Opening a new place, feedback please!

[rgjujitsu]

Hello everyone, my name is Scott and I am getting ready to open a chicago style thin crust pizza/italian beef place in Florida. First of all thank you for all that you guys have shared, I have spent countless hours reading and am much more informed as a result. Here are my plans and ideas, please rip them apart as if you are an investor. It’s a lot to read, so thank you in advance for your time.
I have a degree in hospitality management from FSU, worked in restaurants since I was 12-30 from dishwasher to general manager of a 3+million a year full service restaurant in downtown Chicago. I became a trader roughly 10 years ago and recently I haven’t made a dime. Luckily I have a good family member who believes in me and my passion for food and my work ethic and offered me a loan to open what he believes will be a huge success, a chicago style pizza and beef place.
Between investors and this family member we will have raised 300k to open the place. The plan is to have no loan payments for the first 6 months, interest only for the next 6 months, and then beginning year 2 full payments to be paid back in full in 6 years. The interest on the loan will be 10% and in addition to the payback the investors will have 20% share of all profits. I plan on paying myself a 65k/year salary.
The rent is very affordable at $2400/month all in. It’s 1700 sq feet and roughly 600 sq ft kitchen, maybe more. It will have roughly 60 seats. The build out costs will be around 60k not including equipment. It was a restaurant before and has a good flat top, fryer, burner oven, cold line, and small grill. Everything else is questionable. The plan is to put the rotoflex pizza oven where the walk in is and buy an outdoor rated walk in to put behind the restaurant. It is an a moderately busy shopping center on a major roadway with heavy traffic. there are tons of developments nearby, and lots of growth expected, and less than a handful of pizza places in 15 minute drive. the center needs updating but is just stylistically dated, not structurally.
For food my idea is to keep the menu very small with an emphasis on chicago style thin crust pizza, cooked in house italian beef, and want to grind my own sausage and burgers. To me there is simply no replacing the taste of freshly ground meat. I plan on making the walk in large enough so the prep cook can grind inside. I will literally offer only five sandwiches, fresh cut fries, thin crust chicago style pizza, and three salads and chicken wings. i will be offering 4 different draft(mostly craft and bud heavy) beers and 6 different wines by the glass/bottle. i plan on doing delivery, but am debating to do it like 3 months after i open so i can smooth out any kinks first. Also will be doing 4 breakfast sandwiches and pizza dough cinnamon rolls(that i learned here thanks again!) I know I am crazy and will be working seven days a week for the first year and 15 hours a day, that doesn’t scare me, I am a worker. I am projecting 600k for first year sales and would eventually like to get to the 1 million mark.
Sorry for the long post, thank you again for reading and all the knowledge you all have shared here already, and I look forward to your feedback

 

[paul7979]

Scott, there’s much to comment on here so I’m not sure where to start but I’ll start with your funding. Borrowing 300K at 10% interest is nuts in my mind. Lets suppose you’re on track with your projection of 600K in sales in first year and let’s look at some theoretical monthly expenses:
$50,000 monthly sales
$15,000 food and beverage cost 30%
$11,000 labor cost 22%(excluding your salary)-this only amounts to 37 hours a day of labor at $10/hr
$6000 owner salary with matching taxes
$4000 marketing(8% for new startup looking to grow fast)
$2600 interest payment(after 6 months)
$2400 Rent
$1800 utilities
$800 credit card processing
$300 insurance(does not assume hired non owned insurance)
$250 phones

There’s plenty of other small costs and probably some large ones that I’ve overlooked. In the above scenario, the store can get by but not by a whole lot. What happens in your projections are off by 20% and the store only does $480K the first year. Some of your months will be $33K while others will be $45K. Many markets have a slow season that lasts multiple months as well as busy seasons. Will you be able to survive the slow months? What if year two is averaging $50K months and your loan payments of $6000 kick in?

Many on the Think Tank do a million a year but it is not the norm for this business. For every independent doing a million I would guess there are 3 or more doing under 600K. I think you need to create a breakeven analysis and projected P&L statements based on multiple sales volumes. I also think that a 10% return as well as 20% of profits in perpetuity is a steep price to pay for money borrowed. One or the other would be a good return for the gamble he is taking on you.

