For many people, opening a bar and having their own place where they can serve their favorite drinks to friends and neighbors is the ultimate dream. But as the saying goes: if it were easy, everyone would do it. People don’t always realize everything that goes into opening a successful bar. However, if you go into your bar venture with your eyes wide open and armed with information and a solid business plan, you’ll have a good chance of making your dream a reality. Find out everything you need to know about what goes into the process of opening a bar.
How Much Does it Cost to Open a Bar?
When it comes to opening up a bar, startup costs are the first hurdle to overcome. Depending on the location and the size of the establishment, opening a bar can cost anywhere from $110,000 to $550,000. For bars that plan on buying their location outright and paying a mortgage, the price range can be even steeper, ranging from $175,000 to $850,000. The least expensive way to open a bar is to take over an established business that is already for sale. If you go this route, you may be able to get started for as little as $25,000.
Licenses and Permits Needed for Opening a Bar
Of course, leases and mortgages aren’t the only expenses that go into the cost of opening a bar. Bars are required to register with the state, which includes various licenses, permits, and insurance policies. The application process and associated costs will vary from county by county. As an example, the New York State Liquor Authority issues two-year liquor licenses with a price tag of $4,500.
You’ll also want to check with your state and county permitting laws to see if there are any liquor license quotas in place. Keep in mind, if you live in a state that allows the transfer of liquor license ownership, those costs can run as high as $100,000. Ultimately, the best way to go about obtaining a license or permit is to first consult with a local attorney specializing in liquor laws.
Operating Costs
From there, you will need to take into account other basic operating costs, including the cost of alcohol inventory. As a general rule, you will want to split your inventory into 45% beer, 40% liquor, 5% wine, and 10% mixers, which can add up to around $5,000 per year. On average, properly staffing a bar with about 10 employees will run $13,000 per month. Once you add up rent or mortgage payments, staffing costs, inventory expenses, and licensing fees, it is reasonable to expect to pay around $24,000 per month to open and operate a bar.
How Much Can I Make as a Bar Owner?
To give you an idea of what an annual salary might be for a bar owner, let’s take a look at some average numbers. The bar owner will have to deduct their salary from the net profit margin. If the average bar revenue is $27,500 per month or $330,000 annually and the expenses run around $290,400 per year, then that leaves a net profit of around $40,000. As an owner, you can keep that money as a salary or invest it back into the business. Of course, net profit numbers will vary, but this gives you a quick glimpse at what you can expect as an owner.
Is Opening a Bar a Profitable Business Venture?
While there is a lot of potential to earn significant revenue, it is difficult to predict exactly how much the bar will earn. There are many different variables, including location, size, and the price of drinks and food. Fortunately, making drinks comes with a low pour cost, which leaves plenty of room for profit.
The good news is that the average gross profit margin for bars is around 70-80%. The gross profit margin is calculated by finding the difference between restaurant revenue and the cost of goods sold (COGS). The net profit margin is the amount that is left over after all operating expenses have been covered. The average net profit for a bar is 10-15%. While that may not sound like a lot, consider that the gross profit margin for most retail stores is about 25%. While bars can come with high startup costs, the trade-off is the opportunity to earn big.
Checklist for Opening a Bar
As with starting any business, there are a lot of details you will need to consider. Here are just a few essentials that should be on your checklist as you open your bar:
- Creating a business plan that includes the overall structure
- Designing the bar layout
- Establishing accounting and inventory strategies and technology
- Hiring staff that includes talented bartenders, barbacks, and waitstaff
- Adopting an advanced point-of-sale system
- Securing the proper permits and licensing
- Trademarking your name and logo
Business Plan for Opening a Bar
Before you can get down to the work of opening a bar, you need to start with a business plan. This document will help you identify potential pitfalls that are unique to the bar industry and outline a specific plan to avoid and deal with these challenges. A business plan is essential to your success. Take the time to explore the different aspects of how your bar will look and be managed. Here are some key areas to address as you put together your business plan.
