Pizzeria in small town

A

amnkeefe

New member
OK…

I have recently come across a shop for sale in a small town of 5000 in Ohio. The town has grown from 1000 people in 2000 to 5000 people in 2007. The building is 900 sq ft with double deck blodgetts and all true cooling equipment. It has only been open since last aug and they are selling the business, recipes and all for 32000. The owner is willing to finance 66% of the balance.

Now the sales are only 1,000 a week. but they opened in the end of the busy season and were doing 2500 a week. It is a small tourist town.
They do not deliver and are only open 5-10 seven days a week.
They do little to no marketing.
They make AWESOME pizza.

I would like any and all opinions if you all don’t mind.
 
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Will you rely on this to pay your bills or will this be an evening time part time hobby for you? I’m gonna guess that there is no chance you will take any money out of here untill the sales are up dramatically. Whats the monthly expenses? are you sure the $2500/week wasn’t just a typical rush to try the new place and sales have settled in to where they should be? What are your plans to increase sales? Is there other competition in town? There are some on this board that make good money with 5000 population. I doubt anyone here would advise that you can make money at $1000 per week.
 
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I know that there is no money in a grand a week.

My food cost is 24-28% I just sell pizza and subs. rent is 675 month. 450 average for all utilities including phone.

My plans. Deliver, open for lunch lots of local small businesses (firehouse, hospital, retail stores, etc.)
Doorhangers, box toppers, sponsor school functions, postcards, etc.
It is by a popular lake which attracts thousands of tourists.

This would be a nice little start up for my wife and I.
 
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Hello,
In my market, I have 5k people within a 4 mile radius, and serve around 10k total. Last week I did 4200 in sales, and this week will probably be around 5500. If you plan on opening for lunch and dinner, and not being there open-close every day, you will need employees. I can’t imagine where you would make any profit with your expenses if you do less that 3500/wk. I would imagine that around 3k would be break even. Remember you must be able to pay yourself SOMETHING, no matter how much you enjoy the job. Make sure that your marketing and business plans include a projected weekly sales amount of over 4k. Anything less than this, and you will be buying yourself a job. These numbers are JUST a guess.

You will have to quadruple your current sales per week. It is not any easy thing to do, but definately possible. Do your homework, ask a lot of questions, and HAVE FUN! I wish you the best of luck.

PS-As your sales go up, your utilities will also. My electric alone is 550 a month, and fuel to run the ovens is another 300.
 
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Tthere is a reason they are only pulling $4,000 a month, and you need to know why before going much further. Willing to tell me what town in a private message so I can look at some demographics?

Three more pieces of info will help me and others give more info. First is the lease structure: how long, how much and how many renewals in place. Second is how many other pizza competitors, plus other dining competitors, are in the marketplace (5 mile radius at least). Lastly, what model Blodgett ovens are they running? If it is two baking compartments and one burner, then it is likely a 981 model and very low capacity for pizza.

Also good to know is if there are any apartment complexes, colleges, business/office parks, large commercial centers, high schools.

Everyone is probably leaving this to me since I trot it out so often . . . most moderate sized marketplaces can expect around 17.85 in POTENTIAL gross pizza business per month per household. Let’s estimate you have around 2000 households.

2000 X 17.85 = 35,700/month potential

Divide that up by the number of pizza places, and you get a fuzzy picture of what your marketplace could potentially produce. I have experience taking an underperforming store and ratcheting up the reputation and sales. It took a year to get past the previous owner reputation, and another three years to get to where I am now . . . almost double what previous owner reported. Small towns offer shallower growth curves than larger, denser populations. 5000 should give a good cross section of people to hit with new marketing, and more fertile for growth than a much smaller town of 2600 like mine.

All that said, unless the marketplace were very favorable, the pizza ovens were high capacity and lease was assumable with several extensions in place . . . I would walk away from $32,000 unless all equipment were bought new. Sales of $1,000 are atrocious, and could be very hard to overcome the reputation. Even in tiny town, I did $2400 on slow weeks my 1st year.

They are very motivated to sell. Negotiate a better sale price. Used equipment isn’t worth half its purchase price in our market in West Georgia. There is no goodwill or customer base included in purchase. The big guns on purchase price philosophy, who know way more than I do, will weigh in soon, I suspect.
 
