Owning a bar continues to be a profitable venture across the U.S, with the bar and nightclub industry raking in $28 billion in revenues in 2018 alone. Yet while financial rewards are there to be realized, the path to profitability is one littered with challenges, both financial and personal.
Before taking the leap, try answering a few questions about yourself. Am I comfortable working long days, including weekends and public holidays? Do I have good customer service skills? Am I able to handle drunken, rowdy customers? Do I have the requisite management experience? Do I have the discipline and diligence to deal with paperwork and administration?
From branding and conception to health and safety inspections, this article presents ten critical steps every aspiring bar owner will need to read before making the leap.
How to Open a Bar
1. Decide what type of bar you would like to open.
The type of bar you choose informs everything about your bar, including its design, location, dimensions, choice of alcohol and food, and its personality.
There are four distinct categories of bars:
Sports bars cater to a very specific clientele, often with very specific needs. People come to sports bars to watch sports and drink beer, in that order. Creating an optimal viewing experience is your primary goal. Invest in television screens of varying sizes, audio, and lighting equipment, and make certain that each seat has a good view of a television before you think about alcohol.
Beyond the technological requirements, sports bars are also expected to serve a variety of foods and snacks. Sports bar menus typically include burgers, pizza, barbecue wings, and nachos, etc.
Neighborhood bars are ubiquitous across America, but their revenues vary and are dependent on location and market. One constant with neighborhood bars is a loyal consumer base. These bars don't demand much in terms of style and variety. What they need to do is create a space that a community of people can share and call a "home away from home."
Expect to invest in things that foster a sense of comfort, be they pool tables, music machines, video games, or dartboards.
Beer Bar or Tap House:
Beer remains the undisputed popular choice of beverage among men and young adults, so there is plenty to be gained by focusing exclusively on beer.
Beer bars are much cheaper to set up than other bars, since a beer-only alcohol license typically costs far less and you will only be offering an assortment of beers (and possibly food) on your menu. Although location and market will influence your costs, less startup capital is required to set up a beer bar, with costs estimated at $20,000 to $100,000.
Brewpub or Brewery:
Brewpubs are more expensive to set up. Because you are manufacturing your own beer, invest in your own brewing equipment and expertise, which will rocket your startup costs to an estimated $100,000 to $1 million. The upside of starting a brewpub is that you will own your very own, unique product that no other bar sells. Beyond quality, you also get to control the quantity of your product, giving you greater logistical power in your business operations.
Specialty bars focus on one particular drink or theme, be they a wine-only bar or something more extravagant, like a cigar bar. Specialty bars are generally small, will have more personality than a regular bar and will be located in upmarket neighborhoods. Location and type of alcohol sold will influence the startup costs of these establishments.
One of the benefits of specialty bars is that they are very popular for parties, meetings and corporate events. The last few years have seen a trend in the hiring of specialty bars to host such occasions.
Once you've decided on your bar type, pick a name. Don't underestimate the value of a good name. Your bar name should be consistent with your bar type and brand. The name should resonate with your target audience. Remember that your bar name will be at the vanguard of your marketing efforts, so choose well. Read more on how to name your business.
2. Create a business plan.
Your business plan will serve as your founding document and reference point for managing your future operations. It also presents the case for your business' success as an investment and will determine how much funding you receive.
Essentials for a Bar Business Plan:
An effective business plan will achieve seven things.
- Summarize your business proposition.
- Define your company structure.
- Offer an extensive market analysis.
- Detail your business offerings.
- Describe your management plan and ownership structure.
- Explain your marketing and advertising strategy.
- Outline your financial projections.
Know who your customers are.
As a prospective bar owner, you are presented with a choice: find a location and adapt to the local market, or find a market that your bar concept is suited to and establish your presence there.
If you choose to find a location and adapt, you will need to gather market information about the area you are opening in before you decide on a bar concept. Data on demographics such as age, gender and income levels will paint a picture of the type of customers you are likely to find.
If you choose to find the right market for your concept, you will need to obtain statewide demographic data that would determine where your ideal area would be. In both cases, we recommend hiring a specialized marketing firm to research the local market, make sense of the data for you and advise you on the proper course of action.