 

[rgjujitsu]

Thank you very much for your well thought out reply. What kind of finance rate are you guys paying for private investors?

 

[Piper]

Scott, the similarities of your future business and my business are uncanny. I also operate a Chicago-style place (far from Chicago) that focuses on thin crust. We also did beef sandwiches (eventually taken off the menu) and we do grind and make our own sausage in house.

Paul’s post is dead on, and another one of the eerie similarities between us is that I also forecast $600,000 for my first year and, wouldn’t you know it, did about the $480,000 that Paul just threw out as a “what-if”. He’s right that you’re not leaving yourself nearly enough breathing room with that debt payment.

The money that you are getting from investors should either be a loan, and paid back at the agreed upon interest rate, or be equity that is at risk. They shouldn’t be double dipping.

Besides the financial stuff, here’s a few thoughts I have after owning a Chicago style restaurant for the past 10 years…

Thin Crust

Chicagoans tend toward Thin Crust, and it’s really the “true” Chicago style pizza for locals. Chicago natives will flock to your place for it, and then they’ll ask you how you cut it to make sure you’re legit. Everybody else thinks Chicago style pizza is deep dish or stuffed. If you put “Chicago” anywhere near your name or your marketing outside of Chicago, you better put a deep dish or stuffed on your menu. We chose to do a Stuffed (similar to Giordano’s) because we use the same thin-crust dough for it. If you don’t have one and advertise yourself as “Chicago”, be prepared to have every person that has ever had a stopover at O’Hare lecture you on what “true” Chicago style pizza is.

Beef Sandwiches

We made our own beef too, and it was fantastic. There were no options for bread locally, so make sure you do some research. We ended up bringing in Gonnella for a while through a distributor, and when they stopped carrying it we started ordering directly from Turano.

The sandwiches were an amazing hit with the Chicagoans naturally. The locals here didn’t appreciate it. We’d serve it and they’d say something like “Oh, I thought it was like an Arby’s sandwich”, or “it’s way too messy”. We ultimately pulled it off the menu because we just couldn’t sell enough to keep it going. We had to go through a roast every two days so we could use the original juice from the drippings. That’s what makes it taste great. After we went through the maximum re-heats on the juice we had to make some up with stock, and it was never the same.

It’s now something I do once every six weeks or so for a weekend. We get the bread in, put it out on our e-mail list and watch the Chicagoans roll in. We can go through 20 or 30 pounds of beef over the weekend and are selling enough to keep making them fresh. The Chicagoans are happy, we’re happy, and we’re not left with a ton of waste. Basically, we made it a destination item.

I’m not saying you won’t find more success with it; just giving you our experience.

Hot Dogs

You didn’t mention this, but have you considered doing Chicago Style Hot Dogs? Vienna and Red Hot distribute all over the country, and these are a hit with everybody. I think even many New Yorkers will admit that Chicago has the ultimate hot dog. This was one of the best additions to my menu.

Homemade Sausage

This is a huge marketing tool for us. Nobody around here does homemade fresh sausage on pizzas anymore. People absolutely LOVE our sausage. Glad to see you’re going this route, because it’s a big part of the authenticity. I actually didn’t realize how rare it is outside of Chicago until I opened and started getting peppered with questions about it.

Authenticity

The Chicagoans will be your best marketers, so you need to make sure everything you do is authentic to a “T”. The last thing you need is somebody posting on Yelp that “I’m from Chicago, and this isn’t the real thing.” The city’s name has a ton of built in marketing power when it comes to pizza, so you can’t squander it. The Chicagoans will be your “otaku”, as Seth Godin calls them. They’ll be obsessed, and they’ll tell everybody “Yeah, I’m from Chicago. Those guys are the real deal”. You literally can’t buy that kind of marketing, so be sure not to give them any reason to do anything other than sing your praises.

It doesn’t sound like you’re a native, so be prepared for the constant “Are you really from Chicago?” from the natives. A lot of my connection with my Chicago customers is that I’m a native and can shoot the sh!t about anything Chicago. Be prepared to talk about the Bulls, the '85 Bears, how much you hate the Packers, and pick a baseball team that you root for. If you tell anybody you root for both, they’ll figure you’re not legit

Aside from the Chicago stuff, I think you need to examine your business plan a bit and heed a lot of Paul’s advice. Also, a 600 square foot kitchen sounds a little tight to me if you’re also going to seat 60. I’m at 2,000sq and seat 60, and while I have a pretty big kitchen at 900 I really think it would be a stretch to do $1,000,000 per year out of here if I was 300 square feet smaller.

