Board Topic: Restaurant loan help
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Restaurant loan help

Posted by: Lidia Nov 1 2003, 11:51 AM
Loan for restaurant
Financing a dream


Hi;

Maybe you can help me. I am a woman that has made some mistakes and want to start doing something about them. I need 50k to buy and fix a restaurant located in a small shopping center right now it is a pizzeria, but I want to convert it to a more traditional type of diner. The place has a counter that sits 9 people and 5 tables that sit another 20 people. I talked to the current owner and he tells me that on average he takes in about $400 a day from the restaurant and another $300 in delivery sales. The place is open from 11AM to 10PM and is run by two brothers, a waitress part-time during lunch and a delivery guy that gets $20 a day plus tips. The place is 1,400 feet, rent is $2,200 a month.

I have been working in restaurants for about 8 years mostly as a waitress and sometimes in the kitchen. I also have one year of college education in business administration I have 10000 dollars and need another 40000 to buy the brothers out. Do you think is a good deal? Where can i get the loan?

Lidia O.

Posted by: loanuniverse Nov 1 2003, 03:36 PM
Lidia:

I am glad to hear that you are thinking of becoming a business owner. Before I get to your questions, let me remind you of my disclaimer. I also want to make sure that you are aware that I am not a business valuation expert {which is pretty much what you are asking me to do on the first question}, and that I am not a small business underwriter {which relates to the second question} I am going to give you some educated guesses and feedback and hopefully they will be useful. Now to your questions:

Do you think is a good deal?
A while back I wrote an article on business valuations that you can find by clicking on the following link Valuation article. However, your post had me wondering about how restaurants are valued so I did a search of the net and found a nice article about the parameters used to determine restaurant profitability in this place: Foodservice.com. While you give me enough information to come up with a “sales per square foot” measure and you also give me your rent expense, but there is a lot of missing information in order to assess profitability. As a credit analyst, my first impulse in order to answer your valuation question is to see the bottom line. However, there is no bottom line since I am missing your cost of food, your payroll expense and the rest of your operating expenses.

I can tell you that according to the article your “sales per square foot” seem to be at break even { {400+300}X360 days } / 1,400 Square feet = $180 per square foot. However, I would be skeptic of any numbers given by a prospective seller regarding revenue unless the seller provides me with some documentation to back it up.

My feedback regarding your valuation question: You need to get a lot more information starting with reliable revenue figures, the cost of food and the operating expenses. The business is established if so for how long? Are there taxes available? The owner might tell you that the taxes do not reflect all of the revenue, which unfortunately does happen a lot in the restaurant business, but I am sure that most of the expenses will be reflected so insist on looking at them. Once you get a clearer picture of profitability then you can make your projections of how profitable it will be under new management. This includes the money that you will have to pay for people to work for you. The fact that the business is managed by two brothers gives them a lot of flexibility if the restaurant is open 7 days. Are you going to be there 7 days in a row? These are all things to consider.

Where can i get the loan?
This would be a bit difficult since a lot of banks do not like to lend to the restaurant industry. I think that you need to talk to an actual small business lender to see what he can come up with. There is a possibility that you could get some kind of government guarantee loan {SBA} to qualify. Having at least three years of financial information will help you in the consideration. Although the industry is a big negative, I do not want to discourage you so let me list the positives going for the request.

1- you are buying an established business so financial information is available.
2- Although it seems that you don’t have management experience, at least you have eight years in the industry.
3- The amount that you need is relatively small.

This is pretty much what I have in the manner of feedback right now, I hope it helps.


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