Study your competitors.
This stage comes in two parts: understanding your competitors and using the knowledge you've gained to best them.
Understanding your competitors involves gathering data on local bars for analysis. Again, we recommend hiring a marketing firm to accomplish this, but you could also carry out your own investigation. Try visiting bars in the area and speaking to people. How busy are the bars? Are they as busy on weeknights as they are weekdays? What do they charge? How is their food? What kind of customers frequent the place? What do they think of the bar? Combine your quantitative and qualitative data to paint a detailed profile of your competition.
3. Form your bar company.
For a bar, you'll want to form a Limited Liability Company (LLC). LLC taxes are reasonable and they protect personal assets in the event that you default on a loan or are sued. Hire a lawyer or business consultant to help with the process.
There are two types of liability insurance every bar owner should get. Premise liability protects the business should someone get injured on your premises. Dram shop liability protects you in the event that you over-serve alcohol to a customer and a third party is involved in a road accident.
Know all the licenses and permits that you need.
Find out more about obtaining a business license on the SBA's website.
Liquor license rules differ from state to state. This handy guide gives you more information on each state's liquor license rules. Liquor license application forms can be obtained at your local Alcoholic Beverage Control. The investigation process will typically take 45 to 60 days, with successful applicants waiting a further 30 days for issuing.
Registering with the IRS is critically important to avoid tax penalties. Be sure to apply for an EIN.
A license for serving food will be required, ensuring that your bar adheres to safety and sanitation standards. Food licenses differ from state to state. The license typically starts at $50.00
It's very important that you both protect your intellectual property and not infringe upon others. We recommend consulting with a trademark attorney to oversee the process.
Before you undertake construction, you need to submit your intentions to the local government.
Maintain a record book. You need to keep track of the name of your supplier, the quantity of alcohol you purchase and their dates, and note them in a record book. Failure to present one upon inspection could result in a fine of up to $10,000. In some cases, penalties could include imprisonment. Refer to this guide for further information.
4. Invest in the right technology.
From processing customer payments to managing your inventory, technology can help your bar run more efficiently.
Bar Owner's Tech Toolbox:
Point of Sale System: POS systems process orders and sales. POS systems should have menu items and prices programmed into them to facilitate speedy transactions. We recommend TouchBistro and Shop Keep for restaurants or bars, but search through our comprehensive list to find one best suited to your needs. The average price for a restaurant POS system is $50.00 to $80.00 per month, while there are plenty of free options too.
Mobile Credit Card Reader: Mobile credit card readers facilitate debit or credit card payment through smartphones or tablets. We recommend QuickBooks GoPayment and Square, but check out the full list of applications for something more suitable, or cheaper.
Inventory Management Software: Inventory management software aids in the management and tracking of materials, orders and deliveries for your bar. If you want to avoid overstocking or under-stocking your liquor, investing in an inventory management tool is essential. We recommend Backstore and EZOfficeInventory, but check out our full list of products too, including free options.
Accounting Software: Accounting software simplifies invoicing, bill payment, expense reports, financial reports, POS syncing and more for bar owners. We recommend Botkeeper and FreshBooks, but check out our full list of options for something best suited to your needs, including free options.
Payroll Software: Payroll software simplifies the employee payment process. We recommend Gusto and AccountEdge Pro as good options, but search through our comprehensive list and check out free options too.
Email Marketing Software: Email marketing tools help bar owners stay on top of one of their primary customer communication channels. They assist in creating professional-quality emails, delivering them to a large audience, and staying out of the spam folder. Email is one of the most effective marketing channels and tends to see a high return on investment. We recommend SendinBlue and MailChimp, but our full list of options might have something more suitable. Explore our free options too.
5. Source your funding.
Before your bar starts turning a profit, there are two types of funding you will need: startup capital and operational capital to support the business in its early stages.
There are plenty of funding options available for aspiring bar owners. Check out our comprehensive list of funding sources aimed exclusively at restaurants or bars, including maximum loan amounts and interest rates.