Remember that the dining room is going to need more kitchen space than a delco - you need a bigger dish pit, you need a service aisle, you need a hot pass, you need more room for servers to move around in the back, you need more storage for china and glassware, you need a beverage stand, you need beer and wine storage, you need a keg cooler for the draft beers, you may need an expo station, etc… There are probably other items that I’m forgetting as well.

 

[rgjujitsu]

Thanks so much for all your insight, it is truly valued. I was born in Chicago(lived in florida as a teen then right back after college, been back almost 20 years), my father is from maywood and my mom from elmwood park. We aren’t planning on doing table service, we’re going the counter service with delivery to table route. absolutely plan on doing a chicago dog! the reason im asking for a lot more start up money than i need is for the just in case scenario, i hope to have close to 100k in the bank when i open the doors. my main investor said it’s a lot better to ask once than to come back after a year hat in hand wanting more(family is most of investment)
way to make lemons out of lemonade man, i love that idea on the beefs. Would you be willing to look at my staffing template if i emailed it to you? I have a lot riding on this venture and want to do it profitably, ethically, and the right way. [email protected] if you want to snd me an email and ill respond with my staffing ideas. Thanks everyone!

Piper:

Scott, the similarities of your future business and my business are uncanny. I also operate a Chicago-style place (far from Chicago) that focuses on thin crust. We also did beef sandwiches (eventually taken off the menu) and we do grind and make our own sausage in house.

Paul’s post is dead on, and another one of the eerie similarities between us is that I also forecast $600,000 for my first year and, wouldn’t you know it, did about the $480,000 that Paul just threw out as a “what-if”. He’s right that you’re not leaving yourself nearly enough breathing room with that debt payment.

The money that you are getting from investors should either be a loan, and paid back at the agreed upon interest rate, or be equity that is at risk. They shouldn’t be double dipping.

Besides the financial stuff, here’s a few thoughts I have after owning a Chicago style restaurant for the past 10 years…

Thin Crust

Chicagoans tend toward Thin Crust, and it’s really the “true” Chicago style pizza for locals. Chicago natives will flock to your place for it, and then they’ll ask you how you cut it to make sure you’re legit. Everybody else thinks Chicago style pizza is deep dish or stuffed. If you put “Chicago” anywhere near your name or your marketing outside of Chicago, you better put a deep dish or stuffed on your menu. We chose to do a Stuffed (similar to Giordano’s) because we use the same thin-crust dough for it. If you don’t have one and advertise yourself as “Chicago”, be prepared to have every person that has ever had a stopover at O’Hare lecture you on what “true” Chicago style pizza is.

Beef Sandwiches

We made our own beef too, and it was fantastic. There were no options for bread locally, so make sure you do some research. We ended up bringing in Gonnella for a while through a distributor, and when they stopped carrying it we started ordering directly from Turano.

The sandwiches were an amazing hit with the Chicagoans naturally. The locals here didn’t appreciate it. We’d serve it and they’d say something like “Oh, I thought it was like an Arby’s sandwich”, or “it’s way too messy”. We ultimately pulled it off the menu because we just couldn’t sell enough to keep it going. We had to go through a roast every two days so we could use the original juice from the drippings. That’s what makes it taste great. After we went through the maximum re-heats on the juice we had to make some up with stock, and it was never the same.

It’s now something I do once every six weeks or so for a weekend. We get the bread in, put it out on our e-mail list and watch the Chicagoans roll in. We can go through 20 or 30 pounds of beef over the weekend and are selling enough to keep making them fresh. The Chicagoans are happy, we’re happy, and we’re not left with a ton of waste. Basically, we made it a destination item.

I’m not saying you won’t find more success with it; just giving you our experience.

Hot Dogs

You didn’t mention this, but have you considered doing Chicago Style Hot Dogs? Vienna and Red Hot distribute all over the country, and these are a hit with everybody. I think even many New Yorkers will admit that Chicago has the ultimate hot dog. This was one of the best additions to my menu.

