Start-up costs

[pizzajoey]

I am new to this forum but I have spent the last 2 weeks reading all of the posts from the last few years.

There is a lot of good and useful info on this board.

Concerning the preliminary work on opening my shop, I have educated myself and found out about a lot of things that I didn’t previously understand. One thing is for certain, I will be underfunded. That’s not to say I am broke, but I don’t have bank loans and unlimited credit cards to turn to. This is a family business. The money will be coming from me, my wife and other family members. I will be the main cook, my wife will run the front of the house. We plan on being a delivery/pick up only…but would like to have about 6 tables inside. My son and nephew will help with dishes, making pizza, etc. We have been thinking about this for years and finally decided to make the leap.

According to my business plan, we only need to do about $346 per day to pay the bills. We want this business to survive and hopefully, one day thrive. I’ve been a cook, dishwasher and have worked my way up to a mangement position with a global company. I may not be a genius, but I am extremely well organized and I know how to hire good people. I am a great manager and a hard worker. The rents that we have been shown are in the $2000 a month range for about a 1200 sq ft facility. I have several construction contacts (friends) through my business that are willing to help me build out the kitchen and minimize costs.

I am purchasing my equipment used, paying cash for all of the build out costs, paying cash for rent and all of my deposits, power, insurance, advertising, etc. When I open, I plan on setting back about $20,000 in cash for whatever costs may arise. However, that’s it. If things go bad, my family has agreed to help out wherever they can in an effort to make this company work. Our hope is that we can leave this restaurant to our younger children whenever they are old enough to take over.

From everything I’ve read on these forums, we are destined to fail…mainly because of undercapitalization.

My questions are:

If we keep labor costs next to nothing (because the family will be doing most of the labor), wouldn’t that contribute to having a better chance for success?

Because the rent cost is fairly low for California and if we can keep food costs under control, doesn’t that contribute to having a better chance for success?

I figure monthly expenses at around $9,000 and I need $346 profit per day to break even. I want to offer my large 18inch pizza at 14.99, so I would need to sell 23 per day to reach my profit level. That’s not counting salads, sandwiches, drink, etc.

Why is this a bad business plan? When we open, is it possible that we won’t have customers for days or weeks?

I understand that there are a lot of experienced pizza shop owners on this board, I just can’t see why everyone I talk to says we will probably fail. I don’t want to put my family in a bad position and lose our money, but we really believe, together, that we can make a go of it.

thanks,

 

[royster13]

You read all the posts about having family money?

 

[Wizzle_Wassell]

pizzajoey:

From everything I’ve read on these forums, we are destined to fail…mainly because of undercapitalization.

if you think that at this point then if I were you I really wouldn’t go any further. If you don’t think that you have a fighting chance to succeed then why even attempt it?

pizzajoey:

My questions are:

If we keep labor costs next to nothing (because the family will be doing most of the labor), wouldn’t that contribute to having a better chance for success?

Just because they’re family doesn’t mean they will work for free, they are still entitled to be paid and have to have money to live. If you can only make the numbers work by having free labour then it isn’t a business is it? Sure have family help out when you open but I’m not clear on whether you’ve factored in labour (30% is a ball park when you open) at all?

pizzajoey:

Because the rent cost is fairly low for California and if we can keep food costs under control, doesn’t that contribute to having a better chance for success?

of course anything that keeps costs low will help.

pizzajoey:

I figure monthly expenses at around $9,000 and I need $346 profit per day to break even. I want to offer my large 18inch pizza at 14.99, so I would need to sell 23 per day to reach my profit level. That’s not counting salads, sandwiches, drink, etc.

$9,000? you need to be a bit more specific about what’s included in that for us to help. Its a big figure and lots of good or bad stuff could be buried in there. Go back to weekly and its a bit easier to deal with. I assume in the above question the word ‘profit’ slipped in, as its obviously wrong? Break even means exactly that… no profit yet but then again no loss!

pizzajoey:

Why is this a bad business plan? When we open, is it possible that we won’t have customers for days or weeks?

who’s said its bad? no business plan is ever bad. If it shows that you ain’t gonna make any money then I’d said its a life saver! A plan is just that, a plan its up to you to plan the business to see if its viable or not and if not look at different scenarios. And yes you could have no customers thats the risk with any new business.

pizzajoey:

I understand that there are a lot of experienced pizza shop owners on this board, I just can’t see why everyone I talk to says we will probably fail. I don’t want to put my family in a bad position and lose our money, but we really believe, together, that we can make a go of it.

I’m not sure I’ve seen everyone say you’ll fail. The last post about ‘reasonable goals’ - no one said it was a bad idea did they?