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I don’t think I need any other data from you to weigh in on this one. He’s doing $1,000 per week and is already looking to sell after 7 months? He’s looking for somebody to buy his problem.

For a cash flow valuation he’d have to be putting about 10,000k to the bottom line per year to justify that price. If he is, can you live on 10k per year? That’s an academic question, because there’s no way he’s dropping 20% to the bottom line on a $52,000/yr (I can’t believe that’s PER YEAR) store.

That leaves you with an equipment sale. I have a pretty big store, and if I rounded up all of my equipment and sold it in the used market I doubt I’d get $30,000. I have to guess that your seller’s equipment is worth less than that, just on the guess that I have a lot more of it.

His recipes are worthless; forget about those. The recipes have gotten him to $1,000/wk. Him willing to finance is worthless too… that just means he’s desperate.

I see the “Little to no marketing” justification by a lot of buyers here on the TT. I know the point is that there might be some opportunity in the business. The problem is that you don’t PAY for opportunity when buying a business. You pay for what the previous owner has done over the past 3 or so years. Maybe you can triple sales by going out and marketing, but I can’t think of a reason you would pay the previous owner for that privilege! That’s work you have to do.

Get an equipment list from him, go out and get the prices of said equipment new and then offer him 25% of that number. He’ll have to have $128,000 in equipment at new market price to justify the $32,000 price… and I just don’t think he does.
 
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amnkeefe:
This would be a nice little start up for my wife and I.
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You should have just said you don’t like your wife and want a divorce. That’s what you’re purchasing here. Most marriages fail because of money issues and you are BUYING money issues here.

At $2500/month (he got honeymoon sales which are now gone), you’re still talking about 120k a year. If you’re EXCESSIVELY lucky, you might bring home 30k. At worst, you’ll be working 80 hours a week and still losing money. Unless one of you has a big inheritance coming in, your marriage is doomed if you buy this place.
 
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So your saying I should buy it :lol: I knew that this was a bust I just have been looking so long I need a reality check. I knew my spreadsheets wouldn’t lie to me either. Thanks guys!
 
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Piper:
That leaves you with an equipment sale. I have a pretty big store, and if I rounded up all of my equipment and sold it in the used market I doubt I’d get $30,000. I have to guess that your seller’s equipment is worth less than that, just on the guess that I have a lot more of it.

His recipes are worthless; forget about those. The recipes have gotten him to $1,000/wk. Him willing to finance is worthless too… that just means he’s desperate.

Get an equipment list from him, go out and get the prices of said equipment new and then offer him 25% of that number. He’ll have to have $128,000 in equipment at new market price to justify the $32,000 price… and I just don’t think he does.
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There you go. If he won’t sell for equipment, then wait for him to go toes up and a small portion of $32,000 to buy equipment and negotiate a lease for the space . . . the rest is savings.

On reading everyone’s posts after mine, it looks like he could make more monthly profit selling the business to you for $32K than he did working it :shock: Shrewd for him.
 
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NicksPizza:
Tthere is a reason they are only pulling $4,000 a month, and you need to know why before going much further. Willing to tell me what town in a private message so I can look at some demographics?

Three more pieces of info will help me and others give more info. First is the lease structure: how long, how much and how many renewals in place. Second is how many other pizza competitors, plus other dining competitors, are in the marketplace (5 mile radius at least). Lastly, what model Blodgett ovens are they running? If it is two baking compartments and one burner, then it is likely a 981 model and very low capacity for pizza.

Also good to know is if there are any apartment complexes, colleges, business/office parks, large commercial centers, high schools.

Everyone is probably leaving this to me since I trot it out so often . . . most moderate sized marketplaces can expect around 17.85 in POTENTIAL gross pizza business per month per household. Let’s estimate you have around 2000 households.

2000 X 17.85 = 35,700/month potential

Divide that up by the number of pizza places, and you get a fuzzy picture of what your marketplace could potentially produce. I have experience taking an underperforming store and ratcheting up the reputation and sales. It took a year to get past the previous owner reputation, and another three years to get to where I am now . . . almost double what previous owner reported. Small towns offer shallower growth curves than larger, denser populations. 5000 should give a good cross section of people to hit with new marketing, and more fertile for growth than a much smaller town of 2600 like mine.

