How to Start a Bar

Start a bar by following these 10 steps:

1. Plan your Bar
2. Form your Bar into a Legal Entity
3. Register your Bar for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Bar
6. Get the Necessary Permits & Licenses for your Bar
7. Get Bar Insurance
8. Define your Bar Brand
9. Create your Bar Website
10. Set up your Business Phone System

We have put together this simple guide to starting your bar. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

• What will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Bar Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

• Your state's business records
• Federal and state trademark records
• Social media platforms
• Web domain availability.

It's very important to secure your domain name before someone else does.

What are the costs involved in opening a bar?

The startup costs required to open a bar usually depend on its size. For instance, depending on the size and location of the bar, leasing startup costs may range from $110,000 all the way up to $550,000. If you are willing to buy a location and pay the attendant mortgage, the startup costs may range from $175,000 to $850,000. For potential bar owners who want to get started for less, the far more affordable route is to seek out existing bars for sale, which can reduce the cost to as low as $25,000. Another cost involves the requisite licensing, permits, and insurance for the business. These costs can vary from state to state, though it typically costs several thousand dollars.

What are the ongoing expenses for a bar?

A bar’s operating costs are comprised of several different charges. Food and alcohol can be $6,000 a month or more, while an average staff may cost $13,000 a month. The other major cost is rent, which will obviously vary wildly depending on your location. Additionally, a bar starting out may serve little or no special food items, and may have a smaller staff than it will eventually have. Utility charges will also vary based on a number of factors, including your bar’s size, winter vs summer, etc.

Who is the target market?

For bar owners, the best customers are the ones who are not disruptive. Because the basic nature of a bar is to provide an environment for intoxication, owners and staff must always be vigilant for angry, disruptive, and even violent customers. The best customers tend to be those who are just casual drinkers looking to have a good time with friends. Such customers know their limits when it comes to alcohol, and they contribute to the ambiance of community engagement and fun that you are trying to generate for your business.

How does a bar make money?

The primary way that bars make money is just as simple as you'd think: selling alcoholic beverages to customers. While bars typically also offer snacks and occasional entrees, serving alcohol remains the cornerstone of how a bar generates profit. This is because you can earn 200-400% profit off of every drink that you serve, with the average price of drinks being $8. This means that once you have a steady stream of traffic, the bar can begin generating profit much sooner than other types of new businesses.

How much can you charge customers?

To some degree, the amount that you can charge for drinks and food reflects the price of these goods at competing bars in the area. In general, though, you can charge customers between 200-400% more for their wine, beer, spirits, and cocktails than what you paid for them. Ironically enough, one of the best deals for you comes from selling so-called “bottom shelf” liquor, which is effectively marked up over 1,200% relative to its cost. The exact markup is usually dictated by the kinds of products being sold, which is also influenced by your customers and the ambiance you are trying to create. There's a major tonal difference between an indie craft bar and a friendly hole-in-the-wall, and that dichotomy also applies to pricing.

How much profit can a bar make?

The exact degree of profit your bar can make is determined by the number of customers served (and how many drinks they purchase). On average, bars can earn between $25,000 to $30,000 a week. This is because of the innate profit margin built into the so-called “pour cost” of each drink. Because the cost of any given drink you serve is 20-30% of the cost you actually charge customers, an average $8 drink will typically net you about $6 of profit. With that in mind, it's easy to see how business can boom once you get a regular stable of customers through the door.

How can you make your business more profitable?

As mentioned above, the primary key to bar profitability is increasing the number of customers. Because of this, most of the other good ideas for boosting profitability center around reducing waste. For example, you could establish rules for wine, such as only opening a certain number of bottles before each shift, and storing bottles in such a way that reduces oxidation. Even being picky about your ice (choosing ice balls, for instance) can help make drinks taste better and last longer.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your bar is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

State & Local Business Licensing Requirements

Businesses involved in the sale of alcoholic beverages are required to obtain a liquor license from the appropriate state or local agency.

• A comprehensive list of laws by state (including necessary licenses, zoning laws, etc), curated by the Alcohol and Tobacco Tax and Trade Bureau, can be found here.

You will also need licensing from a local health department, because all establishments serving food and/or beverages are required to pass a health inspection. Food establishments are randomly inspected by the local health department on a regular basis. These inspections will check for compliance with local health laws, typically related to prevention of food contamination.

• Tips for faring well on a health inspections can be found here.

Music Licensing

In order to play music in a business setting, permission must be acquired from the composer or license holder. The easiest way to do this is to acquire a “blanket” license allowing your bar to play music owned by a large catalog of artists and recording studios. Such licenses can be obtained from performance rights organizations, such as ASCAP or BMI.

• Learn more about music licensing requirements

Labor Safety

It is important to comply with all Occupational Safety and Health Administration requirements. Bars are somewhat risky environments for employees, and as such, owners must provide appropriate working conditions.

• Learn more here

Certificate of Occupancy

Operating a bar typically requires a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.

If you plan to lease a location:

• It is generally the landlord’s responsibility to obtain a CO.
• Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a bar.
• After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.

If you plan to purchase or build a location:

• You will be responsible for obtaining a valid CO from a local government authority.
• Review all building codes and zoning requirements for your business’ location to ensure your business will be in compliance and able to obtain a CO.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.

Is this Business Right For You?

This business is a good fit for entrepreneurs who are passionate about their work. Those who love interacting with people will thrive on a business that revolves around customer interaction, and those who are good at networking will be able to more quickly jump-start their businesses. Finally, those with previous management experience will have an easier time with the day-to-day activities of a bar owner.

What happens during a typical day at a bar?

Running a bar entails many different duties, though their exact order will vary from day to day. The job often involves navigating a net of legal requirements related to selling alcohol, as well as local ordinances which may impact your business.

Staff management and training is also very important, as your staff represents the face of your business, and your entire reputation stems from the quality of the customer service you provide.

Another major duty is stock control, as this helps to ensure you are not overstocking or understocking, both of which can negatively impact your profits. Determining new drinks to stock and developing custom cocktails for your business should also be part of this process.

Finally, you will need to interview and hire additional personnel as needed. When your business is just starting out, you will likely be the primary person responsible for all of the cleaning and light maintenance work of your bar. Though, you shouldn't hesitate to call in professionals for costly equipment breakdowns and anything that could affect the health of your patrons.

What are some skills and experiences that will help you build a successful bar?

There are many potential skills to assist with opening and running a successful bar. These include prior experience as a manager or business owner, as well as experience in regularly providing maintenance for homes or businesses. Connections to local beer distributors and other business entities can also be vital in helping your bar get off the ground. A formal education is not required to run a bar, but classes or degrees in things like business or hospitality management can help with the bookkeeping and customer service aspects of this business.

What is the growth potential for a bar?

The growth potential for a bar is tied rather directly to the economy. For instance, the industry experienced modest but steady gains as the economy recovered from the recession of 2008, after the year 2009 saw a decrease of over 9% to overall industry revenue. Since then though, the industry has often grown by over 3% each year.

Another factor impacting revenue is an increasing cultural effort to eat (and drink) more healthily. This is one of many reasons that it is important to create a niche environment with a specific ambiance designed to attract specific demographics. People are less likely to drink for the sake of drinking, but like the idea of supporting local business while also socializing with those around them, and a local bar scratches both of those itches.