A few people said a 21" pizza wasn’t a good idea - thats not saying you’ll fail just that a 21" pizza isn’t a good idea.

and the ‘reasonable sales volume thread’ - you’ve been given some indications of how you could work out volume.

Unfortunately there’s no golden formulae to success, no way to guarantee opening sales or whether the shop will succeed. Having a reasonable business plan which shows what you need to do and gives you a guide. If you think that you can sell at least 23 pies every day and make at least $346 then thats a start, it means you pay your bills, your staff (hopefully if you’ve included labour) and you are there to start increasing sales the next day.

No one, only you, can make the call of whether you think its ultimately viable and worth the risk, but we can help and open you eyes to some of the issue and hopefully help you along the way.

 

[Piper]

pizzajoey:

One thing is for certain, I will be underfunded.

I’d stop right there. Why would you go into a business knowing that you’re underfunded?

And since you aren’t factoring in any money for labor, what will you and your family be living on?

pizzajoey:

From everything I’ve read on these forums, we are destined to fail…mainly because of undercapitalization.

There are many wise business owners on this site. I don’t want to rain on a parade, but you already know you don’t have the cash to do this properly. You have a wife and family - why would you take such a significant risk already knowing the chips are stacked against you?

 

[smeagol8]

The people on this board mostly think that you must have about $200,000 in spending money AFTER you open your doors. I flatly don’t agree. I think there are two ways to do things: Work hard, or throw money at it. But I will concede that you will sleep better if you have as much financial backing as you can get. The only thing is: DON’T SPEND IT!! If you have $$ to spend, it’s very easy to tell yourself: “I don’t really need this, but I’ll make my money back through the increased business it will bring in.” And that might even be true, over the long term, but your most important goal is to survive in the SHORT TERM. Making a profit over a ten year time doesn’t do you any good if you close after one year. You must save your cash for emergencies - for those times when you MUST spend it! Not when it’s convenient. Not when a salesman has a “great” deal. Not when “this thing” is far superior to what you have now. Emergencies- as in, “I can’t open tomorrow, unless I spend this money”.
As for “family help”, it’s a great thing when you are doing a ‘Grand Opening’, you need lots of people today, but you know you won’t need so much help after its over. But if you need the help of many people, (normally), then you obviously must have significant business. And if you have significant business, then you should be able to pay your help, family or not. If you have your rent under control, then you should make money from the first day you open. This is because if you have minimal business, then you should have minimal food costs, and NO labor costs, beyond YOU. The mistake I see too many people make is they think, “I’m going to be very busy, so I need lots of employees”. Too many employees will eat you alive in no time at all.

 

[Kris]

I think when you are reading posts you are reading it as if it were all doom and gloom. One thing to always keep in mind the posters are either A. Still in business or B. No longer in business. What a precious tool you have. Back in the day we didn’t have the internet or all the useful tools you are coming across. So my lessons are my lessons. Either take what I’ve learned or don’t. (Same with the other posters) But if someone were to ask me what the key has been to survival and thriving I would say it was having enough money to overcome what ended up being some very tough times.

When I have the cash and a problem or unexpected expense arises it is an inconvenience, when I wasn’t prepared it was a potential disaster. So why not have enough and have it be an inconvenience.

What difference would it be if you wait lets say another year. If you can live on what you are to make if you were to open then do so and bank the rest.

As for your family I will say this…they have their own life. Period. Sure the occassional come to help might seem like a good thing but where is their restaurant experience? It is not a one or two night adventure. What if you get busy…what if you get reallllll busy no one trained, no one ready. Customers aren’t forgiving. First impressions are everything. I feel like you are planning on being slow…instead of being prepared to be busy. You need a staff and that costs money. Sure keeping labor under control helps but thinking it won’t exist is ridiculous.
There have been many of birthdays we have missed in the begining, you really think your family is gonna be working those days? Your still gonna be open for business.

Borrowing money from family is never a good idea…period. If someone is willing to give you the money great but to borrow from family will make thanksgiving dinner a little odd.

I would be patient. If you really want to do this save up for another year or two… get a nice pocket full of cash and enjoy opening without a monkey on your back. We opened our second location 3 years ago and we still have the monkey on our back.

Kris

 

[Wizzle_Wassell]

smeagol8:

The people on this board mostly think that you must have about $200,000 in spending money AFTER you open your doors.

Nah thats just not true is it? Find me a singe post where someone says that!

Sure there are a lot of business owners on this board who feel that you need $200,000 + to open and run a shop properly (I’m one of them) and then there are some who feel you can do it for $10,000. Each to their own. But just because we don’t agree it doesn’t make my opinion or you opinion on the amount you need any more valid than the other does it? You simply couldn’t open an operation like mine with $10,000 its a fact, and just because it cost me more than $200,000 doesn’t mean I or others ‘threw money at it’ rather than working hard that’s just plain wrong as well!