Alternatively, read our article on How To Get a Small Business Loan for an effective guide to secure startup capital.
The table below lists a host of specialized funding options for your bar.
Invoice Financing is a process whereby unpaid invoices can be leveraged to secure business credit. Instead of waiting for the invoices to be paid, businesses can use their unpaid invoices to obtain funding.
Working Capital Loans are cash injections designed to help businesses experiencing short-term cash flow problems. These type of loans support a business' operational expenses during difficult periods.
Our article Short Term Business Loans provides more information on short-term funding.
Typical Startup Costs for a Bar:
Security deposit, equipment and preparations
Liquor license and other permits
Total initial startup investment
Typical Ongoing Expenses for a Bar:
Rent and utilities
Total monthly expenses
6. Choose the right location.
Seven factors will influence the location of your bar:
Ultimately, your budget will have the most say over the location of your bar. Determine how much you are able to spend on monthly rent and choose a location that offers potential.
Once you know your brand and the type of customer you are selling to, it follows that you would choose a location frequented by your target market.
Find out how many bars operate in your area. Too much competition can benefit the customer with competitive pricing, but competition can also be a good thing. A neighborhood with a strong service economy or presence of bars creates a pedestrian culture. You also take advantage of your competitors to bring customers into the neighborhood.
Some bars struggle with inactivity because their bar is not ideally located, while others prosper in the most unwelcoming areas because they offer a great experience. While your location and level of service can greatly impact your bar, the general rule is to offer both. Bear in mind that visibility is positively correlated with rent, so areas that are easily accessible with a steady flow of pedestrians are likely to cost more.
5. Foot traffic.
Opening up in an area with a strong pedestrian culture can do wonders for your bar. An area frequented by people on foot will make a chance visit to your bar more likely.
6. Parking availability.
Uber might have made getting around an easier task, but for patrons who prefer their own transport, parking is essential. If they have to walk far from a parking spot to your bar, they might just consider someplace else.
7. Crime statistics.
If your neighborhood has a reputation for criminal activity, it may deter customers from coming to your bar. Check local crime statistics before setting up shop.
7. Set up your bar.
You will need to create a list of all the essential equipment needed to operate a bar. The aim here is to find the right balance of quality and affordability.
When purchasing these items, keep in mind that some of them will take up plenty of space, come with maintenance costs and safety risks, require cleaning and repairs and will need to remain consistent with your design aesthetic. It is important that you plan and budget well for them.
8. Hire the right staff.
Finding the right staff is more than filling a skills gap. You need to ensure that all employees present themselves well and are in keeping with the image and atmosphere your bar wants to project.
Additionally, check out our list of job descriptions for the various positions you might need to fill at your bar. They include the key attributes to look out for in each position and a list of crucial questions you should ask.
Bar Staff Key Attributes and Interview Questions:
9. Promote your bar.
Bars typically engage in a broad range of promotional offers as a means of garnering attention, boosting sales or getting rid of old stock, with varying degrees of success. The following offers suggestions on the most common types of promotions.
Host an opening night:
Your opening night should accomplish two things. It should run seamlessly, and it should make an impression on its attendees.
You could choose to have a grand opening night, invite the top social media influencers and throw a major party, or you could choose to have a soft opening, where only a select few people get to attend. The latter can serve as a test run for your bar, and an opportunity to iron out any flaws in your operations and get some feedback before you officially open up your doors. Many bars host both a soft and grand opening.
Some tips for a soft opening include having a 'demo menu' with limited eating options to ease the stress on your staff, opening for a short time only during the day, inviting only neighboring homes and businesses to get to know your local area and competition, or hosting a 'friends and family' evening where you're with people you feel comfortable with to get honest feedback.
Hold daily specials:
When you've been open for a while, you'll have a better understanding of which nights are your popular nights and which nights are in need of a boost. Target these low turnout periods with promotions and discounts to draw in more people.
Get creative with your promotions. Make every day of the week a themed drink special. Mondays could be 15% off all wines, for example. This gives your customers a reason to buy a particular drink at any given night. Additionally, have drink and food combination specials, where you pair a drink with a suitable eating option.
