How to Start a Bar

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Quick Reference

Maybe you’ve worked as a bartender and are dreaming of having a bar of your own. Or maybe you know your town would really benefit from a new bar with a certain specialty. Whatever the reason, if you’re thinking of starting a bar, you may be looking at an exciting and profitable venture. But before you jump into this potential new business, take a few minutes to make sure that you fully understand everything that comes with starting a bar business of your own.

Business Overview

Bars specialize in serving alcoholic beverages and providing entertainment, whether that’s in the form of a spot to gather and watch sports on TV or to see live music and other acts. Every bar develops some sort of a specialty that allows them to focus on a certain target market. Some bars create affluent, upscale atmospheres with top-shelf liquors, while others might focus on becoming a sports junkie haven and others as a low-key neighborhood bar.

At its most basic, a bar is just that – a bar. Bartenders serve alcohol and mixed drinks, and the business serves as a socialization opportunity for customers. Some types of bars incorporate a small kitchen, too, offering a more basic menu than you’d find at a restaurant. Selling food can be an advantage since it can encourage customers to stay longer – and spend more on higher profit beverages.

Related Industries

Bowling Alley
Brewery
Nightclub

Industry Summary

According to IBIS World, the bar and nightclub industry experienced a 2.9 percent annual growth from 2013 to 2018. During that time, the number of businesses grew to 70,382, and industry employment also increased to 422,875. In 2018, the industry brought in $28 million in revenue.

Much of that growth took place during the second half of that five-year period, driven by an improved economy. An increase in per capita disposable income has allowed consumers to spend more freely in terms of attending bars and nightclubs. As bars have identified and adapted to changing consumer preferences, more consumers have chosen to go out to bars.

Industry Trends

Many trends shape the bar industry, and according to Pour My Beer, hosting events can help bars to strategically position their brands while increasing their local audience exposure. Bars can partner with music festivals or marathons, and some opt to bring celebrities in for special events to help draw consumers.

Bars also need to accommodate the increasing health-conscious awareness that consumers are embracing. Offering gluten-free, vegetarian, and vegan menu items can help all consumers to feel welcome at a bar. People are also replacing large, unhealthy meals with smaller, healthier portions, so offering these smaller plates can work to a bar’s advantage.

The interest in specialty bars where there is a focus around certain themes such as cigar bars or offering certain types of drinks like wine or martinis is increasing as well. These different types of bars tend to do better in heavily populated and trendy locations.

There’s also an opportunity for bars to adopt the sustainability focus. Most bars can easily institute policies of eliminating plastic straw use, increasing their use of reusable silverware and utensils, and implementing other eco-friendly changes.

Target Market

Generally speaking, bars will market to adults ages 21 and up who enjoy drinking alcoholic beverages and who may want to enjoy a meal along with their drinks. Bars may focus on the locals living in a particular neighborhood or develop specialties that alter their target market. For instance, a sports bar will market to sports fans, while a bar that has a heavy focus on entertainment may market more toward music lovers. Some bars may stock premium and specialty alcohols, and their audience will be affluent alcohol connoisseurs.

Skills, experience, and education useful in running a bar

There’s no need for a business degree to start a bar, but certain skills and experiences can make the process of starting up this business smoother.

Bartending experience. Previous bartending experience will give a bar owner insight to what makes a good bar, good service, and good drinks, and what can make all of those elements bad. If a bar owner has worked in a bar before, he or she will also understand some of the obstacles that bartenders face, and he or she will be able to plan out of the business to avoid or minimize some of those challenges.

Foodservice experience. In a similar vein, a bar owner who has worked in the foodservice industry will better understand the challenges that servers face and may have some insight into ways to ensure that food service goes smoothly.

Customer service skills. Great customer service skills are a must in this industry. A bar owner with an engaging personality and the ability to make people feel understood and valued can greatly contribute to a bar’s success.

Problem-solving skills. Things can get heated in a bar environment, and a bar owner who can quickly yet calmly think on their feet will be an asset to the business.

