The Value of a Pizzaria

[BigV]

I'm looking at a couple of pizza places with the idea of buying one of them.  Both are marginal as far as quality and barely breaking even.

If you were looking at buying someone out, what criteria would you look at for coming up with an offer?

[Hi Gluten]

Hi BigV,

I personally would pass on buying any place that is "marginal" in quality and barely breaking even.

Even experienced hands may not be able to massage it back to health. You have the 2 greatest drawbacks to buying an established business.

It would be more prudent to start your own or if you insist on buying an established pizzeria, buy one that is doing great.

'just a few thoughts...

[Pete-zza]

BigV,

Maybe this information from a search at the PMQ Think Tank will help:

http://www.pmq.com/cgi-bin/tt/index.cgi/noframes/read/27103

http://www.pmq.com/cgi-bin/tt/index.cgi/noframes/read/21440

http://www.pmq.com/cgi-bin/tt/index.cgi/noframes/read/19477

http://www.pmq.com/cgi-bin/tt/index.cgi/noframes/read/17278

http://www.pmq.com/cgi-bin/tt/index.cgi/noframes/read/16379

http://www.pmq.com/cgi-bin/tt/index.cgi/noframes/read/10813

http://www.pmq.com/cgi-bin/tt/index.cgi/noframes/read/5411

Peter

[BigV]

I'm off to read those links.  Thanks.

The reason for buying an existing place is prmarily real estate availability and local health department.

A lack of locations is a real problem.  Locations that are viable face large hurdles from the health department.  The conversation usually starts with "call us when you design a new septic system".   Figure on about $40k additional startup cost before even opening the doors.  I would rather use those same dollars for a remodel to a running location.

Being in a rural area has both advantages and disadvantages.

[gottabedapan]

A lack of locations is a real problem.  Locations that are viable face large hurdles from the health department.  The conversation usually starts with "call us when you design a new septic system".   Figure on about $40k additional startup cost before even opening the doors.  I would rather use those same dollars for a remodel to a running location.

Being in a rural area has both advantages and disadvantages.

Hire a qualified building inspector to go over the place with a fine-tooth comb and document every potentially problematic existing condition and adjust your offer based on his/her written report.

Also, be aware that in some jurisdictions, if your remodelling involves more than cosmetic changes like slapping on a fresh coat of paint and changing the furniture, you may be required to bring the location up to current building and fire codes, which, depending on the age of the building, can be a time-consuming and expensive headache, particularly if the location isn't currently ADA-compliant. Even if you're assuming an existing lease, you may be required to bring the area you occupy up to spec.

[loch]

I understand the location concept. In our small town a venue with good visability and walk in is hard to come by.

I guess the question I would have to ask is can you recognize and fix the problems that are causing these businesses to fail. By that I don't mean any building problems. Where we live the seller has to have the business up to current code unless the new buyer agrees to take the responsability.

When my wife and I sold our last shop we had increased sales by over 30% in less than 2 years. The previous owner just didn't have it. If you know what you're in for, I'm sure you can succeed.

Dave

[BigV]

Well, the one I was wanting we could not agree on a price. 

I think apathy is his biggest problem.  The owner is an older guy who retired from Boeing.  He has a pension and does not rely on the pizza business for paying his bills.  He treats it as some place to go to get out of the house.

As they say, when one door closes another opens.  I was having lunch at our favorite BBQ place when a really good offer was made.  The owner of the BBQ place is an old friend.  His place is an old meat packing place and the kitchen is huge.  He does a very robust catering business.  Anyway, he offered me a space in his kitchen to setup a delivery operation.  Natural gas, 3-phase power and 2,000 sq ft of walk in refer make it tempting.  It is also a prime location for delivery.

Now just need to put together a business plan.

[CharlieJ]

I recommend that you ask to see his last few years financial records.  It is a reasonable request when purchasing a business, and it should definitely give you a great picture of the real value of the business.  If you are not comfortable reviewing financials, hire an accountant to do the work for you.  It will cost you a little bit, but consider it an investment for helping ensure your success.

Good luck,

CharlieJ

[UPZS]

unless it's a franchise the value of a pizzeria is that of the equipment.
at least thats my understanding.

[bodegahwy]

I think a pizza place is worth 2 1/2 to 3 times what the owner can prove they take out of the place per year.  Un-reported cash does not count.  Make sure that the sales number provided and the sales tax reports match each other.  If they do not, change the sales figure to what the sales tax report shows and recalculate the result.  This price would include all the equipment needed to do that business.

In most cases, small pizza shops that are failing are making the owner 20-30K (wages, profit whatever) and are worth 50-90K if the equipment is good.  Not coincidentally, it would cost you at least that much to open from scratch.

The best deal is to buy the equipment in place from a shop that went out of business... but only if you can put your finger on why it failed and explain why that will not happen to you.