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    9 Replies Latest reply on May 9, 2009 10:10 PM by DeanMalibu

    What to look out for when buying a pizza restaurant?

    B.My.Own.Boss Newbie

      There is a pizza restaurant for sale in my city for $25,000 only. The price is extremely low for what I have seen before. So I can't help to wonder if there is anything wrong in this "deal". What are some of the things I should be checking to make sure I am not buying myself into trouble? I know there are the back liabilities, health department concerns, and legal matters to look into. But what else?
        • Re: What to look out for when buying a pizza restaurant?
          Lighthouse24 Ranger

          Is the restaurant currently open and operational?

              • Re: What to look out for when buying a pizza restaurant?
                Lighthouse24 Ranger
                In addition to what iwrite noted (all important), talk to neighboring business owners about problems they've experienced or any development plans for the area that they are aware of. Seek out long time customers, and even track down some former employees if possible -- you might be amazed at the "insights" you can get from a disgruntled worker or dissatisfied diner. Follow up on any leads -- for instance, if you hear something about health issues, code issues, tax issues, labor issues, or whatever, then check with the appropriate local departments to see if there are pending cases or complaints.

                At the same time, keep in mind that some boomers are cashing out of businesses now, so the "problem" could be that the business needs a lot of functional and technical upgrades that would eat up all the owner's cash and equity -- and the owner knows it (i.e., it may be a good, fair price if you're positively going to have to pour in another $100K over the next two years to keep it operational).

                Interesting deal. I hope you'll keep us posted on what you learn as move forward!
            • Re: What to look out for when buying a pizza restaurant?
              Iwrite Pioneer
              Traffic flow.
              Crime rate.
              Sales records and patterns for the last few months.
              Tax records.

              Hiring a good lawyer and an even better forensic account are a must. Check into anything and everything, I have know some less than honorable people who hid some very important information. Be careful.
              • Re: What to look out for when buying a pizza restaurant?
                Bridge Navigator
                Start by asking why the owners selling, There could be an illness or other factor necessitation a quick sale. Next, get yourself a reputable business broker who can help you properly analyze and value the business. They deal with transactions everyday and can give you a better idea of its value. As with any type of substantial business decision, the advice of an expert is usually well worth the cost.

                You can find a broker at www.apmaa.com

                My personal due diligence list has over 200 items to check!

                Normally, you get what you pay for say be careful.
                • Re: What to look out for when buying a pizza restaurant?
                  Tracker

                  Here are a just few things to look for and to ask about (some of which other members have touched on):

                  • Are revenues stable or growing over the past 5 years?
                  • Is net income stable or growing over the past 5 years?
                  • If sales or net income have not been stable or growing; what is the reason? Can the slide in revenues/profits be corrected by you as the new owner? If not, then you should probably pass on the deal.
                  • There should be low capital requirements or capital expenses (example: no new equipment needed; facilities adequate for operations and no other costly improvements or investment needed in order to operate the business). If it requires putting a lot more capital into it ... you may want to pass on this deal.
                  • How is the business affected by local changes in the economy?
                  • Will the next five years be different if there are changes in the local economy?
                  • Are any key management or employee positions occupied by members of the family or close personal friends of the owner that you will have to fill as the new owner? This may or may not develop into personnel problems once you are the owner. Fore-warned is fore-armed.
                  • What are the current practices and procedures for hiring, firing, advancement, and promotion? Do they conform to local, state, and federal regulations? If they do not then this is a negative. Make sure that you don't inherit any problems.

                  There are literally dozens (hundreds) more due diligence questions that should be asked as part of your evaluation of the business. You might want to visit your library to find books on how to buy a business or visit a local book store and buy a book that covers that topic. Educating your self is part of preparing to make a good deal and not do a bad deal that you will regret later on. Or search online for "help buying a business" or "business due diligence" will probably come up with additional information that might be of help to you.

                  Good luck with your acquisition plans; let us know if you have other specific questions and how this progresses for you.

                  Dennis Lowery
                  Adducent, Inc.
                  • Re: What to look out for when buying a pizza restaurant?
                    designer Tracker
                    Location. Location. Location.

                    Did this establishment offer delivery or just dine-in?
                    • Re: What to look out for when buying a pizza restaurant?
                      Wingman Adventurer

                      Hi B.My.Own.Boss,

                       


                      There are many questions you need to ask. Here are some the important ones that I would suggest you answer before "jumping into" this decision.

                       


                      1 - Do you REALLY WANT to own your own business (pizza restaurant or otherwise)?

                       

                      2 - Have you tried the pizza from this store? Do you like the taste and quality? If not, will you be using your own recipe?
                      3 - Who is the competition around the store and how are they faring in this economy?

                       

                      4 - Are you willing/able to put additional funds into this venture to make it a success (above and beyond the initial 25K) if necessary?

                      There are a million things you can look at and consider but it all boils down to whther or not you think this is a good opportunity. If so, are you ready to get off the fence and dop something about it. Don't ever look back at life and think to yourself, "What if?"

                      Good Luck