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How To Start A Bar

How To Start A Bar

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How To Start A Bar

How To Start A Bar

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 opportunity.

Opening a bar is an exciting prospect for many entrepreneurs, but it requires more than just a passion for nightlife. A bar is a complex business that needs careful planning and insight into industry trends to give it the best chance of success. In this guide, we’ll provide an overview of the business, steps to get started, and answers to common questions.

Business Overview

At its core, a bar is a retail business selling alcoholic beverages and providing entertainment, whether 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 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 are a low-key neighborhood bar.

Some bars incorporate a small kitchen, too, often 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.

Industry Summary

Owning a bar allows you to tap into the large market for drinking establishments in the United States. The industry contains over 67,000 drinking places with nearly 600,000 employees, generating $36.3 billion in annual sales1.

Surviving in the bar business is a challenge that can be attributed to various factors, including the competitive nature of the industry, high operating costs, and the challenges of attracting and retaining a steady customer base.

Steps To Start A Bar

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.

While starting a bar can be an incredibly rewarding experience, you want to be prepared for the challenges ahead. Use this checklist to help get your business off right.

Step 1: Market Research

One of the most critical steps in starting a bar is doing market research. Understanding the market will help you gauge if there’s room for another business and what you can do to tailor your bar’s concept to fit what’s missing, rather than adding another generic establishment to the mix.

Here are some practical steps to help you assess the market and identify opportunities for your new bar.

Research the local area: Start by researching the local area where you plan to open your bar. Look at factors like population size, demographic information, and income levels. Understanding the local community will give you insights into potential customers and their preferences. Use census data to find area population stats.

Analyze target audience: Next, consider the target audience for your bar. Is it young professionals, college students, or families? Identify their preferences, lifestyle habits, and spending patterns. This will enable you to tailor your offerings and create a unique experience that resonates with your target audience.

Identify competition: Take a look at existing bars and restaurants in the area. How many are there? What type of bars are they? Drive around town at night to observe existing bar traffic and parking situations. Are current bars full or empty? Talk to patrons about what they like and don’t like. Analyze the competition to get a sense of market saturation to see if there are any underserved niches, such as craft cocktails, wine, or a large dance floor.

This research will help determine if the area can support another bar and, hopefully, what market to go after. For example, a town with an older demographic and few wine bars presents an opportunity for that concept. If late night dancing spots are scarce but existing bars shut down early, a club open until 2 am might thrive. Let the customer insights guide your business model, menu options, entertainment, and décor decisions to differentiate your establishment.

Step 2: Write a Business Plan

The idea of opening your very own bar can be incredibly exciting, and many aspiring entrepreneurs focus on the fun parts – picking out the perfect decor, crafting the ideal cocktail list, and envisioning a bustling crowd of happy customers. However, before any of that can happen, you’ll need to create a solid business plan to lay the foundation of your bar. A few of the reasons the business plan is important include:

Providing clarity and direction: A business plan helps you define your bar’s vision, mission, and goals. By considering elements like your target audience, menu offerings, pricing strategy, and marketing approach, you can make informed decisions that align with your overall vision and stay focused on your objectives.

Operational planning: A business plan outlines the operational aspects of your bar, such as staffing, inventory management, and customer service. By addressing these details in your plan, you can better anticipate and establish systems and processes that will contribute to your bar’s overall efficiency and success.

Attract funding: If you’re seeking funding, a business plan is typically required by lenders or investors. The plan showcases your thorough understanding of the industry, demonstrates that you have a clear strategy in place, and that the bar is financially viable.

Related: How to write a business plan

Step 3: Source Funding

Securing funding can be one of the most challenging aspects of starting a business, and it’s no different when it comes to starting a bar. There are many paths you can take to finance your bar, each with its own pros and cons. Here is an overview of the most common options for securing funding:

Before looking for outside funding sources, you will first need to look into your own finances and see how much money you can invest in your bar. Personal savings, investment portfolios, and even home equity lines of credit are all potential personal sources of funds you can use. If personal savings aren’t sufficient to cover the startup costs, outside funding sources may be necessary.

When it comes to securing outside funding, traditional lenders like banks and credit unions are the most common option for bar owners. Typically, they will require you to invest at least 15% of the total startup costs through personal investment. They might also ask for collateral, such as equipment or inventory, to secure the loan. Before applying for a loan, make sure your credit score is in good standing and you have all the necessary paperwork in order. Some lenders may consider the loan to be too risky and, will want an SBA (Small Business Administration) loan guarantee.

Friends and family are another potential source of funding. However, it’s important to put any agreements in writing to avoid potential future conflicts.