All that said, unless the marketplace were very favorable, the pizza ovens were high capacity and lease was assumable with several extensions in place . . . I would walk away from $32,000 unless all equipment were bought new. Sales of $1,000 are atrocious, and could be very hard to overcome the reputation. Even in tiny town, I did $2400 on slow weeks my 1st year.

They are very motivated to sell. Negotiate a better sale price. Used equipment isn’t worth half its purchase price in our market in West Georgia. There is no goodwill or customer base included in purchase. The big guns on purchase price philosophy, who know way more than I do, will weigh in soon, I suspect.
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Nick, I read your statement about being in a small town avg income 30k, and starting out in a hardware store. I am opening a place somewhat in the same situation. I know you are extremely busy and I really respect your posts. Is there a chance you might be able to give me a call for questions & answers chat…I would so greatly appreciate chatting with you.

Andrea
 
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Sounds interesting
I am in a tourist town approximately 5k
Like everyone says check into the lease arrangement.
Also check with the building inspector and health inspector. Is everything up to code?
Do you have a labor pool in your town? Labor will be your biggest headache.
I don’t care how many hours you put in you cant do it all yourself.
Deck ovens? No question they bake a great pizza but once you start doing any volume they become difficult to run. You need an extremely skilled, experienced dedicated oven tender. Turn away to answer the phone and that pizza becomes a cinder. Conveyer ovens 10-20k (very forgiving and little skill needed)
Speaking of phone is their pos. Another 1-3k
Ask to see all his invoices. Does he prep everything by hand or does he have a machine. Dough homemade?
I would add delivery. Another expense. Drivers and insurance. This will increase your sales.
But only 1k/week sales?? Like other posters said find out why. Even catsup on cardboard should bring in more then that. What about the location? Small towns usually have only one main drag and this is where you want to be.
Don’t fall in love with the concept and be ready to walk.
If all still seems good remember cash is king. Offer him 15or 20 k cash. You can always offer more.
Good Luck!
 
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Thanks for the info. I am on the main drag across the way from the lake. There is no POS just a cash register. The dough is homemade but the shrooms are canned. I would change the sausage to fresh and shrooms as well. He shreds his own cheese. The health and codes are all up to date and recently renewed this month. I have two people willing to work for me but know how that goes.
 
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Not to be pushy or rude, but I wanted to ask again how many pizzerias or pizza places are in town or within 5 miles of the place you are looking at? Might have gotten lost in the really good information everyone has given.
 
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There are two other pizzerias. One is about dead and the other does 2.7 million a year. The second is a tourist attraction in itself but there pizza is mediocre. So there is a lot of room to grow but at the same time I am scared that it won’t grow which I assume that is shared with every small business owner.
 
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Thanks. the reason I ask is that three pizzerias in a regular 5000 person town are going to be fighting it out for market share. The one you are looking at is walking dead, you said another is “about dead”. I don’t know if that means you’ve seen their financials or observed low customer counts, though.

The tourism thing skews the regular projections, but three places fighting for regular townie market will be spliiting probably around 35,700-40,000/month potential market.

40,000 / 3 places = 13,333 if equal shares.

The place you are looking to buy appears to account for 4,000 per month right now, and the other ‘dead’ place could be actually be a little more. The other guy has a current lock on the market however you slice it. Tourism trade is a wild card that can surely drive big sales if you can get noticed. I talk about all this because my advice to you is to sit in a quiet room by yourself somewhere and have an honest conversation about whether you have what it will take to drive a marketing machine that will take on the $2/7 million store. They obviously have momentum, market awareness, money, popularity, huge marketing presence and experience. You will have none of these. A creative, assertive, effective marketing plan can definitely carve out market share . . . If you do not have absolute confidence that you can build a plan, FINANCE IT, and put it into action against a stronger, better financed market opponent, then all the rest is not really that important. Sneaking in and quietly getting more customers will be a long, prolonged fight requiring lots of capital reserves. Strong Marketing plan takes capital reserves to overcome previous reputation, then draw more customer attention.

