Start a bar by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. 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.
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 are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
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.
Read our bar purchasing guide to learn about the materials and equipment you'll need to start a bar, how much to budget, and where to make purchases.
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.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your bar is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
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!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
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
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment 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.
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.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
Should you wish to brew beer in-house, as some bars do, you will need to comply with additional licensing/permitting requirements.
- Learn more by reading our guide to starting a microbrewery
Additional state and local licensing or regulatory requirements may apply.
- For more information about state licensing requirements, visit SBA’s reference to state licenses and permits
- For more information about local licensing and permitting requirements, check with your town, city or county clerk’s office, or get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
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.
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.
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.
Learn more about General Liability Insurance.
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.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a bar
Some of the ways to market your bar are similar to marketing other businesses. For instance, advertising via television, radio, and print can help make sure everyone hears about your new business. Even more important than traditional advertising in the bar industry is word of mouth. The easiest way to get this is to create social media pages, and also participate as much as you can through services such as Yelp. These platforms provide customers an opportunity to rave about your service, drinks, and ambiance, and these customers will tell their friends. This is more effective than traditional advertising for bars and, best of all, is far cheaper.
How to keep customers coming back
When it comes to attracting customers, the strategies above create an effective combination. In other words, create an advertising push via traditional media, while also fostering word of mouth through social media. Retaining those customers is a bit more tricky. You must maintain competitive pricing with other bars in the area, while also providing something unique to customers they cannot find at other bars. This may be superior service, an innovative theme, or special bar promotions, like live music or trivia nights. Providing a variety of attractions shows regular customers that they can always get entertainment and value from your bar, reducing their need to visit competing bars.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Bar In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
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.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
How and when to build a team
Unlike many other business types, a bar will need a staff immediately. This is because the nature of the business requires long hours each night. As such, it's important to have a dedicated staff of bartenders, cooks, and security. You will also need team leaders to run things when you are not around. Because these positions must be filled from the beginning, expanding the team is typically a matter of responding to increasing business. This may include hiring additional personnel to cook food and serve customers, as well as additional security personnel as the bar becomes more crowded, particularly on the weekends.
Read our bar hiring guide to learn about the different roles a bar typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.