Set half-price specials with a time limit to draw in crowds at times of the day with a low customer turnout, or start a happy hour.
When running these events, be sure to plan well for them. A good goal to aim for is a profit that's at least three times what the promotion costs you. Schedule your promotion a few weeks in advance, and don't set an end date to them in the event that you start losing money or want to keep it running longer.
Use social media:
Social media marketing demands a level of creativity and research on the part of the marketer in order to achieve results. No one platform or strategy will guarantee success, as you will need to know more about who your audience is online and how they use social media. The following are some helpful tips on where you could start.
Create Facebook, Instagram and Twitter pages. Make the design aesthetic match that of your bar. Be sure to include high-quality pictures on your page. Use these platforms to advertise specials, run promotions, and get customer reviews and feedback for your bar.
Invite social media influencers to your bar to build a buzz online, and offer them free drinks. Additionally, run a social media promotion by asking people to follow your account and tag your bar when they take a picture and offer them a special discount on any drink as an incentive.
Create your very own hashtag and encourage customers to use the hashtag when posting. This is a great way for potential customers to find out what your bar is about and the type of people who go there.
One way of better managing your marketing efforts is to invest in a marketing tool for your bar. We recommend SendinBlue and Buffer as the best software, but check out our full list to make a more suited choice. Use these apps to create campaigns, gather customer information, and manage all your communication channels.
Search Engine Marketing:
When customers in your area search Google for a sports bar, they are likely to use search terms such as "Sports bar near me." You'll want your sports bar to be at or near the top of the search results, making yourself attractive to potential customers. Search Engine Marketing (SEM) helps you rank in Google search results, making you visible to more potential customers. SEM is a highly technical field, so you'll want to partner with a marketing agency if you're short on the skill set.
10. Find the right supplier.
When looking for the right supplier, there are some important questions you need to ask. You need to know what brands they sell, whether they have specials or discounts, a minimum or maximum purchasing threshold, how often they make deliveries, and how much notice they need.
Get a supplier who can give you extra insights into the market, like which brands are trending right now. Check out the Beverage Trade Network for information on where to find suppliers in your area.
The type of bar you plan to open will influence the kind of supplier you need. If you're a specialty bar, you'll want to decide which brands of that particular alcohol you want to stock. If you serve a variety of drinks, you'll have to pair up with a supplier with a wide selection of choices.
Each type of alcohol typically comes in five categories of quality: Well, Call, Premium, Super Premium and Top Shelf, each with corresponding price categories. While it is not necessary to have all five categories, you should offer a broad range of choices. This gives customers different pricing options. The same goes for vodka and other drinks.
You will need to manage your own inventory to determine what you need from your supplier. Managing your inventory involves using your existing sales data to determine how much alcohol you sell per night, then forecasting what you would need to order in the coming days or weeks. Your first week without any sales data will serve as an experimental stage. It might be that you over or under stock during this week, but that should provide you with the necessary data to make more accurate forecasting, so don't fret.
Inventory management software is your ally in your forecasting and analytics efforts. We recommend using Backstore or EZOfficeInventory. If you prefer not to use inventory management software, read this guide on how to do inventory.
Real-World Tips, Tricks, and Strategies from Successful Bar Owners:
"One of the keys involved in having a successful bar is being organized. You're not really going to be participating in the fun that guests are having so much as facilitating the fun."
"There is so much that constantly needs to be done to present a pretty face to the public. I don’t begrudge these necessary things because I get to work in a great business, but if we’re being honest no one likes paying bills or waking up to find their beer cooler broken."
"No matter what job we do, front of house or back of house or sales, we will at some point come into contact with our customers and it has to be a great interaction for them each and every time."
Is it profitable to own a bar?
The average initial cost for starting a bar is $121,000.00 and the industry average for profit margins is 80%. Earnings also depend on other factors, such as the size and location of the bar.
How much does it cost to open a bar?
The average initial cost for starting a bar is $121,000.00 and the average monthly expenses needed to run a bar is $26,000.00. The size of the bar and its location will greatly determine your costs.
What licenses do you need to open a bar?