Crowdfunding platforms, such as EquityEats, allow individuals to invest in your bar in exchange for rewards or equity. This can be a viable option for raising funds.

If the funding needs are low or credit isn’t available through traditional lenders, microloans are also an option to consider. Some microloan providers even offer business training in addition to funding.

Related: Finding the money to start a business

Step 4: Register the Business

Starting a bar requires careful planning and adherence to various legal and regulatory requirements. This process can vary significantly from state to state, so it’s crucial to familiarize yourself with local regulations. Here’s a step-by-step guide on how to properly register your bar business.

Choose a business structure: There are four main types of business structures:

  • Sole proprietorship: This is the simplest and most cost-effective structure to set up. However, the owner is personally liable for the business’s debts and obligations.
  • General partnership: Two or more people share ownership under this structure. Like a sole proprietorship, partners are personally responsible for the business’s liabilities.
  • Corporation: A corporation is a separate legal entity owned by shareholders. It provides personal liability protection for the owners but is more complex and expensive to set up.
  • Limited Liability Company (LLC): An LLC combines the liability protection of a corporation without all of the administrative requirements.

Related: Comparison of business structures

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.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

ZenBusiness - Best for beginners. $0 plus state fees & free registered agent for 1 year!

Northwest - Best privacy protection. $39 plus state fees & free registered agent for 1 year!

Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

Related: Tips for naming a bar

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Obtain business licenses and permits: Obtain the necessary licenses and permits: Research and obtain all the required licenses and permits to operate your bar legally. This may include alcohol licenses, food service permits, health and safety permits, and entertainment permits, among others. The specific requirements may vary based on your location, so check with your local government or licensing authorities for the regulations that apply to your area.

Don’t overlook getting a music license if you plan to play music in the bar, regardless of whether it’s live, recorded, or streamed. Fines for playing unlicensed music can be quite high, and bars are commonly checked to see that they are in compliance.

Besides bar-specific requirements, there will be general business registrations, such as a sales tax permit, Employer Identification Number, and Occupancy Permit.

Related: What licenses does a bar need?

Step 5: Acquire a Location & Set Up the Bar

After successfully navigating the planning and funding stages of your bar startup, now is the time to start bringing everything together to set up operations.

The first task is finding the perfect location for your bar. Consider factors such as foot traffic, competition, and local regulations. Ensure that your location complies with zoning regulations and building codes to avoid any potential complications. Take into account the necessary renovations needed to create a visually appealing space that accommodates essential elements such as bar equipment, storage, kitchen, and restrooms. Additionally, design a strategic floor plan that optimizes customer flow while ensuring convenient staff access. If your bar concept includes entertainment options such as sports viewing, make sure to incorporate that into the layout as well.

Next, focus on acquiring the necessary equipment like refrigeration, plumbing, audio systems, point-of-sale (POS) stations, barware, etc. Don’t forget about furnishings and decor to create a welcoming and visually appealing environment.

Last, begin setting up accounts with distributors and suppliers, and begin ordering the necessary inventory for your bar by contacting suppliers and inquiring about the account set-up process. They will likely ask for your business information and may require you to complete a credit application or provide references. Once your account is established, you can begin placing orders for the products you need.

Step 6: Hire Staff

As a bar owner preparing to hire employees, you’re stepping into the role of an employer, which comes with responsibilities and legal requirements.

For starters, employees who serve alcohol have requirements that vary by state and may include age restrictions, training requirements, and licensing or certification for certain roles, such as bartenders or servers. For example, many states require bartenders and servers to complete alcohol server training, which covers topics like checking identification to prevent underage drinking, recognizing signs of intoxication, and understanding the effects of alcohol on the body. Some states also require bartenders to obtain a license or permit to serve alcohol. 

Before you can start hiring, you’ll need to obtain an Employer Identification Number (EIN) from the IRS. This unique number is used for tax reporting and other business-related documents.

You’ll also need to verify the employment eligibility of all your workers. This involves completing an I-9 form for each employee, which confirms they are legally allowed to work in the country.

Hiring requirements can vary significantly from state to state, and as an employer, it’s your responsibility to understand and comply with your specific state’s regulations regarding employment practices, wage laws, and hiring procedures. Most states also require businesses to have workers’ compensation insurance, which provides benefits to employees who become injured or ill due to their job. Be sure to check your state’s specific requirements to ensure you’re adequately covered.

Finally, there are labor laws, which govern aspects like minimum wage, overtime pay, meal and rest breaks, and workplace safety. These laws exist at both the federal and state levels, and as an employer, you’re required to comply with both.

Related: State guides for hiring your first employee

Step 7: Prepare to Open!

