Opening and owning a bar is one of those unique life experiences; you have no idea what it will be like until you actually go for it. And while it can be enjoyable, rewarding, and, yes—even profitable, it also requires long hours and hard work. Here's what you need to know about owning a bar to prepare as well as you can:
The Pros and Cons of Owning a Bar
- Profit margins are high, especially on alcohol. Expect to make anywhere between 200% to 400% on drinks
- There are superb networking opportunities to meet people for both business and pleasure
- You're your own boss and can live and work on your terms
- High startup costs to pay for licensing, a location, and even equipment
- Running a bar is expensive and includes rent, salaries, and various unforeseen expenses
- Long working hours are common. You'll have late nights and have to work on weekends and public holidays
- The market is saturated with loads of competition. You're not only competing against many other bars but establishments offering entertainment, food, and drink.
Economics & Costs to Open and Run a Bar
Startup Costs of Opening a Bar
High startup costs are a significant hurdle of opening a bar and vary depending on several factors:
- The type of bar. Buying an existing neighborhood bar will cost less than purchasing a brewpub which requires expensive equipment
- The size. Larger bars are generally more expensive as you need more staff and equipment
- Location. Buying and renting property is more expensive in certain areas.
- Business and liquor license costs. These costs vary widely by state. The cost of a liquor license in Alabama, for example, will be anywhere from $300 to $1,000, whereas in Wyoming expect to pay $1,500 to $10,500. The average, according to ContractsCounsel, is approximately $3,000.
Below is a cost range for opening a bar depending on whether you're renting or leasing, creating a bar from scratch (buying a location and paying a mortgage), or purchasing an existing bar.
- Renting or leasing: $110,000 to $550,000
- Creating a bar from scratch: $175,000 to $850,000
- Purchasing an existing bar: $25,000
The Operating Costs of Running a Bar
Expect to pay a minimum of $20,000/month for running an average sized bar. These costs will include your monthly alcohol and food purchases (roughly $6,000/month), salaries and wages ($13,000/month), rent, and various miscellaneous expenses.
Funding bar opening costs
There are many ways to get funding for opening a bar. One way is to take out a loan from a bank or other financial institution. Another way is to raise money from investors. Finally, you could use your own personal savings to finance the startup costs of your bar.
The process of taking out a loan to open a bar may involve completing a loan application and providing financial information such as business revenue and expenses, as well as personal financial information. The bank may also require collateral, such as a lien on the property where the bar will be located.
Using investors or your own money will generally be the route to take for funding a bar, since banks may be hesitant to loan money without any business or income history to review. To raise money from investors to open a bar, you will need to create a business plan and pitch deck that outlines your concept, target market, and financial projections. We'll cover all of this later in this article.
How Much You Can Expect to Earn?
Estimates suggest the revenue of the average bar is between $25,000 to $30,000 per month. These estimates are based on certain assumptions: An average price of $8 for drinks, $6 for appetizers and $13 for mains.
Your profits will depend on how well you run your bar and manage your operating costs. However, assuming your monthly operational costs are $20,000 and your revenue between $20,000 to $30,000, you will pocket anywhere from $5,000 to $10,000 per month.
How to Open a Bar in 11 Steps
You understand the pros and cons of owning a bar, the costs involved, and what you can expect to make, but how exactly do you open a bar, and what are the steps? You focus on these 11 essential elements of opening a bar:
1. Creating a Lean Business Plan
Long, detailed business plans are usually only required if you need funding from a bank. The better approach is to create a lean plan of a few pages that will help you validate your idea and move along intelligently from the start. Include the following in your plan:
- Your unique selling proposition
- Market need: Maybe there's a neighborhood bar in your area that doesn't offer much entertainment
- How you're solving the need: You could provide live music, pool tables, and other special events
- The competition: Think about direct (other bars) and indirect (other establishments offering entertainment) competition
- Target audience: The demographics and psychographics
- Marketing strategies: Will you have an official launch?
- Your team: Who do you need to make this work?
- Equipment: What equipment will you need?
- Bar startup costs: Create a bar startup costs spreadsheet.
- Location: Will you be in the center of a city or in a remote location?
- Funding: Options include family and friends, the bank and outside investors
2. Choosing Your Concept
Your restaurant concept is the main idea or theme and includes service style, cuisine, your menu, and music. These elements need to work together to ensure your customers understand what you're about.
Perhaps you want to create a craft brewery, or maybe you'd prefer a trendy, urban winery that appeals to the yuppies? Alternatively, you could opt for a common bar type such as a neighborhood, specialty, brewpub or sports bar. Regardless, your success will ultimately depend on your execution.
