We are completing our second year of owning a Family Entertainment Restaurant and have brought sales from $4000-$6000 per week to $9000-$12000 (sales are seasonal) in the three years we have been here (we just managed the first year.) We are paying $6800 rent every month and profited over $50000 last year (after our salaries.)

Our business, Fun City Pizza is somewhat like a Chuck E. Cheese, where we (two partners in a LLC) worked for several years before coming here. We brought our experiences at CEC into a market that is prime for sales increases. We have a 40.000 cubic-foot play center with huge ball pits, bounce arounds, "sky tubes" and other play equipment. In addition we have 50+ video games (another 50+ on location on our Amusement "Route"), do the best B-day Parties in the area, and have a full "Pizza" menu.

We are looking to open at a new location within a year, but are in the infant stages of finanicial planning. We want to open a store that is a Cadillac compared to the Dodge Dart we purchased. This location is almost ten years old and wasn't designed with optimal sales in mind. We have somewhat transferred the business from a "playplace", to a full blown restaurant that people enjoy coming to. Being able to design our new location will establish us as a leader in our market. Now I guess I'll ask questions.

We would be moving all our "assests" from the current location to the new, so we are looking to only have one NEW and IMPROVED spot. Redesigning our play area, purchasing new games, putting in a salad bar, and other "expenses" has roughly came to about $200,000. Should we have any problem getting this amount? The LLC has excellent credit and we have plenty of cash flow projections that show positive cash flow to pay for that small of a loan.

Next question how feasible is the purchasing of our own real estate and building? Does the $6800 in rent amount show anything towards us being able to pay towards our own. We live in Northwest Arkansas, one of the fastest growing areas in the U.S., and many new shopping centers and a new mega-mall are going to be built within the year that would be perfect for our operation.

We are two hard working guys who are looking for some sound financial advice on this project. Any help is greatly appreciated. Thank-You very much......Joey

Joey:

It all sounds great, now let me tell you how I would underwrite it from the point of view of a Bank lender if we were considering your request to buy a new place.

1- I would figure out what your cash flow from operations is.

2- I would take the $6,800 that you pay in rent and multiply it by twelve.

3- I would add both numbers and call this “cash available to service debt”. If you are paying rent now, but wont be in the future of course we will give you credit.

4- The “cash available to service debt” should be able to cover the loan payments for the new real estate loan and the money you need for improvements.


Now a couple of comments on the whole plan:

- The SBA has a program that is tailor made for situations like this {The 504 loan program}. It lets businesses buy their own places with 10% down. Get as much information as you can on this.

- The $200,000 for tenant improvements might be the most difficult to obtain. Looking at the liquidation of collateral as your last source of repayment, real estate is much more marketable than the improvements you have in mind.

- You need to talk to an SBA knowledgeable lender regarding the $200M for improvements, there might be a way to get another loan or include it in the 504.

- The risks here are: the industry, the moving of location, and the relatively short time of ownership


Good luck

thanks....for your help and this message board..............