Overall Concept and Structure
This category includes both the theme and atmosphere of the bar along with the business structure; will it be a sole proprietorship, partnership, etc? This means taking a closer look at the current state of the industry, future projections, and how your bar will be able to capitalize on market opportunities while also staying protected from negative influences. Be sure to clearly identify your target customer, the size of your niche market, and how you expect the market to grow in the coming years.
As you think about the atmosphere you want to create, take into account how you plan on serving customers. Will you have servers who provide menus and bring cocktails to them at tables with plush and comfortable seating or will you create a more casual atmosphere where customers pull up a stool to the bar and socialize at high-top tables?
It is also important to think about your marketing strategy. Fortunately, there are plenty of effective and affordable tools, such as email marketing, social media, and online ordering apps that can help you connect with customers. The key is to identify which tools will work best for you and how you can take full advantage of them based on your target customer.
Finally, identify how customer service will help to support your business. Bartenders and staff are an essential resource. They can upsell products, promote underperforming drinks, and help increase the size of checks while also creating an experience that ensures repeat customers.
Value Proposition
Of course, your bar will be selling delicious, well-prepared drinks, and perhaps some food, but what are you really selling in terms of an overall experience? Are customers coming to your bar to relax and escape to a secluded spot or are they coming to have fun and dance in an energetic environment where they can meet new people? Identifying your value proposition will directly inform the design and development of your business.
Market Analysis
You’ll need to have a deep understanding of your market and your target customer so that you can successfully cater to their needs and win them over. One way to gain this understanding is to create customer personas that identify specific demographics that you want to target. You’ll need to conduct research and interviews to identify their preferences and pain points. It also helps to take a close look at your competitors to analyze what is and isn’t working for them, so you can avoid their mistakes.
Management and Organization
Outline how you will operate and manage the bar. This includes keeping track of and organizing inventory, handling staffing and scheduling, managing online orders and alcohol delivery, and much more. Having protocols in place will help management lead more effectively and make sure that the entire team is on the same page and working towards clear goals.
Financial Projections and Analysis
Ultimately, the goal of any bar is to be profitable. This means crunching some numbers and figuring out how much you will need to make in order to break even and become profitable. You need to have a detailed list of every cost involved in opening and maintaining your bar and be able to show that your business is viable. Both investors and lenders will want to see this information as they decide whether or not to finance your venture.
If you can identify a target market and create a product that speaks to them, then opening a bar can offer exceptional profit margins. It all comes down to doing your due diligence when it comes to research and planning. The more work you put in upfront, the smoother the launch process will be, and the better chance you will have to create a bar that becomes a beloved and profitable part of the community.
FAQs
How much money does it cost to open a bar?
If you are going to lease the space, opening a bar can cost between $110,000-$550,000. Owning the building and paying a mortgage will cost $175,000-$850,000. Taking over an established bar can cost as little as $25,000. A lot depends on the location and the size of the bar.
How much does a bar owner make a year?
Typically, net profit margins range between 10 to 15%. If you take the average (12.5%) and estimate annual revenue of $330,000, a bar owner can expect to earn a salary of $40,000 per year.
Can you make a lot of money owning a bar?
It depends on a wide range of factors. Bars offer a gross profit margin that is three times that of other retailers, but you have to subtract the cost of inventory, staffing, equipment, rent or mortgage payments, and other costs.
How do you make a business plan for a bar?
Decide on a general concept and how your bar will fit into and compete in the market, conduct a market analysis that identifies a target customer and the successes and failures of the competition, hone in on your value proposition and what you will be selling customers, design a plan for organization and management, and produce an accurate list of costs and financial projections.
What is the basic checklist you need to have before setting up a bar?
Your priorities should include: creating a business plan that includes the overall structure, designing the bar layout, establishing accounting and inventory strategies and technology, hiring staff that includes talented bartenders, barbacks, and waitstaff, adopting an advanced point-of-sale system, securing the proper permits, and licensing, and trademarking your name and logo.
