Start a karaoke 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 karaoke 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 karaoke bar?
The costs of opening a karaoke bar can vary, starting from whether you are building from scratch or leasing an existing location. If you purchase the location you will operate from and start from scratch, your starting costs can range from $175,000 to $850,000. If you are buying an established bar that is for sale, your costs may be as low as $25,000. Why the disparity between the two? A bar starting from scratch must buy all necessary equipment. This includes dump sinks, hand sinks, three-bin sinks, drain boards, ice bins, soda guns, blender stations, speed rails, and coolers, and most importantly a karaoke machine. You will also need a point-of-sale machine system. Buying this equipment alone may cost $26,000 or more, and that is before buying tables, chairs, stools, the bar, and the karaoke machine. Getting an appropriate license may cost up to $5,000 depending on your area. It may cost about $6,000 to get the food and drink for your first month and an average of $6,000 a month to pay the rent or mortgage.
What are the ongoing expenses for a karaoke bar?
The exact amount of your operating expenses is partially contingent on the size of your staff, but some estimate that it may cost $20,000 a month to run a karaoke bar. This amount assumes about $6,000 for food and drink, $6,000 for rent, and up to $8,000 for employee salaries. All of these amounts may adjust up or down depending on region, bar size, and staff size.
Who is the target market?
While karaoke patrons come in all forms, some of your best customers will be young adults in their early to mid-20's. This is a group that often sees karaoke as a fun form of both socializing with friends and meeting romantic partners, and things like duets offer a chance for such groups (who also have more free time and are more free with their money) to bond.
How does a karaoke bar make money?
At most karaoke bars, your primary income will come from sales of alcohol and possibly a cover charge for entry. Beyond that, the karaoke itself is typically free. The exception is if you offer separate rooms for people to perform in, in which case it is appropriate to charge a separate price for the room rental.
How much can you charge customers?
As mentioned before, the karaoke is free at most karaoke bars, and the business makes its profit from the alcohol it serves. The exact cost of different drink types and brands will vary, but is typically calculated by trying to achieve a twenty percent “pour cost” (diving a bottle of liquor, for instance, into how many drinks it will pour and divide that unit cost by a target pour cost, such as twenty percent. So, a 750ml bottle of bourbon that costs you $20 has a unit cost of $1.18 per 1.5 ounce pour. Divide that $1.18 by twenty percent to get a suggested sales price of $5.91. Finally, add the sales tax for your area (such as ten percent) and you get a cost of $6.51, which you may choose to round down to $6.50 or up to $6.99. If you are renting separate karaoke rooms, it is appropriate to charge between $45 to $90 per hour for a group.
How much profit can a karaoke bar make?
Again, the exact profit of your business can depend on various factors, but the average bar is able to make between $25,000 to $30,000 a month; assuming the previous $20,000 a month operating expenses, then you can generate $5,000 to $10,000 in profit a month, meaning that as an investment, a karaoke bar can pay for itself in a relatively short time.
How can you make your business more profitable?
When buying equipment, consider “gamifying” karaoke. There are now karaoke machines that can score singers similarly to video games such as Rock Band, which can make the experience both more familiar and more fun. Try to have an active presence among online karaoke communities to keep up with the latest trends and what participants desire. Finally, try to synergize with local events and businesses whenever you can: make sure your bar is part of community “bar crawls” and partners with local restaurants and related industries so you can advertise for one another and hold coordinating parties and other events.
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 karaoke 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
In most states, it is necessary to obtain a bar license. Certain state permits and licenses may be needed to operate a karaoke bar business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
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.
Certificate of Occupancy
A karaoke bar business is generally run out of a bar. Businesses operating out of a physical location typically require 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 karaoke bar business.
- 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 karaoke bar business will be in compliance and able to obtain a CO.
In order to play music in a business setting, permission must be acquired from the composer or license holder. Typically, it is possible to obtain a “blanket” license allowing a businesses 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.
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 karaoke bar
Depending on your area, you may promote your business through multiple channels. If you are near a college campus, for instance, it would be appropriate to advertise in the college newspaper, and advertising via radio is a good way to reach audiences of all types as it lets you emphasize the musical component of your business. However, don't forget to create a website and a social media presence: some of your most enthusiastic customers will be Millennials who find out about your business through online advertising.
How to keep customers coming back
In addition to the marketing ideas above, consider holding various themed karaoke events throughout the year. These may correspond to local events (such as special parties when college final exams are over), seasonal events (such as a night of duets for Valentine's Day), or in conjunction with other events (such as a “cosplay” themed night in conjunction with a local company that puts on nearby annual comic conventions). Customer retention comes naturally through good service: by making customers feel special (taking their photos, posting them on your website, awarding them prizes, and so on), you will ensure they want to come back again and again.
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 Karaoke 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?
Above all, this is a business for those who love both music and people. You must be a good “people person” who can make assorted individuals feel comfortable performing, and you must be someone with a thorough knowledge and appreciation of music. Prior experience working in bars that do karaoke is also very helpful.
What happens during a typical day at a karaoke bar?
Some of your daily activities include preparing drinks for customers, signing customers up for karaoke, and loading their chosen songs so that they can perform. Your “downtime” may be spent cleaning plates and glasses, performing maintenance on your equipment, receiving shipments of drinks, and using various accounting software programs to help manage your business.
What are some skills and experiences that will help you build a successful karaoke bar?
Any previous experience working as a bartender or bar manager is very helpful in establishing this business. Similarly, previous experience as a DJ may give you insight into the hardware and software necessary to successfully run the karaoke equipment. While certainly not required, a formal degree in a field such as business may help you in the initial stages of investing in and marketing your business.
What is the growth potential for a karaoke bar?
The growth potential for such a business is above average; the Bureau of Labor Statistics records that the field of bartending is supposed to grow by ten percent between 2014 and 2024. A karaoke bar is more specialized and may have the potential to draw more customers than a non-karaoke bar.
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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.
What are some insider tips for jump starting a karaoke bar?
Make sure you are very comfortable using DJ-style equipment to keep the karaoke equipment in good order. If possible, try to hire yourself out for small karaoke parties to get comfortable with everything before making it a full time job. If you can afford it, hire someone to be a host/”hype man” to keep crowds energized and enthused. Finally, consider having special prizes and contests each night as a way of making guests feel special.
How and when to build a team
Unlike some businesses, you will need to start your karaoke bar with a team in place. The exact size of the team you need may vary based on the size of your bar space, but you will need to hire various shift managers, bartenders, and possibly wait staff and busboys depending on whether you serve food or not. As mentioned earlier, you may want to have separate karaoke DJs and hosts to keep that element of your business running smoothly.