To open a bar you will need a business, liquor, and food service licenses.
How do you become a bar owner?
You can become a bar owner without any educational certification. However, is it is helpful to have entry-level experience in food and beverage service, as well as some experience in a management position. A bar owner requires leadership, organizational, and problem-solving skills to manage the daily affairs of a bar.
How much do bar owners make a year?
The average annual salary for bar owners in the U.S. is $71,550.00. Of course, your profitability will largely depend on how popular you are as a bar. The location and market will influence these figures.
How do you price drinks at a bar?
Calculating your drink price is not an exact science, but there are some general rules to follow.
- First, establish your pour cost. Pour cost is the cost it takes your bar to make a drink, divided by the price that you sell it for. Your pour cost should be 20–25%.
- Calculate your cost per ounce by dividing the cost of the bottle by the number of ounces that it holds.
- Cost per ounce x pour size. This will give you your cost per drink.
- Cost per drink x 5 (to cover other variables) and round the price to the nearest quarter.
Remember to have up to five categories for each drink and keep your customer demographic in mind so as not to outprice them.
What is the average profit margin for a bar?
Your profit margin is your total profits as a percentage of total revenue. The industry average for profit margins is 80%. As a rule, you should aim for no less than 80%. Calculate your bar's profit margin by dividing your net income (profit) by total revenue.
How do I run a successful bar?
The success of a bar can depend on a variety of factors such as the location, your understanding of the target market, the look and feel of your bar, and promotional efforts. Your menu, pricing, and service quality will also be key determinants.
Why do bars fail?
Often the failure of a bar is due to the owner not fully understanding what is needed to successfully run a bar, or because the owner does not possess the necessary experience or help.
Where can I find a 'how do I open a bar' checklist?
You can view The SMB Guide's checklist for opening a bar.
What education is needed to become a bar owner?
No educational certification is necessary to open a bar, but it is helpful to have entry-level experience in food and beverage service, as well as some experience in a management position. A bar owner requires leadership, organizational, and problem-solving skills to manage the daily affairs of a bar.
Do bars legally have to serve food?
In addition to not over-serving alcohol to customers, some bars are legally required to serve food with their alcohol. The laws are dependant on the state you are operating in, and should not be taken as a general rule for starting a bar. Refer to your state laws and regulatory bodies to find out if this impacts you in any way.
Can you own a bar if you're under 21?
The legal age for owning property or signing a binding contract in the U.S. is 18. The legal drinking age is 21. Unless you have people in partnership with you to sign contracts and purchase alcohol (and meet these age requirements), it would be impossible for you to start a bar. Additionally, you would have a hard time getting a business loan as a teenager, so opening a bar as a young person would be quite difficult.
What are the first steps to opening a bar?
What are some alternative funding options for opening bars?
What are the factors for choosing a bar location?
- Foot traffic.
- Parking availability.
- Crime statistics.
What equipment do I need to run a bar?
- Ice bins.
- Ice scoops.
- Liquor well.
- Soda gun.
- Cocktail shakers.
- Speed bottles.
- Pour tops.
- Garnish bins.
- Glass racks.
- Bottle openers.
- Paring knives.
- Cutting boards.
- Glass mats.
- Cleaning equipment.
- Television screens.
- Music system.
- Refrigeration systems.
What are local SEM essentials for bars?
- Register for Google My Business.
- Start a Yelp profile.
- Create a Facebook account.
- Take images of your bar.
- Upload images and descriptions to all your accounts.
- Encourage customers to rate you.
- Research pay-per-click advertising.
How can beverage costs be reduced?
- Use par settings for accurate inventory management.
- Price your drinks accurately.
- Have rigid pour policies to minimize spillage.
- Keep track of spillage and complimentary drinks.
- Don't overstock or under-stock your shelves.
- Install security cameras at your bar counter to minimize product loss.
- Lock up your liquor supply and give only trusted employees access.
How far does a bar have to be from a church?
Depending on which state you're in, bars or liquor stores are typically not allowed to be within a certain number of feet from churches. Most states have rules about how far a bar has to be from schools as well. Check your local regulations to see how this will apply to you.