Small Deli as First Business Acquisition

[brambo911]

Good Morning Everyone,

I have been reading everything I can and have listened to most of the Acquiring Minds podcasts. I have been loosely searching for small businesses in my area in NW FL. I am active duty military with a family. I have 3 years left on my contract and am in a position to stay at my current base until I get out. I have owned 5 rental properties over the past 7 years and recently sold two of them. That has put us in the position to have some cash for a down payment.

I am interested in buying a small business so I can increase our cash flow before my 3 year military contract is up. The intent is to make the decision to get out easier. I have loosely looked at a dozen or more businesses in the area but they were all something that needed to much time or my wife couldn’t comfortably bring our kids with her to help manage things.

We are seriously considering a small deli and I want to hear anyone’s thoughts on the numbers or small restaurant experiences. The only real experience I have with the food industry was a high school job at a pizza place.

I have attached the cropped P&L statement I was provided. The deli has one employee that has the intent to stay after the sale. We ate at the deli recently, the food and atmosphere was attractive. The sale price is 90,000, the broker says the sellers are very motivated due to moving for family issues. The couple that owns it works about 50 hours a week. My intent would be to hire a couple more employees asap so it isn’t my wife doing it all with me filling in when I can. I am not trying to buy a job for my wife but we both are willing to work when necessary to get employees working most of the hours. The lease is locked in until mid 2027.

Let me know if you have any thoughts or need more information. I am open to learning anything I can.

 

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[jclean]

Good Morning Everyone,

I have been reading everything I can and have listened to most of the Acquiring Minds podcasts. I have been loosely searching for small businesses in my area in NW FL. I am active duty military with a family. I have 3 years left on my contract and am in a position to stay at my current base until I get out. I have owned 5 rental properties over the past 7 years and recently sold two of them. That has put us in the position to have some cash for a down payment.

I am interested in buying a small business so I can increase our cash flow before my 3 year military contract is up. The intent is to make the decision to get out easier. I have loosely looked at a dozen or more businesses in the area but they were all something that needed to much time or my wife couldn’t comfortably bring our kids with her to help manage things.

We are seriously considering a small deli and I want to hear anyone’s thoughts on the numbers or small restaurant experiences. The only real experience I have with the food industry was a high school job at a pizza place.

I have attached the cropped P&L statement I was provided. The deli has one employee that has the intent to stay after the sale. We ate at the deli recently, the food and atmosphere was attractive. The sale price is 90,000, the broker says the sellers are very motivated due to moving for family issues. The couple that owns it works about 50 hours a week. My intent would be to hire a couple more employees asap so it isn’t my wife doing it all with me filling in when I can. I am not trying to buy a job for my wife but we both are willing to work when necessary to get employees working most of the hours. The lease is locked in until mid 2027.

Let me know if you have any thoughts or need more information. I am open to learning anything I can.

Does the couple work in the deli 50 hours a week ? If so the numbers don't add up to me.
90.000 for a deli is a lot of money...

 

[brambo911]

Does the couple work in the deli 50 hours a week ? If so the numbers don't add up to me.
90.000 for a deli is a lot of money...

25 hours a person between the two of them.

 

[jclean]

25 hours a person between the two of them.

I see in the attachment that there is 32900 dollars profit.
this in the period from January to August. this is 34.5 weeks.
$32,900 : 34.5 weeks = $953.62 ÷ 50 hours = $19.07 per work hour.

i think there are better companies to buy for 90k

unless you are convinced that you can quickly turn this into something profitable.
I certainly wouldn't offer 90k either.

just my two cents

 

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[BigRomeDawg]

That $32k isn't profit, that's owner's compensation. The business isn't profitable and it shouldn't be portrayed as such for a sale.

$90k to buy a $30k/yr job at a sandwich shop. Unless you think there's enough hidden upside that you could 10x it in 12 months, you could probably start your own shop for a lot less.

 

[jclean]

That $32k isn't profit, that's owner's compensation. The business isn't profitable and it shouldn't be portrayed as such for a sale.

$90k to buy a $30k/yr job at a sandwich shop. Unless you think there's enough hidden upside that you could 10x it in 12 months, you could probably start your own shop for a lot less.

Very true

 

[brambo911]

Thank you guys for the responses, the numbers are certainly slim. Our thoughts are we would have to help run it with the employee they have now for 2-3 months. Then the intent would be to get 2-3 employees at 12ish and hour for the 140 hours needed a month to operate the deli.