Management experience. Any bar will require multiple employees, and an owner will need to know how to hire, train, and supervise those employees.

Marketing skills. A bar owner who can handle some of the business’ marketing can save money over the cost of hiring a professional marketer. At the minimum, a bar owner will need to understand some of the basics of promotions to effectively get people in the bar.

Educational Resources

Amazon has several books that go into detail on starting and running a Bar:

Straight Up: Real World Secrets to Running a Killer Bar (Free on Amazon Kindle Unlimited)
The Bar Shift: 41 Short Management Lessons You Don’t Have to Learn the Hard Way! (Free on Amazon Kindle Unlimited)
Restaurant & Bar Marketing: The no bulls#it guide to improving guest counts (Free on Amazon Kindle Unlimited)

Costs to Start a Bar

Startup costs in the bar industry are high. Plan to spend a minimum of $100,000 and as much as $200,000 to start a bar. Many factors will affect the expenses, including the size of the bar, whether the property is rented or leased, any renovations that need to be made, and the bar’s location.

Common startup costs include:

  • Inventory
  • Equipment such as bartending supplies, kitchen equipment, coolers, keg storage, beer taps, registers, POS systems (Point of Sale system)
  • Supplies, like glasses and utensils
  • Furniture and TVs
  • Signage
  • First few months of rent and utilities

Steps to Starting a Bar

Step 1: Write the Business Plan

After coming up with the idea, the next step in starting your business should be to write a business plan. In addition to obtaining funding, your bar’s business plan will help guide you through major decisions and help lay the groundwork and minimize costly mistakes. Most business plans will include sections like what makes your bar different, who your ideal clientele is, why your management team will successfully run the business, market analysis, marketing plan, sales projections, operating costs, profit margins, and more.

Not only will a bank or investors require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related:
How to write a business plan
Free sample business plans

Step 2: Name the Business

Finding the perfect name for a bar business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Related: Tips for naming a bar

Step 3: Form a Business Entity

A business entity also referred to as a business structure or legal entity, refers to how a business is legally organized to operate. There are four primary business entities to choose from: sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

Related: Comparison of Business Entities

Step 4: Select your Location

Location is crucial when starting a bar, but properties in premium locations will also bring higher rent rates. Other factors will also affect rent, like the size of the property, the amount of parking available, and any renovations that may be necessary. Having a high-traffic location is generally better than one that doesn’t, but the price of rent has to be considered.

Related: Choosing a business location

Step 5: Find Suppliers

Research potential suppliers in your area. Getting a good relationship with a supplier can be valuable as they can give you local tips to success, help figure out the potential volume and which brands are trending.

Step 6: Obtain an EIN

The EIN or Employer Identification Number (also called a Federal Employer Identification Number, FEIN, or Federal Tax Identification Number) is a unique 9-digit tax identification number assigned to a business by the Internal Revenue Service (IRS). Similar to a social security number for an individual, the EIN identifies business entities for tax purposes. The EIN will be needed to hire employees, open a bank account, register for business licenses and permits, file federal and state taxes, and more.

There is no cost for the EIN when registering through the IRS. The number is available immediately when applying through the IRS website; however, you can also register by phone, fax, or mailing IRS Form SS-4.

Related: How to Apply for an EIN

Step 7: Apply for Business Licenses and Permits

A bar will need to obtain a local liquor license and federal license with the Alcohol and Tobacco Tax and Trade Bureau to sell alcohol. Many areas limit the number of liquor licenses, so be sure to investigate whether a license is available before spending a lot of time on starting your business. This can be a significant cost; Upserve states that full liquor licenses can cost anywhere from $12,000 to as much as $400,000, while a license for wine and beer alone starts at around $3,000.

Also, be aware of regulations on alcohol sales in your area, such as pricing, hours of operation, etc. If you plan to sell food, a food handling permit and food service license will likely be needed.

Businesses selling food and/or beverages will also need licensing and be subjected to regular inspections from the local health department will be needed. These inspections ensure the establishment complies with local health laws, typically related to food contamination prevention.

