Pizza Cafe and Arcade | Would I Buy this Business?

In this series, CapForge’s owner and founder gives us a little behind-the-scenes on what a good or bad business would be. CapForge helps tons of clients either buy or sell business and Matt was a business broker before starting CapForge. Let’s look at some of these businesses up for sale and see if Matt would be interested in buying them.

Video Transcript: 

All right, so in this short series, I’m taking a look at businesses for sale. We help tons of our clients either buy businesses or sell their businesses, and for years I was a business broker. So I always look at these as whether or not it’s something I would buy, would I be interested in it, would I have concerns about it, or would I think this was a pretty good deal. So this is a staff-managed indoor playground, pizza, cafe, and arcade. So kind of a combination of maybe like a Dave and Busters where they’ve got the arcade aspect and some food or a Chuck E. Cheese. And then also the playground aspect for, I guess, the younger kids. Or like when my son was young, we went to a bounce house place as an indoor basically like a warehouse where they’d set up a ton of bounce houses and we had his birthday party there. I mean the kids had fun. That was a pretty good birthday for him. But I think you age out of that pretty quickly. 

So one of the challenges here, if you’re set up for the playground aspect of it and just looking at the picture, it looks like the playground piece is a big part of the floor space. You’ve got a pretty narrow demographic of kids that are going to be able to be customers, right, or the parents of the kids. So maybe from three years old to maybe nine or ten. And then at that point the kids are too old. So then for the playground, so then you’re down to the arcade and the food, and then you’re just competing with like a Dave and Busters or Chuck E. Cheese, which I guess you’re competing with those guys regardless. But the playground piece is for the younger kids. So that’s one downside is you got to make sure you’ve got this business in a place where there’s enough kids and enough kids continually coming into the community to not run out of customers because otherwise, you’ve got all this floor space dedicated to stuff that the kids aren’t going to use. 

So now looking at the metrics here says gross revenue 1.155 million. So about $100,000 a month they’re pulling in. If it’s year-round, there might be some seasonality to it. And then the big red flag for me immediately is they’re showing cash flow as N/A. So they’re not willing to make a claim as to how much money this thing is making. So let’s scroll down and scan through the rest of the information, see if they put it in here. Oh, well, here’s red flag number two. It says the seller will take minimum 220K down payment and buyer will take over the existing EIDL loan payments. So the reason for selling says, “I moved out of state and no longer have the time to focus on optimizing and growing.” My take on this is this business isn’t making any money. They may or may not have also moved out of state, and they’re really hoping that somebody comes along and bails them out of their money pit. That’s what I read that as. I could be off base a little bit, but I’d be super surprised. They owe at least 220k. So that’s what the down payment is, to get rid of those immediate loans. And then they want somebody to assume the rest of their payments because they’re not going to be able to make them from the cash flow of this business. 

So my take on that is it’s an interesting business. Possibly, if you’ve got enough customers to come in and spend that money. But the fact that they’re willing to sell under those terms makes me suspicious. Even that revenue number is right. And whatever they’re selling in terms of time for play and food, I would very likely think that they are not covering their costs to run the business, and that’s why they’re Looking to get out. Anytime you see a listing for business for sale and there’s no stated cash flow number, not that it even is right a lot of the times, but the fact that they’re not even willing to tell you what it is – is a huge red flag. So in this case, I would not be interested in this business. Certainly not at that price, and very likely not at any price. Unfortunately.

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