I can’t see a post on any of the threads started by this guy where he has asked or been given specific numbers about the cost of opening and indeed other than one which have picked up his last post where he states he is under capitalized I can’t really see anyone saying don’t do it.

If someone has doubts at this early stage about running their own business then that ain’t a good sign in my books.

 

[tomj1007]

Brother, i applaude ya!!!
It is not easy to drop your life and free time and vacation and friends and just do it!!!
The wife and i are into our 6th month with a brand new store with a huge lease and almost 200k on build out and equipment…i also chose to use a double stack oven that is 20yrs old, i built my own kitchen including walk-in(that was new)…i worked in here for 4 months and no income trying to do as much as possible with my own two hands, we were struggling BIG TIME just to pay our personal bills…NOW at month 6 we are packing the house almost every night, we are keeping a staff of 3 full timers and a dozen part timers…we were #1 best place to eat on a i-phone app in our city recently!!!
This is my 3rd store, 1st brand new one and we were scared to death once it was time to open those doors, but i think we made the right choice…even in these down times

oh yeah, make sure your marriage is in good shape before you start, i would not want to deal with a partner that was not on the same page as i when it comes to being a small business guy…you will need each other to lean on…she will be your crutch when things get crazy( by the way, i opened with $6500 inthe bank, but actually should have had at least double that)

 

[Deacon_V]

The suggestion of sitting it out one more year and actually committing your family to living on what you will expect to have available once you start your shop, is a sound one. But…only YOU can answer if now is the right time for YOU.

I looked at the economy, at the expected costs, returns, unexpected costs etc. and determined that yes, we could move forward. We have a scary number of dollars hanging over our head, there is no “Plan B” should this go south for some unknown reason, and still, for ME, it’s the right decision. We’re just completing our first business month following a 90 day rebuild of a former sports bar & grill into a “family pub”. We’ve blown past my projections for first month sales by nearly double. BUT, we’ve “slightly” exceeded my projected costs for that same 30 days as well. Not by much, but I just wanted to point that out to say that even a research freak like me can be off in projecting the unknowns.

IF business stays at my expected level, IFmy projected expenses prove semi-accurate, then yes, we will stand to be in control of a very nicely profitable business…in like 6 years when I expect to have all my considerable debt paid off. If not…“van down by the river…” The point is, you have to decide and weigh how much risk you are willing to put your family in for a dream. And, good luck! It’s a very very wild ride, I’m exhausted from my 120 days of 16 hours a day straight, but absolutely loving every single minute of my life right now!

 

[indie_pizza]

When I found this board a couple months after we bought our shop, I was caught off guard from all the negativity that I saw. What I’ve seen in the 1 1/2 years since then is that at least once a week, someone new comes in wanting to open a shop for almost nothing and then gets angry when people tell them they’re probably wrong in their projections. Then those people disappear, never to be heard from again.

Take your time, be open minded and engage in open dialogue with the members of this board. Be direct and honest with your questions and opinions, but don’t be belligerent. It’s free advice that should cost a fortune for us newcomers. Perhaps starting with your monthly fixed costs and get some input on that for a couple days, then move on to another area. I can tell you for a fact that I wouldn’t be open today without the wealth of information that is freely given on this board by people that could be doing other things with their time.

Can you do it in your situation? I wouldn’t tell you “no”. We bought a 15 year old shop in October, 2008 that was on pace to easily lose 6 figures that year. We were approached by someone who wanted to front the money for everything and have me run it in exchange for a 50% share of ownership. I had just sold a very successful bar a couple weeks earlier to my partner and my wife had a job that she and I and our 2 year old (plus she was 2 months pregnant) could live a simple life on. Our new partner bailed on us a couple days after signing “intent to buy” contracts, my old partner defaulted on his first payment and went out of business (still haven’t seen a dime after the first check) and the banking industry crashed 4 days after we took control. We took a delivery of $4,000 worth of food our first morning, put $150 in the register and jumped in.

Until a few months ago, it has been an absolute nightmare that almost destroyed our marriage. Floating checks out of our personal account several times a month and then floating it back in from the store knowing exactly how many days it takes for a check to clear. Having my 2 year old make dough balls with me in the morning while my infant daughter sat on the counter in her car seat because we couldn’t afford to have someone making $8.00/hr to come in and make dough. Working 'til 4:00 am to do bar rush and then coming back in four hours later to open the store back up.

It’s tough, but it can be done. I now work about 1/3 the hours I was, my labor is down 25% from what it started, my monthly costs are down about 20% and my sales have nearly doubled since I started using the Think Tank. So, take your time, be thankful for the advice and insight (even when it’s not what you want to hear) and go conquer your market.