Homemade Sausage

This is a huge marketing tool for us. Nobody around here does homemade fresh sausage on pizzas anymore. People absolutely LOVE our sausage. Glad to see you’re going this route, because it’s a big part of the authenticity. I actually didn’t realize how rare it is outside of Chicago until I opened and started getting peppered with questions about it.

Authenticity

The Chicagoans will be your best marketers, so you need to make sure everything you do is authentic to a “T”. The last thing you need is somebody posting on Yelp that “I’m from Chicago, and this isn’t the real thing.” The city’s name has a ton of built in marketing power when it comes to pizza, so you can’t squander it. The Chicagoans will be your “otaku”, as Seth Godin calls them. They’ll be obsessed, and they’ll tell everybody “Yeah, I’m from Chicago. Those guys are the real deal”. You literally can’t buy that kind of marketing, so be sure not to give them any reason to do anything other than sing your praises.

It doesn’t sound like you’re a native, so be prepared for the constant “Are you really from Chicago?” from the natives. A lot of my connection with my Chicago customers is that I’m a native and can shoot the sh!t about anything Chicago. Be prepared to talk about the Bulls, the '85 Bears, how much you hate the Packers, and pick a baseball team that you root for. If you tell anybody you root for both, they’ll figure you’re not legit

Aside from the Chicago stuff, I think you need to examine your business plan a bit and heed a lot of Paul’s advice. Also, a 600 square foot kitchen sounds a little tight to me if you’re also going to seat 60. I’m at 2,000sq and seat 60, and while I have a pretty big kitchen at 900 I really think it would be a stretch to do $1,000,000 per year out of here if I was 300 square feet smaller.

Remember that the dining room is going to need more kitchen space than a delco - you need a bigger dish pit, you need a service aisle, you need a hot pass, you need more room for servers to move around in the back, you need more storage for china and glassware, you need a beverage stand, you need beer and wine storage, you need a keg cooler for the draft beers, you may need an expo station, etc… There are probably other items that I’m forgetting as well.

 

[pizza2007]

Scott, isn’t this dream of opening your own business exciting!!

You’ve already received 2 very good opinions from 2 very seasoned operators. I’m going to recommend you search all related topics on the forum and faqs. I’d like to talk about finances and assumptions…

Not very many pizza places do $600K their first year without crazy marketing budgets. Please run the numbers based on $300K/year, $400K the next year, and so forth. I paid myself $0 for my first 3 years. Do you need that $65K/year salary? It looks pretty when you’re considering the start-up, but what if you’re negative $5000/mo for the first year? How much can you and your investors afford to lose? Have you considered a plan for going out of business? You’ve thought about how it would be running your own business, making a $65K/yr salary, and not minding working 7 days a week, open to close. Now think about it at $15K/yr and operating in the RED every month! Think about failure and think hard about it. What would happen to your family friends and investors? What would life after the failure be like?

Its easy to focus on everything going right. Its very easy. I encourage you to think about everything going wrong. Things will go wrong, and when they do, will you be prepared to learn and adapt?

I do not like the 10% interest AND 20% profit sharing. They get 10% interest and that’s all they get. If they want profit sharing, then they have no interest, and you’ll have a partnership - their loan will purchase an equity stake, of 20%. Between that loan and your proposed salary, to me that’s enough to ensure failure in the first 2 years. A key to success is have as little expense as possible during those difficult early months (0-24) while you’re establishing your business, products, and customers. Learn how to make money and be profitable, then you’ll have some room to increase expenses.

Good Luck!

 

[rgjujitsu]

Thank you very much for taking the time to reply. The only reason I’m so optimistic about the sales estimates is the market. It is a very underserved market, the average income is double the national average, and it’s undergoing a population explosion right now. There are only two other pizza places within a fifteen minute drive and they are at the end of that fifteen minutes, and frankly while the crust was good everything else was just ok. To give an example of one development in the area currently has 2k homes and is under construction of 5k more. If I serve good food I know I will get the sales, there is a 1.5 hour wait at the olive garden in town! I do need that salary and I am willing to do whatever it takes to succeed! But I see the value in planning for sales lower, and there is a lot I haven’t considered, like the size of the kitchen being too small. I have read all of that big list that was so helpfully created. So thank you for the feedback and keep it coming!

pizza2007:

Scott, isn’t this dream of opening your own business exciting!!