Looking for some inspiration? Here are 8 cool bar concepts to ignite your creativity.
3. Selecting Your Business Structure
Do you want to be a sole proprietorship, LLC, corporation, or partnership? Starting a sole proprietorship or partnership is the easiest, but you have unlimited liability. If you want to limit your liability, opt for an LLC or corporation.
4. Sourcing the Right Equipment
Your budget, target market, and concept will dictate your equipment needs. That being said here is a list of equipment any bar typically needs:
- POS system
- Bar chairs
- Music system
- Ice bins and scoops
- Frozen drink machines
- Cocktail shakers and strainers
- Pour tops
- Speed bottles
- Glass racks
- Bottle openers
- Knives and forks
- Fridges and freezers
- Cutting boards
- Ice buckets
- Washing racks
- Wine cooler
- Keg storage
- Beer taps
- Reach-in coolers
- Dump sinks
- Soda guns
- Champagne flutes
- Glycol system (specialized refrigeration systems often using antifreeze)
5. Choosing the Perfect Location
Here are four factors to consider:
- Target market: Specific areas in a city will appeal to different types of people. A wealthy target market will likely prefer a location in a more affluent part of town
- Accessibility and parking: Ensure you're meeting any local regulations
- Zoning restrictions: Certain areas are demarcated for commercial use, while others for residential
- Rent and utility costs which will impact your operating costs
6. Hiring a Strong Team
You'll need a manager, bartenders, waiters, and security. These employees will be the first point of contact with customers so you need to ensure you have the right staff that can deliver exceptional customer service.
Find these candidates by hiring slowly: Use platforms like Poached Jobs, and AllBartenders.com and ask for referrals by reaching out to family, friends, business partners and other connections in the hospitality industry.
How to Hire Employees Using 7shifts
Hire the right candidates with easy-to-use restaurant hiring and ATS that will help you find, interview and hire the right staff for your establishment.
Step 1: Create and share the job postings
With 7shifts simple job post building, you can create job posts in just a few minutes. Use unlimited applicant screening questions to identify top candidates. Once your post is ready, you can share it directly with employees in the 7shifts app, as well as on social platforms.
Step 2: Track job candidates
With your post shared, easily organize applicants through the Applicant Tracking System (ATS). This is especially useful if you're hiring for multiple roles (and you probably are right now). The ATS helps keep candidates organized and tracking their status from applied all the way through to hired.
Step 3: Streamline your hiring
You can get new hires on the schedule ASAP with 7shifts new hiring tools. Once a candidate is marked as “hired,” their profile details are automatically filled into 7shifts to make onboarding a snap.
Here are a few bar menu design tips:
- Your food should match the concept and theme. For example, don't offer Mexican dishes if you're a Thai restaurant
- Pricing should match your target market and theme. A cocktail bar can have higher prices while a local neighborhood pub probably can't
- Keep it simple. Menu engineer, Gregg Rapp, suggests we limit the choice of dishes to 7 or fewer items per menu category
Your menu is more than just a list of food and drink. Bar menus, just like restuarnt menus, can be valuable tools to grow your revenue.
8. Sorting Out Paperwork and Licensing
Below is a breakdown of the licenses and documentation you'll need:
- Business license: The cost of registering your business will vary by state and includes a registration and filing fee. Expect to pay anywhere from $100 to $1,200
- Liquor license: The cost of a liquor license also vary by state and type of license. For example, to serve beer and cider in New York City, you'll pay $960 (plus a $100 filing fee), and a full on-premise liquor license will cost $4,352 (plus a $200 filing fee). To apply for a liquor license consult the Alcohol Beverage Control (ABC) Agency) in your state.
- Employer ID number (from the IRS)
- Zoning permit from your local zoning commission (LZC)
- Sales tax permit
- Alcohol tax permit
- Food service license
- Food handler's permit from your state health commission (HC)
- Building permit from your LZC
- Sign permit from the LZC
- Health permit
- Music licenses like an ASCAP license or BMI license
9. Planning Your Bar Design
Here are a few considerations when planning your design:
- Your design needs to capture the concept and ambiance you want to create. Bars are social, vibrant and entertaining places so consider how your design will showcase this. How much seating will you have? What furniture will you use? How will everything be laid out?
