Owning a Bar: Everything You Need to Know

Owning a Bar: Everything You Need to Know
Nick Darlington

By Nick Darlington

If you’ve ever wondered what bar ownership entails, wonder no more...

Fun. Vibrant. Entertaining. Social. These are words that likely come to mind when thinking of your local bar. But, as fond as you may be of your local pub, you shouldn’t confuse these feelings with the passion and dedication required to run one.

Sure, owning a bar can be enjoyable, rewarding and, yes—even profitable, but it also requires long hours and hard work. In this post, we explore everything you need to know about owning a bar so you can pursue bar ownership with your eyes wide open. You’ll walk away knowing:

  • The pros and cons of owning a bar
  • How much it costs to open and run a bar
  • How much money you can expect to make
  • How to become an owner thanks to an “opening a bar” checklist
  • The 7 crucial elements of running a profitable bar

The Pros and Cons of Owning a Bar

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Pros:

  • 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

Cons:

  • 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.

How Much It Costs to Open and Run a Bar

Startup Costs of Opening a Bar

High startup costs are a significant hurdle of owning 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 $1,5000 to $10,500

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.

How Much You Can Expect to Earn

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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

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 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
  • TVs
  • Music system
  • Ice bins and scoops
  • Blenders
  • Frozen drink machines
  • Pourers
  • Cocktail shakers and strainers
  • Pour tops
  • Speed bottles
  • Glass racks
  • Glasses
  • Corkscrews
  • Bottle openers
  • Knives and forks
  • Plates
  • Ovens
  • 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

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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
  • 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 Harri, Poached Jobs, and AllBartenders.com and ask for referrals by reaching out to family, friends, business partners and other connections in the hospitality industry.

7. Planning Your menu

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

For more best practices and resources on how to tackle your bar's floorplan layout, our comprehensive guide for restaurant owners is a great start.

10. Marketing Your Bar

You can have the best concept, but customers won't come if they don’t know you exist. 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

11. Investing in The Right Tools for a Smooth Operation

Finally, you need systems and procedures that provide structure for employees and your operation. These will include systems and processes for:

  • Opening and closing
  • Internal communication
  • Employee scheduling
  • Order processing
  • Inventory management

How do I Run a Profitable Bar?

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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

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.

4. Optimize Your Menu for Profits

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.

5. Run Promotions: Happy Hour and Special Events

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. 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.

7. Invest in the Right Employee Scheduling Tool

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:

Better manage staff requests for time off.
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

Here's the bottom line

Owning 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
Nick Darlington

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.