You’ve already received 2 very good opinions from 2 very seasoned operators. I’m going to recommend you search all related topics on the forum and faqs. I’d like to talk about finances and assumptions…

Not very many pizza places do $600K their first year without crazy marketing budgets. Please run the numbers based on $300K/year, $400K the next year, and so forth. I paid myself $0 for my first 3 years. Do you need that $65K/year salary? It looks pretty when you’re considering the start-up, but what if you’re negative $5000/mo for the first year? How much can you and your investors afford to lose? Have you considered a plan for going out of business? You’ve thought about how it would be running your own business, making a $65K/yr salary, and not minding working 7 days a week, open to close. Now think about it at $15K/yr and operating in the RED every month! Think about failure and think hard about it. What would happen to your family friends and investors? What would life after the failure be like?

Its easy to focus on everything going right. Its very easy. I encourage you to think about everything going wrong. Things will go wrong, and when they do, will you be prepared to learn and adapt?

I do not like the 10% interest AND 20% profit sharing. They get 10% interest and that’s all they get. If they want profit sharing, then they have no interest, and you’ll have a partnership - their loan will purchase an equity stake, of 20%. Between that loan and your proposed salary, to me that’s enough to ensure failure in the first 2 years. A key to success is have as little expense as possible during those difficult early months (0-24) while you’re establishing your business, products, and customers. Learn how to make money and be profitable, then you’ll have some room to increase expenses.

Good Luck!

 

[bodegahwy]

If you are paying interest to them, these individual(s) are lenders not investors. I agree with the comments above about the interest burden.

Lender: A funding source who is guaranteed repayment and typically receives a return on the funds in the form of interest while until the funds are repaid. Often this repayment is also personally guaranteed by the borrower as well as by the entity the loan is made to and there is generally a security interest in the assets of the entity. The downside risk to the lender is that the business fails and the assets are not sufficient to cover the debt AND that the borrower does not pay. The upside risk is limited to the interest in the loan agreement. A lender has very little to say about how the business is operated. Once the loan is paid back the obligation is complete.

Investor: A funding source that takes partial ownership in the operation. The return is a combination of the pro-rata share of profit of the enterprise and the share in the value of the enterprise itself often in the form of a buy-out agreement to be executed at some point in the future when the new business is up and running. Downside risk is that if the enterprise fails the residual value is minimal. Upside risk is that profit and share of ownership is a higher return than a lender gets. I would expect an investor to want a potential 30% return on this kind of deal. An investor is a partner. Ideally, they ADD to the operational expertise of the business as an adviser.

In my experience, an investor takes more risk and shoots for higher returns. If they are putting up essentially all the money, I would expect them to be the majority shareholder even if they do not work there. This means they have the last word if it comes down to a disagreement including the right to fire the operating partner. For this reason an attorney should write the partnership agreement and that should spell out what happens should this occur. It should also spell out exactly how the value of the enterprise will be determined for a buyout of one party by the other.

By choosing your entity structure you can create a scenario where the investor receives a disproportionate share of the profit until they are bought out. i.e. 20% owner receives 50% of the profit. The return for the investor is a combination of the profit distribution AND the eventual buyout. Profit is calculated after all expenses are paid including the salary you mention. In a start up with the numbers you propose, it is very likely for the first year or two that, after paying you 65K, there will be nothing left to distribute. Locking into a 10% payment seems like a very bad idea to me and may be unsustainable which could sink an enterprise that otherwise would make it. In any case, you do not want to be locked into this forever. Once you are up and running, you want to buy them out!!

 

[rgjujitsu]

So I have found someone I trust with LOTS of pizza experience who is unhappy with his current partnership because his partner is never there. How do I add a manager and still make money? I see everyone’s point about not letting investors double dip so I plan on cutting that out. Thanks everyone. I know this guy is a good operator and delivers a good product and has tons of experience pizza marketing and driving sales so i know he would be a huge asset.

