How to Start a Nightclub
If you’re a night owl, love a good party, and are a fan of the nightclub scene, then opening a nightclub of your own might be a natural career aspiration. Starting a nightclub requires a significant upfront investment, but this business venture can be highly profitable, too. If you have a unique idea for a nightclub that could become the most popular place in town, read on to find out more about what it will take to bring your idea into reality.
Nightclub Business Overview
Nightclubs offer attendees social settings where they can enjoy food, drinks, dancing, and entertainment. Clubs often feature live entertainment by DJs and bands. Many clubs feature special guests and party hosts to help draw in attendees and create a unique experience. Clubs often adopt a certain theme reflected in their decor, food, and drinks, which contributes to the unique experience and atmosphere that they offer to patrons.
According to IBIS World, the bar and nightclub industry in the United States experienced 2.4% growth from 2015 to 2020. That growth was largely driven by an increase in per capita spending on alcohol and an overall increase in customer spending. While the growth was particularly strong from 2015 through 2019, the COVID-19 pandemic had a significant impact on the industry, and in 2020, the industry’s income is predicted to decline by 9%.
Once social distancing restrictions are lifted, IBIS World predicts that the industry’s growth will continue. Per capita, disposable income and consumer spending are predicted to continue to increase, and it’s likely that we’ll see increased bar and nightclub industry revenues as a result.
As of 2020, there were 62,931 bars and nightclubs in operation. The industry was a $28 billion market that employed 387,386 people.
Many trends are creating some changes in how nightclubs operate. Glimpse reports that nightclubs need to respond to an increased demand for healthier drinks. This trend is largely millennial-driven and has resulted in increased sales of low-alcoholic wines, low-calorie hard seltzer, and low-alcoholic beers. The move toward healthier drink options is also reflected in an increased demand for alcohol-free mixed drinks. In response to this demand, many alcohol-free bars have opened up. Many nightclub attendees are also requesting premium mixers that have no calories. Nightclubs can embrace this trend of lower-calorie drinks by training bartenders in these healthier drinks and offering kombucha and similar options.
There’s also been increased interest in locally brewed beers. With the increased craft beer consumption, microbreweries have also grown. Nightclubs can utilize this demand for local beers by buying from local microbreweries and offering beers with a true local flavor.
Like most other industries, the nightclub industry has shifted to focus more on sustainability. Besides the basic changes of using more organic ingredients and doing away with single-use plastic items, like straws, nightclubs are increasingly looking for other sustainable options. Bars can seek out vendors and equipment manufacturers who share their belief in sustainability.
Technology also plays a role in current nightclub trends. Some nightclubs and bars have begun to offer self-pour beer and alcohol vending machines. These self-serve options help eliminate some of the wait time that customers can experience when ordering from a bartender. There’s no need to get in line at the bar. The technology can be expensive to install, but it does offer benefits to high-volume establishments.
To have a successful nightclub, it’s important to do some market research and get a sense of the local competition and try to do something differently. Unique food and drink will only go so far in drawing attendees who typically go to other local clubs. Instead, think about how you can offer a truly unique experience, whether that’s by creating a unique theme or offering events that other clubs can’t compete with.
Nightclubs market to patrons ages 21 and over, though the specific target market will vary depending on the nightclub’s specialty. Some clubs will market to patrons who enjoy certain types of music, and some clubs will market to patrons of certain ages. The types of events, theme nights, and entertainment that a nightclub offers may also help to define its target market. By offering 18+ nights, nightclubs can expand their markets to a younger demographic, build customer loyalty, and convert those patrons into higher-paying customers once they’re drinking age.
Skills, experience, and education useful in running a nightclub
Starting a nightclub doesn’t require a business degree, but certain skills and experiences can help the club succeed.
Nightclub industry experience. Previous experience working in the nightclub industry will help prepare nightclub owners for the challenges and nuances of running a club. This experience can also help a club owner build valuable connections that they can rely on once they own their own club.
Knowledge of alcohol and bartending. A nightclub owner should have a working knowledge of alcohol and bartending. This knowledge is important in developing the club’s menu and in being able to identify and hire talented bartenders.
Entertainment talent knowledge. A nightclub owner will need to be able to identify entertainment talents and hire and schedule acts. Previous experience doing this will be an advantage in this industry.
Awareness of industry trends. Many trends shape the nightclub industry. A club owner who’s aware of these trends can ensure that the club evolves and stays competitive within the industry.
Customer service skills. Customer service is highly important when building a club’s reputation. A nightclub owner who has strong customer service skills and a great rapport with customers can develop customer loyalty.
Management experience. Previous experience hiring, training, and managing staff is important and will leave a club owner well-prepared for these aspects of running a nightclub.
Checklist for Starting a Nightclub
If you’re thinking about starting your own nightclub, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.
Step 1: Write a Business Plan
After coming up with the idea, the next step in starting your business should be to write a business plan. Not only will a bank 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
Step 2: Choose a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the 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.