When starting a bar, there are several important steps to consider before launching your business. While the needs may vary for each individual, there are some common loose ends that we haven’t covered that need to be taken care of. Let’s take a look at some of the most common remaining tasks:

Business insurance: Consider policies such as general liability insurance, liquor liability insurance, and property insurance to safeguard your business against potential risks and liabilities.

Setting up bookkeeping: Set up accounting software and systems to handle daily transactions, track expenses, generate financial statements, and ensure smooth tax compliance. This will help you stay organized and have a clear overview of your bar’s finances.

Opening a business bank account: Separate your personal and business finances by opening a dedicated business bank account. This account will help you manage your bar’s finances more efficiently and track revenue and expenses accurately.

Creating a marketing strategy: Even if you have an outstanding menu, knowledgeable staff, and all the necessary permits, you’ll need to market your bar to attract customers. This should include a memorable logo, a professional website, and an active social media presence, as well as traditional marketing efforts like signage and local advertisements.

Preparing for the grand opening: Plan and prepare for your bar’s grand opening to ensure a successful launch. This may involve organizing promotional events, training staff, stocking inventory, and obtaining necessary permits or licenses. Pay attention to details such as menu development, ambiance, and customer service to make a positive impression on your initial customers.

Common Questions When Starting A Bar

How much does it cost to start a bar?

Starting a bar involves various costs, and the total can vary greatly depending on location, size, and concept. However, a general estimate for opening a small to medium-sized bar might range from $100,000 to $500,000. Below is a breakdown of the estimated costs associated with starting a bar.

Location: The cost for a location will include a lease deposit and possibly renovation costs. Lease deposits can range significantly based on location and size, but expect to pay anywhere from $2,000 to $12,000 for the first month, plus the same amount for a security deposit.

Renovations & decor: Depending on the condition of the bar location, the costs for renovation and decor can vary significantly. For basic aesthetic changes and necessary furniture, costs might start around $10,000, escalating to $200,000 or more for more extensive fit-outs.

Equipment and supplies: This category ranges from bar fixtures, like counters and seating, to necessary appliances, such as refrigerators, dishwashers, and draft systems. The estimated cost of equipment and supplies ranges from $30,000 to $80,000.

Point of sale system: A good POS system for bars might cost between $1,000 and $7,000, depending on the features and hardware required.

Inventory: Depending on the size of the bar and the nature of the menu, costs for beer, wine, spirits, and food inventory can range from $10,000 to $30,000.

Business registration: Licensing fees, which include the cost of obtaining a liquor license and other necessary permits, can range from $1,000 to $50,000. The cost of a liquor license can vary greatly depending on the state and city where your bar is located.

Insurance: Initial insurance costs, which may cover liability, property, and workers’ compensation, can range from $3,000 to $10,000.

Marketing: Initial marketing efforts, which include creating a logo, website, and promotional materials, can run from $2,000 to $5,000.

How profitable is a bar?

The potential profitability of a bar can vary greatly depending on its size, location, and popularity. However, using industry statistics and some assumptions, we can estimate a scenario.

Using IBISWorld estimates, if there are 67,531 establishments generating $36.3 billion, we can calculate that the average establishment generates $537,521 in annual revenue. To reach this revenue figure, a bar would need 74 customers a day, spending an average of $20.

Then we need to look at expenses, and the markup on alcohol makes a bar a very interesting business. According to BinWise, the average profit margin for a bar is between 70% & 80%.2 Compared to a traditional retail business, where profit margins are usually at most 50%, a bar can be a very lucrative business. In this example, we will use an inventory cost of 30%, which would total $161,256, leaving a profit of $376,265.

Next, there is overhead such as rent, salaries, utilities, marketing, etc, which on average, is between 45% and 50% of sales. At 50%, overhead expenses would be $268,761.

Subtracting revenues from expenses, we would get $537,521 – $161,256 (COGS) – $268,761 (Overhead) = $107,504

It’s important to note that this estimation is a simplified calculation and many variables can impact the actual profitability of a bar, such as operating expenses, overhead costs, employee wages, and unforeseen expenses.

What skills are needed to run 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 into 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 the business to avoid or minimize some of those challenges.

Foodservice experience: In a similar vein, a bar owner who has worked in the food service 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.

What is the NAICS code for a bar?

The NAICS code for a bar is 722410, which is the listing for Drinking Places (Alcoholic Beverages). This includes all drinking establishments from bars, lounges, nightclubs, taprooms, and taverns.

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.

Resources

  1. IBISWorld ↩︎
  2. BinWise ↩︎

How To Start A Bar

How To Start A Bar

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