Besides bar-specific licenses, some general business licensing and registrations will vary depending on where the business is located, such as a sales tax permitEmployer Identification Number, and Occupancy Permit.

Related: Common business licenses, permits, and registrations by state

Step 8: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a bar is another. Funding to start a bar is very difficult as a lot of money will be used for building renovations and inventory. In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.

Related: Finding the money to start a business

Step 9: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the business’s income and expenses.

Step 10: Get your Marketing Plan in Place

Marketing is important in both starting and maintaining a profitable bar. Common marketing activities include maintaining an active social media presence on platforms like Facebook, Twitter, and Instagram. Social media can be highly effective as customers are typically more than willing to share your bar’s information when offered perks like free drinks and discounts, which will, in turn, provide word of mouth marketing.

There is also online advertising, profiles on review sites like Yelp, Facebook, or Google, print advertising, and even radio advertising. Marketing costs will vary depending on the type of activity.

Having special events like bands or tastings help to get people to your establishment.

Related: Low-cost ideas to market a new business

Step 11: Get Insurance

Bars need several types of insurance to be fully covered:

  • Dram shop insurance, also known as liquor liability insurance, is a type of liability insurance for businesses that serve, sell, or manufacture alcoholic beverages.
  • General liability insurance protects the bar if customers are injured while on the business’ property. This insurance can cover costs like legal fees and other expenses.
  • Commercial property insurance protects the bar against the financial loss of inventory and property after an event, like a fire.
  • Workman’s comp insurance helps to cover expenses like medical bills or lost wages if an employee is ever hurt while on the job.

The cost of these policies will vary depending on factors like the bar’s location, the value of the building and its equipment, and the number of employees on staff. To get an accurate idea of what insurance will cost, request quotes from multiple providers. Compare the quotes, and be sure to pay attention to variables like coverage limits and exclusions, premiums, and deductibles.

Step 12: Hire Employees

Even the smallest bar will need multiple staff. According to Payscale, bar attendants earn an average of $9.80 per hour. Payscale also reports that bar managers earn an average of $13.11 per hour. ZipRecruiter reports that bar cooks earn an average of $14 per hour.

In addition to budgeting for employee salaries, hiring employees requires additional budget items. A bar will need to be able to afford expenses like workman’s comp insurance, paid time off, and health insurance contributions for its employees.

In addition to budgeting for salary expenses, the payroll budget also needs to include workers compensation insurance, paid time off, and health insurance contributions for employees.

Related: Hiring your first employee

Step 13: Set up an Accounting System

Setting up an accounting system for your bar is critical to the long-term success of your business.

To make your accounting more useful, look into industry-specific Point of Sale systems (POS). They can help track waste, which products sell better, the effects of promotions, and much more.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

How much can you potentially make owning a bar?

A bar’s income depends on many factors, including its location, the amount of time it’s been in business, and how well it’s managed. Investopedia estimates that, on average, a bar with monthly revenues of $25,000 will have about $20,000 of expenses, leaving a profit of $5,000 per month. Holding special events, maximizing the effectiveness of marketing, and finding other ways to draw customers into the bar can help increase profits.

Things to consider before starting a bar

When starting a bar, it’s so important to focus on a target audience. One single bar trying to appeal to everyone will miss its mark and fail. Instead, focus on a niche that is currently unmet in the community. Maybe the town could use a great sports bar, or maybe the music scene would appreciate a bar with a heavy focus on a certain type of music entertainment. Once that concept is established, everything in the bar should support that concept, from the decor to the names of cocktails to the entertainment and events hosted.

It’s a common misconception that running a bar is a job that’s full of fun, nightlife, and glamour. In truth, effectively running a bar is full of hard work. With dedication and focus, though, you can create a promising and profitable business that doesn’t just support you but also supports multiple employees.

 

Resources:
American Nightlife Association
International Association of Professional Bar Owners
National Restaurant Association