When deciding on which business entity is best for a nightclub, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
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Step 3: Name the Business
Finding the perfect name for a business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
Step 4: Select your Location
When starting a nightclub, it can be tempting to invest in a large facility with the idea that the club will hold more people and be more successful. This plan can backfire, though, especially since people don’t want to attend a half-empty club. Instead, keep your club size manageable and only open a club that you’re confident you can fill night and night again.
Venue costs will vary depending on the nightclub’s size, location, and amenities. Rental costs for clubs in high-traffic locations will be higher, but a well-located venue can generate valuable walk-in traffic and public awareness of the business.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
A nightclub owner will need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located.
To serve alcoholic beverages, a nightclub must obtain a liquor license. Liquor license requirements and costs vary by state. According to Fundera, a liquor license can cost between $300 to $14,000, with California having the most expensive license fees.
If a nightclub serves food, it will also need to get a food service license. According to 2nd Kitchen, these licenses cost between $100 and $1,000. A club will need to adhere to county and state licensing requirements, which can vary. After applying for a license, the bar will also need to pass a health inspection.
In addition to nightclub-specific licensing, there are some general business registrations to research as well. Some of the more common ones include a business license, sales tax permit, Employer Identification Number, and Occupancy Permit, among others.
Related: Common business licenses, permits, and registrations by state
Step 6: 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 nightclub is another. In order to get a loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Plan in Place
Marketing is essential to building up initial excitement around the nightclub and drawing attendees to the club and special events. Common marketing activities include social media marketing on Facebook, Instagram, and Pinterest, online advertising, and print advertising.
Grand opening marketing efforts commonly include contests, prize giveaways, and working with local radio stations to create word-of-mouth buzz.
If you can afford it, bringing in celebrities or well-known DJs can be a great way to draw in a crowd.
Related: Low-cost ideas to market a new business
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Step 9: Get Business Insurance
There are several types of insurance to consider when starting a nightclub. A few of these include:
– General liability insurance protects the club against expenses that can occur if a customer is ever hurt while on the nightclub’s property.
– Commercial property insurance protects the business against losses if an event like a fire ever damages the club and its equipment.
– Worker’s compensation insurance covers expenses like medical bills and legal fees that a club might face if an employee is ever hurt while working.
The cost to insure a nightclub depends on many factors, so it’s best to request quotes from multiple insurance providers to get the most accurate idea of how much to budget. When comparing the quotes, look beyond just how the premiums stack up. Instead, consider the differences between plan exclusions, coverage limitations, and deductibles, too.
Step 10: Hire Employees
A nightclub will depend on multiple employees to keep it running. According to PayScale, average annual salaries for these common nightclub positions are as follows:
– Bar manager: $34,000
– Bartender: $31,000
– Club general manager: $47,000
– Kitchen manager: $33,000
– Marketing manager: $47,000
– Server: $39,000
– DJ: $24,000
– Security manager: $33,000
Employee salaries are only part of the expenses that a nightclub will need to budget for. A club may also need to pay for worker’s compensation, unemployment insurance, paid time off, and vacation time for each employee.
In addition to these employees, most clubs will hire entertainment acts, like bands and DJs, on an independent contractor basis. According to Thumbtack, DJs can cost between $750 and $1,500 per performance. Band prices vary widely, but rates usually start at $100 to $200 per musician per hour.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system is critical to the long-term success of your nightclub business.
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.
How much does it cost to start a nightclub?
The cost to start a nightclub business varies significantly depending on the club’s size, whether you’re renting or building a club, the nightclub’s location, and more. Plan to spend at least $80,000 in total startup costs for a smaller establishment run out of a rented space. Building a larger club can cost $400,000 or more.
Some of the higher-priced items include:
– Furniture and fixtures
– Renovation costs
– Dance floor construction
– Inventory and supplies
– Kitchen equipment
– Sound system/entertainment system/lighting
– Website and marketing
– Working capital to fund the first 3-6 months of rent, insurance, utilities, payroll, etc.
How much can a nightclub owner make?
While starting a nightclub requires a significant investment, it can be a lucrative business, too. NightClubBiz reports that a 3,000-square-foot nightclub could earn between $1,500 and $10,000 per night, with the average being about $5,200 per night. Trendy clubs in desirable locations like Las Vegas and Miami can bring in as much as $25,000 to $80,000 in a single night – but these clubs are far from average.
Club profits will depend on many factors, including the club’s size, its food and drink offerings and profit margins, and special events that it uses to encourage attendance. A creative specialty can help make a club highly desirable and help fill the space each night, driving up profits in turn.
Are there grants to start a nightclub?
It’s extremely rare to find a grant to start a nightclub. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a nightclub?
The NAICS code for a nightclub is 722410.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
American Nightlife Association
National Restaurant Association
Professional Adult Nightclub DJ Association