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Restaurant biz

Discussion in 'Franchising, Chains, Traditional B&M' started by Goldman snacks, Jan 5, 2017.

  1. Goldman snacks
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    Goldman snacks Bronze Contributor Read The Millionaire Fastlane Speedway Pass

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    recently been looking at a diner for sale.
    I am mainly into real estate investing now, however this seems prime as:

    -the owner wants to sell it and its real estate included (huge lot with car park all around the side and rear).
    he and his uncle have been chained to it full time for years and want to retire.
    -it's not on the market but he will sell it for 1 million (I can probably go lower).
    It turns a steady 100k profit each year.
    -there is a 500 unit apartment building being build across the road two blocks down that will increase the customer base a lot, im also thinking i could add deliveries and add more income.
    -my partner is also building a 20 unit home for seniors next door above his existing unit.

    I am approved for a 90% loan on this if i go ahead with this.
    option 1: my plan is to run the diner as usual with the possibility of building an apartment complex above the diner as the lot is very large and it has the zoning.

    option 2: run the diner as hire a manager so i can be more hands off and expand to take out and then once revenue has increased, sell it off. Even better a developer may want to buy my lot at a larger price.

    option 3: build an apartment complex on the lot, keeping the diner and a new retail unit on the main floor.

    Is anyone here in the restaurant business? I am trying to figure out how hard it will be to take over and if i can actually eventually be hands off and if i am missing anything here. all opinions are appreciated and happy new year to everyone
     
  2. Arun Siva
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    I owned a restaurant (way back whilst in college before i dropped out) and I will tell you unless it is in a VERY GOOD location and already has good cash flow and customers (regulars) you are venturing into risky waters nowadays... Yes you can hire a manager and some cheap menial workers, cooks waitresses etc however you can only cut so many corners as the food and produce/meat prices continue to go up.....

    Are you going to keep the suppliers or vendors that the previous owners has been using?

    It seems like the location is good for you and so is the yearly revenue...

    Deliveries are good only if you charge a minimum for that service i.e (free delivery minimum 15-20$ orders within 10 mile radius);

    My restaurant in chicago was a typical burgers and wings joint (about 1000 sq ft in all) no rental space above but had decent cash flow and was leased by an immigrant whose visa status had long been overdue and we had some good agreements; I found better suppliers of certain foods ingredients/beverages and got my restaurant depot card (restaurant depot is the sams club just for food businesses)

    Your option # 3 seems like a lucrative plan again only if the numbers work out; having rental units is a good thing for income generation suppose business inside the eatery slows down or whatever (which it may not since the influx in population)

    It will take some time before you can go autopilot with it; The lot will be of immediate use for you
     
    Last edited: Jan 5, 2017
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  3. mrarcher
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    The restaurant business is great! I owned a takeaway before and learned a huge amount from it. In fact my "fastlane lambo" is to run a restaurant in the USA without the worry and headaches of bills (eg if I had money allowing for freedom I would gladly work in my own breakeven restaurant cooking for people). But your option #2 I don't see very likely. Even with a manager a restaurant can suck up a LOT of your time. Unexpected problems and the like. If you decide to go the route of running the place expect a lot of your time to go into it.
     
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  4. MidwestLandlord
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    What's the lot worth by itself?

    $100,000 x 4.5 (being generous) is $450,000 value for that business.

    How many hours are they working combined per week? 100? 120? 140?

    How many people would it take to replace them?

    Gross revenue is? If it is less than $1.2 million, I'd be very skeptical of their books. Is the food the only thing that got cooked?

    While this 500 unit apartment brings potential, it does not guarantee sales. HOW would the restaurant serve these people? Delivery? Do you have the labor for that?

    Inside service? How many does it seat? Is it a full house at rush times? (typically 6-8am...11-2...5-7pm)

    If it is a full house, could you honestly expect to increase volume? How many employee hours does he spend? How much revenue does each employee generate? Find that number (revenue divided by hours), divide that into the expected revenue increase, and that's how many more humans you would need to run the increased volume.

