We converted a building 17 years ago. Had about 80,000 start up costs. Lucky for us we were debt free so our home overhead could support the ups and downs the first few years. Spent several years picking up hours as a waitress or driver. (After all we were there hours upon hours…LOL) We were paid a manager’s salary. With the hours we spent there building our business probably came to 1.00 an hour. LOL Worth every moment. Never could I have imagined our little mom and pop pizza place would turn into the favorite town pizzeria. It has been a great experience.

My advice to you would be to go into this business adventure with the least amount of risk possible. Heard it said somewhere that 3 out of 5 restaurants go under within 5 years. Out of those 3 I think it is safe to say money was the problem for at least 2. The more you have the better your chances.

This business is tough. The more money you have, the less you borrow the better your chances of survival are gonna be.

Check out http://www.daveramsey.com

I think you will be able to find some great deals out there. Lots of people think they can borrow their way into the biz…I disagree. Pay Cash.

Yes, this was my thinking as well, with 2 well experienced people willing to run the store even without me, being their desire is to open a store of their own, I personally wouldn’t mind handing over a large amount of the initial bottom line for the first few years to have the store run itself under their management. If one of the worst stores we’ve all worked at (all 3 of us) grossed 480K annually at an average of 9K a week, do the math if the overhead is even at least half that.

Say a year and a half in, my thought is, well 250K, loan the 2 aspiring owners 100K to open their own store, but they’d still had to help run mine

We’ve worked at stores in the Chicago suburbs, locations that really aren’t all that special, doing $50K a week, some in even worse locations doing anywhere from 15K to 25K a week, and that one is a location completely paid off.

I guess as an incentive to these other people involved with my deal at least, it shortens their window of owning their own stores by 5-6 years.

I had three of my employees recently looking to open up their own place so I’ll tell you pretty much what I told them: There’s not enough money to split three ways and keep everyone happy in this business. Imagine having an extremely successful store that after years of busting your a$$ to build is profiting $150K annually. How satisfied are you going to be splitting that 3 ways and walking with your $50K. You could cut your hours back and be a driver and nearly take home as much. I don’t know about you, but I’m not on call 24/7 to make barely more than my drivers. There were years that I made less than them, but the upside potential was there and now I’m reaping the benefits. If I had to split my profit with two others, there would have never been an upside.

Which would be my answer to how I would deal with that from pauls post.

I appreciate all the posts, thanks !

 

[bodegahwy]

Not sure what “do the math if the overhead is even at least half that” means…

Food, Supplies and labor in a store of that size is going to be half or more of gross. (Assumes a manager wage even if the owner is filling that roll)

After that you have rent, marketing, insurance, utilties, delivery expenses, to name some of the bigger ones. Very few locations net more than 15%, especially at lower volumes.

I would expect a store doing 500K to net something like 50-75K above a mananger’s wage if it was run well.

At a million gross you can drive food, supplies and labor down below 50% but it is very tough indeed to get below 45%. At that point reaching for 150K to even 200K above manager’s wage is possible… so again as posted above, how does splitting that 3 ways look?

 

[Workhorse]

bodegahwy:

Not sure what “do the math if the overhead is even at least half that” means…

Food, Supplies and labor in a store of that size is going to be half or more of gross. (Assumes a manager wage even if the owner is filling that roll)

After that you have rent, marketing, insurance, utilties, delivery expenses, to name some of the bigger ones. Very few locations net more than 15%, especially at lower volumes.

I would expect a store doing 500K to net something like 50-75K above a mananger’s wage if it was run well.

At a million gross you can drive food, supplies and labor down below 50% but it is very tough indeed to get below 45%. At that point reaching for 150K to even 200K above manager’s wage is possible… so again as posted above, how does splitting that 3 ways look?

The other two would be paid as primary managers, I would be opening the store myself, their current employer is busy thinking about how he can get these two to keep working for him and his 20+ stores while they want to eventually open their own.

If working for an independent for 3 years, doing the exact same job getting paid slightly better than they are now, cuts their window of opportunity in half. I’m betting they would rather hop on board with someone who’s paid off a location and ready to beat out the deadbeat competition. From independent pizza stores, we’ve worked in Rosatis, among many many other franchise name pizza places, watching our bosses open stores using the food delivery from franchise to independent, we’ve learned pretty much everything there is to know about that.

It’s our turn now …

 

[3domfighter]

Our pizzeria was purchased from a 23 year old who had worked at another pizzeria, conspired with a few of the staff members there to go out on their own, and built their shop on the shoestring budget of $200k. The first year looked promising for them as they reached mid $400k in gross revenue. Not bad for new guys. Soon, though, they began fighting. Fighting over money–where’d it go, who gets what, there’s not enough…and fighting over the division of labor. Before long the established manager took off with whatever was in the register and split town.

The 23 year old owner who thought he had it wired was now in over his head. He counted on the cooks to run the place and he watched, helplessly, as the ship sank. He was undercapitalized, so when a hard month would hit, they’d buy cheaper ingredients. As the ingredients got cheaper, the months got harder, and so on.

Soon, my wife bought this young man’s dream as a hobby to fill her time, and she paid him half what he put into it. Last I heard he was in jail for selling oxy pills and his parents lost the house they had borrowed against for their son to follow his dream.

Don’t be that guy.

I’ve heard 1/1000th of your plan and I can already tell you you’ll need to rework it, and significantly revise your projections downward. Your drive is excellent, but don’t be rash with your money. As has been previously stated, you will be extremely fortunate if you are able to net 15%. Don’t even count on 10%. In fact, don’t count on making a dime for 2 years. If you are smart enough to make it two years, you’ll probably start netting around 10% and slowly work your way up if you are constantly watching your financial statements and monitoring product and staff. I don’t know anyone who nets more than 18% on volume below $1M.