It is a German based deli but they do not serve beer. Our first profit boost thought was put genuine German beer on tap. After further inquiring they aren’t allowed to sell beer because of the proximity to a church. The other reason we liked it is they are currently closed on Sunday and Monday. Tuesday- Saturday they are open from 11-2 and 430-7. I was thinking if we messed with around with being open every day and maybe expanding hours we could bring in more revenue. The margins for what they are currently selling averages at about 25%, I was thinking of increasing prices 5% across the board.

The real challenge has been trying to find a business that my wife can feel comfortable dropping in with our kids. Also, I have about 45,000 to play with for down payment and keeping operating cash. This number is growing by about 1500 a month, maybe we need to wait a year or so and try to get something a little more sizeable.

 

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[jclean]

You can also consider if you can deliver sandwiches/soup to (large) companies and/or schools. this increases turnover and is recurrent business.

so you can possibly keep the weekends free.

 

[Guest-5ty5s4]

That $32k isn't profit, that's owner's compensation. The business isn't profitable and it shouldn't be portrayed as such for a sale.

$90k to buy a $30k/yr job at a sandwich shop. Unless you think there's enough hidden upside that you could 10x it in 12 months, you could probably start your own shop for a lot less.

This is a good point. However, kind of like with vacant, damaged rental properties, you can always make it better yourself.

Instead of building the whole thing yourself you have a broken deli to start with and improve. You can systematize it, grow it, hire people, possibly franchise, etc… lots of options… is this what OP wants to do and should do? Can OP do it? I have no idea. Would I try this? I don’t know.

Subway is a deli. I think subway is fastlane.

My problem is that I see too many options sometimes. Other people see too many barriers. Maybe the best thing to do is to just latch on to the first thing and push, push, push.

 

[GuestUser4aMPs1]

Thank you guys for the responses, the numbers are certainly slim. Our thoughts are we would have to help run it with the employee they have now for 2-3 months. Then the intent would be to get 2-3 employees at 12ish and hour for the 140 hours needed a month to operate the deli.

- What is the couple doing during those work hours? Are they the ones serving sandwiches?
- Have you asked them why they haven't tried to replace themselves yet?
- Have you asked why they've kept their opening hours low?

If they're the ones actually running the operation, I think they haven't tried to replace themselves because doing so would get them to break even or negative. Especially if they're living off that $30k.

I know you're thinking you'll net ~10k after hiring at $12/hr for the hours you need, but in reality you may be breaking even or negative due to payroll expenses and taxes. At which point you're going to need to raise prices and/or increase operating hours, but there's no guarantee you'll make enough sales in those hours to cover the cost of staying open longer. Think about how much it costs to stay open each hour, and dispassionately run a few scenarios.

- Also, Have you asked for tax returns? I know sell-side brokers who avoid selling restaurants because of a lot of stuff going un-or-under reported from Cash. You can simply ask if they're open to working with you through an SBA loan to buy them out, because they will be required to produce 3 years of returns. If they don't comply don't walk away, RUN away from this deal.

- Also, do you have any restaurant owner friends etc. that can help you look at this deal? Right now you have a broker selling you on an opportunity which he will receive a commission from, so be very careful. Talk to a few more people and go on searchfunder.com, it's full of acquisition entrepreneurs trying to figure it out.

- Finally, how many deals have you looked at? Unless you've looked at 100 deals I'd be very wary of pulling the trigger on anything yet.

That's not to mention the lack of upside, unless this place has a big enough reputation that you think it would succeed because you plan to expand to new locations or can be franchised.

This all isn't to discourage you, but I would be very very cautious and look at it from every angle. I'm no pessimist, but from a buyer's standpoint it's better to look for reasons it "can't" work versus looking for reasons it "can" work. The latter will distort your perspective.

 

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[GuestUser4aMPs1]

@brambo911 any updates?

 

[brambo911]

We have decided to continue searching, if I had run a restaurant before and thought I could grow it quickly I would be more inclined to move forward. Where the business is currently at we may be able to net a few thousand a year with no growth, but I can do that with a rental property. I’m looking into SBA loans and contemplating finding a way to get something 700,000 or less. From what I understand typically you can get the seller to carry 10% owner financing to effectively have your 20% down payment. The trick is I am active duty military and cannot commit myself to a business fully yet with upcoming deployments etc. My wife is onboard and willing to do as much as she can, but we homeschool our children and will not be changing that so she can’t be available all the time. We are just trying to find the happy medium between getting a business and not buying us both a full time job when we cannot commit to that yet.