    Yes, I'm an ex-restaurant owner (two of them)

    So assume the $100k profit is correct. You need TWO people to cover the work of the old owners. (are you aware of the restrictions regarding salaried employees? So you can't really have more than one salaried person in a place like this)

    Hourly assistant manager: $30,000 <----Lots of over-time here...expensive
    Manager: $55,000 - $100,000

    Eats into profit FAST.

    Edit:

    Who does the cooking now?

    Edit #2:

    Do you want to hear about the time my restaurant gave a 6 year old girl food poisoning and almost killed her? Or should we skip to the lawsuit part of that story? I in turn had to sue my supplier because it was there fault for not following PHF regulations. On the bright side, I found a wonderful attorney who has represented me ever since and is now a really close friend, so that's good I guess. (and the kid was fine thank God)

    Restaurants man ... :headbanger:
     
    Last edited: Jan 5, 2017
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  5. Goldman snacks
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    thanks alot, lots of very valid points, there is just one manager, but his uncle has money in the real estate so it is mainly the manager owner that wants to get out. I still further have to get into the details of the income and I am hoping he has included his manager salary in the expenses.

    I didn't think about the rising food costs, that would come into play if i was to hold it over time, Is it easy to pass it on to the customer?

    I plan on being around the area, however i wanted to focus on growing it and not little things
     
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  6. MidwestLandlord
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    Hold highly perishable inventory over time? Is that what you mean? No, you can't. Or do you mean if you hold the biz over time? In that case, yeah...you just deal with it. Typically it eats into margin for a long time before some psychological limit in yourself comes into play and you finally decide it is worth the expense, and risk of lost revenue, by raising prices.

    It's not easy to pass on as a rule. Lot's of other factors come into play with that for sure. (take a burger up $.10 and reprint all the menus?)
     
  7. Goldman snacks
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    right yeah, lol no i dont think i would last long if i kept all the perished food. in my eyes i see it as one of the lesser risky businesses as it has a customer base and people will always need somewhere to eat/order food from in boom or bust.

    with all these websites people are doing everything online but in the food business i believe it gives me more competition but a wider customer base through delivery. as I plan on getting some sort of arrangement where i can market to the people of this new 500 unit complex. maybe i will give them a discount code or something. other than the emergence of competitors, price rises and people management i cant see any more downsides as long as i can pay the debt from the loan and make some profits whilst doing so, maybe I could get into opening other restaurants.

    at the moment i mainly buy rental properties, but if this works out maybe I will consider buying more or even opening my own chain.

    side story because i have nothing to do right now:
    I was at brook-field place listening to audiobooks admiring all the yachts parked up, I thought what does someone have to do, more specifically what kind of money do they need to own that yacht, so I googled the name of his yacht. the owner was a man called john rosatti (another rich guy you've never heard of yet is up there with all the 'greats' that we put on a pedestal in the background for our instagram quotes) he started burger-Fi, whats so special about burger-Fi? they sell burgers? so I have been greatly interested in getting in this business since then however I never really had as much infront of my nose untill now.

    and my main point for telling that story, surely if all these burger chains have successfully detached themselves from their restaurants, surely I can manage two or three with the help of some glorified assistant managers and myself acting as an area manager
     
  8. MidwestLandlord
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    Restaurants are my expertise. Other questions come up, just holler.

    But, you can't say I didn't warn you.
     
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  9. Goldman snacks
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    what is it like going from your first restaurant to multiple?
     
  10. MidwestLandlord
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    MidwestLandlord Platinum Contributor FASTLANE INSIDER Read The Millionaire Fastlane Speedway Pass

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    I was a franchisee, under a franchisor that gave tremendous support. So it wasn't bad.

    The second location did $1 million in the first 12 days of operations, so the first location went to hell for a long time due to neglect.

    It doubled the work load, but taught me the process of delegation and follow-up.

    As for making money, I pulled about 6% a year off the gross. I had to go up to $80,000 salary a year to get good managers. (in South Dakota!)