- Balance aesthetics and practicality
- Create a floor plan by either working with an architect or using free floor planning software like Floorplanner and Gliffy
10. Marketing Your Bar
You can have the best concept, but customers won't come if they don't know you exist. It's worth thinking about your bar and restaurant marketing. Market your bar in the following ways:
- Have an official launch if your budget allows where you invite family, friends, and other local businesses
- Create a loyalty program from day one
- Write press releases you can publish in your local newsletter
- Introduce happy hour promotions
- Use social media: Create a unique hashtag for special events and encourage customers to share your posts by offering perks likes discounts and free drinks. Or build out an instagram strategy.
Finally, you need systems and procedures that provide structure for employees and your operation. These will include systems and processes for:
How Do I Run a Profitable Bar?
Focusing on the previous 11 elements will undoubtedly help you run a profitable bar from the start. However here are 7 tips to ensure your remain profitable.
1. Maintain a Firm Handle on Your Finances
You need to track financials to assess your financial health and make better business decisions. Important financial reports include:
- Food and beverage sales report: You should generate this report daily, weekly and monthly
- Prime cost report: Prime costs are the total cost of goods sold (food and liquor) plus labor costs
- Inventory reports: Run these reports weekly to keep track of your inventory (alcohol is an exception—run reports daily)
- Cash flow statement: This report identifies cash inflows and outflows for a certain period.
- Profit and loss statement: Profit (or loss) is calculated by subtracting expenses from revenue
Recommended Download: Free Restaurant Profit and Loss Statement Template
2. Keep Your Bar Stocked
Ensure your bar is stocked so you can move sufficient volumes. What you stock will depend mainly on your target market and sales volumes. For example, if a particular beer is popular make sure you have enough of that item to meet the demand.
3. Measure Pouring
Overpouring means you're throwing money down the drain which impacts your revenue and profits. Use measured pourers for accurate pours and train bartenders to use jiggers for a consistent cocktail each time.
Update and optimize your menu over time. For example, track the sales of menu items to see which dishes are the most profitable and place these items in the Golden Triangle.
The Golden Triangle is the center block of any three column menu. This high-rent area is where customers' eyes naturally gravitate to first.
Consider introducing happy hour where you offer drinks and meals for discounted prices. The idea is simple: Lure customers into your bar with specials, and they'll likely purchase something else when they're there.
You can also host events like bingo or have a quiz night. These events usually run over a long period, so customers invariably buy more drinks and food during this time.
6. Train Staff to Deliver Exceptional Customer Service
Train staff, so they feel empowered to do their jobs properly and treat them well, so they want to stay. This treatment goes beyond the paycheck. Stand up for them when customers are rude and show them empathy and respect.
Training and treating your staff well will ensure they deliver stellar customer service. Your customers, in turn, will be more inclined to return and recommend you to others.
Pro Tip: Train staff to upsell using suggestive selling. Frame the upsell as a suggestion, so customers don't feel like they're being sold too. Bartenders, for example, can let customers know about any new drinks. Waiters, in turn, can make recommendations on drinks that pair well with certain foods.
Earlier, we mentioned the importance of investing in the right tools and systems for a smooth operation. Woodwork Restaurant learned the importance of these systems the hard way. In the early days:
- The owner, Ryder, used Excel to create schedules before transferring the information over to Google Calendar
- All employee requests and shift trades were handled on the fly, which meant that Ryder was always heavily involved
- Ryder would have to go in and check availability in spreadsheets to determine if he could give an employee the day off. The whole process was time-consuming and labor intensive.
Ryder knew things had to change and after testing 6 different software products, he eventually chose 7shifts bar employee scheduling software. With 7shifts, Ryder was able to improve processes, while saving time and money. He was able to:
1. Better manage staff requests for time off.
2. Improve employee retention by leaving all service staff on the schedule despite individuals' schedules being complicated and dynamic. The results? The staff could pick up a shift here and there, and Woodwork only had to hire 1 to 2 extra service staff a year.
“All I needed to do was move a shift here, move a shift there. It's completely pain-free. So easy." -Ryder Prat, General Manager, Woodwork
Recommended Reading: 9 Steps On How to Schedule Employees Effectively
Here's the Bottom Line
Opening, operating and qwning a bar can be exciting. You can be your own boss, network with others, and make a pretty penny. However, bar ownership is not for everyone—the long work hours, high startup costs and already saturated market mean opening and running a bar can be a considerable challenge.
The good news? If you decide to become a bar owner, you now know how to get started and run a profitable business. You have an “opening a bar” checklist with 11 critical elements of opening a bar and understand what's needed to run a profitable bar, thanks to the 7 elements shared here.
The only remaining question is: Are you ready to become an owner?
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Nick Darlington (www.nickdarlington.com) is a B2B writer who conceives, writes and produces engaging website copy, blog posts and lead magnets for technology companies.