As soon as you get into the market and start making appearances and drawing market share . . . potentially from the big fish . . . the lion will be awakened and probably join the battle. If he has a marketing mind (and/or influence in the community) and decides to spend money, he could overwhelm you and drive you out with pricing and marketing blitzes that lay siege to your cash flow. You can succeed against such an extended siege if you have an effective plan, desirable product/service and the finances to survive the fight as well as build your marketing up.

It is possible to win if you have advantage in initiative/momentum, flexibility or resources (Sun Tsu, Art of War). Big Dog has all of them right now, and you would need to gain advantage one or more to survive, let alone grow.
 
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“I would like any and all opinions if you all don’t mind.â€

Okay, you asked for them.

“My food cost is 24-28% I just sell pizza and subs. rent is 675 month. 450 average for all utilities including phone.â€

“I am on the main drag across the way from the lake.â€

It certainly reads as though you’ve made an emotional investment/attachment to this place. You’ve taken emotional ownership. (I’m taking you at your word that you’re a potential buyer and not the actual owner looking for advice.)

My opinion #1: I think it will be difficult for you to make objective decisions regarding your interest in this business unless you change your attitude and emotional involvement to a much more objective, dispassionate state.

This guy is losing time and money in a venture in which he no longer wants to be involved. He is trying to “sell†you on the idea that it is a good idea and a good deal for you to give him your money (down payment) and your time and labor (paid through your payments to him on the balance) to bail him out of the situation.

My opinion #2: If you investigate this in a much more thorough manner than what you’ve communicated here, including answering all of Nick’s questions, AND you adjust your attitude as indicated in opinion #1 above, AND you still think this shop can be a worthwhile, profitable venture for you, then you can start “selling†the owner.

What kind of arrangement, including money and risk, would benefit you the most? You might want to try an arrangement where you can lease/rent everything from him for a certain length of time while you actually try running the business, after which you would have the option to purchase it at a maximum price, purchase it at a negotiated, reduced price to that maximum or just walk away from it, leaving him where he is now.

You can show what is the true value of his used equipment. You can point out how he’s spending his valuable time in a venture in which he has lost his heart and drive to make it work for him. You can sell him on a deal on your terms.

Just remember not to sign or do anything binding with the owner without having a highly competent lawyer giving you his
recommendations and drawing up the binding documents, highly slanted towards your interests.

P.S. YOU HAVEN’T TOLD US WHAT BUSINESS OR FOOD SERVICE BACKGROUND YOU OR YOUR WIFE HAVE!! Have you ever worked in a restaurant? Have you ever worked in a pizza restaurant? Have you ever been a pizza maker in a restaurant?
 
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PokerDealer:
you adjust your attitude as indicated in opinion #1 above, AND you still think this shop can be a worthwhile, profitable venture for you, then you can start “selling†the owner.

What kind of arrangement, including money and risk, would benefit you the most? You might want to try an arrangement where you can lease/rent everything from him for a certain length of time while you actually try running the business, after which you would have the option to purchase it at a maximum price, purchase it at a negotiated, reduced price to that maximum or just walk away from it, leaving him where he is now.
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The buyer really has a stronger position in this situation than the seller making $100 a week and bleeding capital every day. Start thinking about it that way . . . or the fool’s tax will be enormous (a little idiom here on the Think Tank for the price you’ll pay later if you make a foolish choice today).
 
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Ok. here goes.
Code: 
 I grew up working in restaurants. I have washed dishes, cooked, prepped, managed, drove, passed out flyers, built food cost analysis, and about everything else. I have worked two of the big three and owned two small unrelated businesses prior.
  I don't mean MINE as in my costs I mean it as what I am looking at, it is just the way I type I guess. As of now there is no emotional attachment due to lack of me working there and going any farther than talking to the owner. I have already told him that he is selling a dying business but he denies it :roll:  I am having my accountant look over everything to see if what is said is on the up and up. The way it looks now I would be better off with my own recipes and open next door j/k
I am probably gonna walk on this one and see what else comes up. In the meantime I will be here lurking.
 
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