    We had two A+ locations we bought from Burger King corporate. (Put our biggest competitor out of business by buying their land out from under the franchisee's haha) Our third location sucked and went broke fast.

    Edit:

    Yes, $1 million in under two weeks. Had 5 reefer trucks in the church parking lot behind me to store product, had 100+ employees running 24 hours a day.

    Good times!
     
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  11. Arun Siva
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    impressive sir;
    I am curious to know how your franchiser was regarding extraneous fees and such; seems like you have had good support and backing; i have heard numerous horror stories from certain "big name franchisees" and told me they barely made it

    @Goldman snacks is your lot and potential place already zoned for apartment or residential housing? you had mentioned maybe building/constructing them... I still think this can really be a good investment within it as a safeguard
     
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  12. MidwestLandlord
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    Excellent company. Nothing bad to say at all. Great support, fees were not unreasonable.

    I only got out because of my poor choices in biz partners and pure exhaustion.

    After that I opened a different franchise. Again, picked a shit partner. Got out fast.
     
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  13. Goldman snacks
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    Goldman snacks Bronze Contributor Read The Millionaire Fastlane Speedway Pass

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    woah that sounds like one hell of a first two weeks!, @Arun Siva yes the reason i came across the diner was because my partner is doing the same thing next door and he doesn't have the resources to do it himself right now. we are thinking of buidling apartments in a way that the car park is still there but underneath the apartments.

    he wants to do a partnership but I am a crazy hard worker and I dont take shit from people, and he has his fingers in all sorts of pies and he will give his friends favours at the cost of his existing businesses, so If i do It and put all the time in I will want all of the control and all of the reward for myself.

    @MidwestLandlord what kind of issues did you struggle with when finding the managers? why did you have to go upto 80k? and what changed after you went to 80k?
     
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  14. MidwestLandlord
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    I never ran ads for managers. Instead I poached them from other restaurants. I went into restaurants I knew were ran well, asked for the manager, and offered them a job on the spot. When they didn't know what to say since I put them on the spot, I would leave my card and tell them to call me when they were able. The issue wasn't finding good managers, it was getting them to leave what they know.

    In order to get the managers I wanted I jumped up from an initial offer of something like $50,000, to just over $60,000 after negotiation. After we opened, it was obvious the volume would be higher than estimated, and the work for the manager would be long and hard. So a raise was in order.

    She had a job offer from a competitor that watched our great open and tried to poach her from me. It was $72,000. So I beat it by $8,000 because she was worth it.

    There are many, many restaurants where the manager makes 6 figures. For example, most Darden restaurants pay in that range. I had to be competitive.

    Once we got up and running, I groomed the young and enthusiastic crew members up through the ranks of crew, shift leader, assistant, and then manager as needed. That way I had a "known entity" and not someone I poached and knew little about other than the results I had seen as a customer. Someone who I know had "drunk the kool-aid" of my customer service, quality, and speed of execution expectations. I still had to pay that much though.
     
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    Both brands I was involved in I had business partners. In my current line of work I have a business partner (I own 25%)

    It's never worked for me, ever. I expect to go into the red with my current business by summer 2018 at the latest, in large part because my biz partner holds the purse strings. I will never share ownership again. Joint ventures? Sure. But not joint ownership.

    I only had partners with the restaurants because I did not meet the net worth or liquid asset requirements of the franchiser. So I had business partners because I wanted something (deeper pockets), not because I cared about my partner(s).

    So what does he want from you and why?
     
  16. mrarcher
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    It is a very risky business. Just look at how many failed or ex restaurant owners there are. If you want a good boom/bust business that has real estate then try strip club. (Seriously I know someone that owns one) In good times people are celebrating and spending money, in bad times people are depressed and need comfort.
     
  17. Goldman snacks
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    @MidwestLandlord he wants to go half and half on the initial 100k down payment and then raise money for the development of the apartments.