 

[Piedad]

You may find it difficult to afford a Manager at inception of the new store. And frankly, it might be less than prudent to make that kind of financial commitment. There just may not be enough dollars to pay two management types. How about enlisting him as a paid consultant? Tell him exactly how much you trust him and respect his wealth of knowledge, and that you would like to bring him on-board just as soon as the numbers will make that possible. But, in the meantime, ask him to provide guidance and counselling from time-to time…and agree to pay him handsomely for his knowledge and council…I don’t know, maybe $75 to $100 an hour (plus pizza, of course, lol). He will likely be flattered, and would be risking little by agreeing to help. Who knows, down the road he might just be what the doctor ordered.

 

[rgjujitsu]

Thank you, the only problem would be he lives in chicago and would have to relocate. maybe i bring him down for 2 weeks pre and post open? I really think this place could do great sales, the traffic counts alone now are crazy and its easy on easy off the road with plenty of parking.

Piedad:

You may find it difficult to afford a Manager at inception of the new store. And frankly, it might be less than prudent to make that kind of financial commitment. There just may not be enough dollars to pay two management types. How about enlisting him as a paid consultant? Tell him exactly how much you trust him and respect his wealth of knowledge, and that you would like to bring him on-board just as soon as the numbers will make that possible. But, in the meantime, ask him to provide guidance and counselling from time-to time…and agree to pay him handsomely for his knowledge and council…I don’t know, maybe $75 to $100 an hour (plus pizza, of course, lol). He will likely be flattered, and would be risking little by agreeing to help. Who knows, down the road he might just be what the doctor ordered.

 

[bodegahwy]

I agree with piedad. The $65K you mention in your first post is already a very high “manager” burden for a new middle volume store. Honestly, if I were your “investor” I would expect your salary to be half that with more compensation coming from profit when the business turns the corner. There certainly would be no place for another wage above assistant manager.

If you think that you have a lot of use for this person then perhaps paying his travel, lodging and 2K per week for a month would make good sense and for 10K you would get a lot of useful expertise. I would consider that a start-up expense.

 

[rgjujitsu]

thank you very much, i appreciate the advice, I think that’s the direction I will go

bodegahwy:

I agree with piedad. The $65K you mention in your first post is already a very high “manager” burden for a new middle volume store. Honestly, if I were your “investor” I would expect your salary to be half that with more compensation coming from profit when the business turns the corner. There certainly would be no place for another wage above assistant manager.

If you think that you have a lot of use for this person then perhaps paying his travel, lodging and 2K per week for a month would make good sense and for 10K you would get a lot of useful expertise. I would consider that a start-up expense.

 

[pizza2007]

I’ve got to say, bodegahwy nailed it again… If I were one of your investors, your $65K/yr at start-up would be a total no-go. $30K/yr would be far more attractive, with you receiving back-end compensation on actual profit. I’d like you to focus and think about the following for at least 2 weeks… New businesses know everything except for one major thing: THEY DO NOT KNOW HOW TO MAKE MONEY!; They only know how to spend money and look at forecasts. You’ve got to learn how to make money!! And you only do that by doing it.

Again, good luck and best wishes!

 

[rgjujitsu]

Thanks for your valued feedback. I’ve been up front with all of them and they know the salary and think it’s fair given the amount of workload I’m taking on. I could see how someone would have a pRoblem with it though. Thank you for the well wishes. Do you have any other feedback?

pizza2007:

I’ve got to say, bodegahwy nailed it again… If I were one of your investors, your $65K/yr at start-up would be a total no-go. $30K/yr would be far more attractive, with you receiving back-end compensation on actual profit. I’d like you to focus and think about the following for at least 2 weeks… New businesses know everything except for one major thing: THEY DO NOT KNOW HOW TO MAKE MONEY!; They only know how to spend money and look at forecasts. You’ve got to learn how to make money!! And you only do that by doing it.

Again, good luck and best wishes!

 

[bodegahwy]

It may seem strange, but the starting “manager” salary has little to do with workload or fairness. It has everything to do with what a start-up can afford. If you bleed cash out of the business before it can afford it, you can sink an enterprise that otherwise would make it.

 

[famousperry]

the thing that stood out for me is the breakfast items…i would scrap that personally and use those hours for rest b/c chances are they would not be worthwhile