    @mrarcher let me know if you have any contacts in the new york, new jersey area haha(seriously though), it would be like living out my dream as a kid playing GTA.
    I know nothing about that business either, but last time I visited one I definitely saw first hand how much one can make owning a club.
    $20 entry, minimum 2 drinks ($30), lap dances $40, $10 ATM fee. and there was a group of 4-5 guys in the corner must of had 5 lap dances each, not to mention the private dances and 'tips' they give because they think they are going to woo a stripper.
     
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  18. mrarcher
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    Basically the way i've seen it done is you charge the girls a flat fee (say $40 a night or whatever 2 dances cost) and they keep what they earn in dances. It doesn't seem like much when she could take in potentially $900 per night (which is a good thing because if you are that busy you will take in good money through your other revenue streams) but you get the best girls because they don't have to give away half their earnings, most of them will want to work for you and you can have your pick. That way if you have 5 girls on you start off immediately with $200 on opening and what you would do is encourage girls to get the customers to buy them drinks during the night. Then you would charge for entry, drinks and i've seen on American tv shows that you do buffets etc which isn't something you get here but would have good potential and you are allowed to be open during the day so could be quite lucrative.
     
  19. mrarcher
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    Double post
     
  20. Goldman snacks
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    wow, 900 a night? I might just become a stripper lol! I would probably want to charge a little bit on the dances like 10% or something small.

    funnily enough i could buy a strip club for the same price as this diner, but there would be no real estate included, so i would be out of my area completly out of my area. I dunno how I would explain to my family that i run a strip club either, they would think i'm in the mob but who cares.

    Buy an Adult Entertainment Business In Long Island business for sale on BusinessesForSale.com
    this caught my eye, what do you think ?

    Im just playing around now, Im serious about the diner, I dont know if I would want the stress of making rent payments, I dont mind paying off a loan for real estate as it slowly adds to my net worth, but i feel that when you pay rent it just goes down the sink, so i would only really buy something with land included to cut out landlord middleman profits
     
  21. mrarcher
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    If it makes profit it could be a good idea. No one says you have to tell family just say you have a nightclub. It would be better freehold as opposed to lease as you have a valuable asset. Charging a percentage will do more harm than good. Fixed price, happier girls, guaranteed income, more customers, more repeat business "Hey! the girls in there are the best in town! lets go there!"
     
  22. Goldman snacks
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    yeah I guess you have a point. I will have to see if i could get the financing on something like that, I can get 90% financing on the real estate, but I will have to see what my options are.

    I like the idea of owning a business and effectively being my own landlord
     
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    A little late to the party, but I'd like to poke your brain with an alternative perspective.

    I have no experience in restaurants.

    I do have experience looking at tons of businesses for sale (and owning a couple).

    One major hang up with restaurants where they own the real estate is the valuation is wrong.

    Here is an example, with a lot of assumptions based on what little you have said:
    - net income $100K
    - asking $1 million
    - already your EBITDA multiple is 10, which is WAY too high, especially considering the owner works in the business (and I'm assuming that means 80 hours a week)
    - since the real estate is owned, to get a more accurate EBITDA multiple we need to separate the valuation of the real estate and the business
    - assume the real estate is worth $500K (whether you are able to develop it or not is not relevant)
    - assume the real estate should be leased for $50K/year (8% CAP rate assuming $10K in annual expenses even though expenses should be higher)
    - therefore, the net income of the business is actually $50K once you factor in the missing rent (and don't forget you haven't hired a manager)
    - the remaining portion of the asking ($500K for the business), means the EBITDA multiple for the business is 10.
    - the EBITDA multiple for this business should probably be 1. Maybe, just maybe, a 2.
    - if you are generous and value the business at 2X EBITDA it is worth $100K
    - therefore, the actual asking price should be $600K
    - although really, the business isn't worth anything because once you hire a manager you are at $0.

    So not only is it overpriced by 70%, but you are buying a really difficult job that only makes $50K/year ...or $0/year.

    You are much better off getting a job that makes $50K / year and investing your down payment in an ETF.

    Better than that, you should just buy the real estate and keep looking for a different business.

    P.S. New apartments around is great, but shouldn't affect what you are willing to pay.
     

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