Editor's note: This article was excerpted from our Bar & Club startup guide, available from the Entrepreneur Bookstore.
Friends, laughter, celebrations, entertainment--fun! These are the things that might come to your mind when you think about owning your own bar as you imagine rooms filled with friendly conversation, music and people enjoying themselves. If you're thinking of opening a sports bar, you might envision an exciting game on big-screen TVs with everyone cheering and having a great time. Owning a bar sounds like the perfect life to many potential entrepreneurs, but it's not always fun and games behind the scenes.
Owning your own bar/club can mean long hours, meticulous attention to detail, giving up vacations and weekends, and sometimes dealing with unruly customers. But if you have a clear vision, do your homework and learn the ins and outs of the business, it can also translate into a rewarding and financially successful enterprise.
Although people still gather to socialize in bars, just as they have for hundreds of years, other factors have come into play for the industry as well. Problems with driving while intoxicated have changed the drinking patterns of people in United States. The growing concern with health and fitness toward the end of the 20th century took its toll on the bar industry. Keeping tabs on this industry requires a look at the alcoholic beverage industry as a whole--what people buy in the store doesn't differ much from what they buy in a bar. The distilled spirits industry generates around $100 billion in U.S. economic activity annually, according to the Distilled Spirits Council, a national trade association.
You have some pretty tough competition out there. But you're not just competing with the other bars in your area these days. You're competing with every entertainment option from which your customers can choose.
What You Can Expect
Successful new bars can be in the black within the first six months, and they can go on to recover their initial investment within three to five years. However, like many new businesses, the statistics for bars aren't in favor of the startup. Why do they fail? The first reason is they didn't have enough capital to keep the business going. The second reason is a lack of knowledge about the business.
From a personal perspective, you need to ask yourself if you're really the type of person who wants to own and run a bar. Of course, you don't have to run it if you own it, but you'd better make sure you have a team of good, trustworthy managers working for you if you plan to be "hands off." In the beginning, you will probably have to be greatly involved whether you plan to be an active owner or not. If you're the kind of person who would rather deal with paperwork or sit in an office where you don't have to talk to people, this business is not for you. You will need to be out there talking to people and shaking hands. Getting to know your patrons, even if it's just to say "Hi," can go a long way for your customer service.
Another thing you should consider is the time commitment and hours of operation. If you're an early riser, you might not enjoy having to work until 3 or 4 a.m. at your bar. If you have a family, you need to discuss how owning a bar will affect them. Many days you will have to be at your bar from the time you wake up--say, around 10 or 11 a.m.--to the time you go to sleep--say, around 4 or 5 a.m. As you can see, this could take its toll on your family life. Eventually, you'll probably be able to have a saner schedule, once your managers and staff are well-trained, but it may take six months to a year to reach that point. If this could cause problems for you or your family, you may want to reconsider the idea of owning a bar.
If we haven't scared you away yet and you're ready to go for the bottle-in-the-sky dream, read on!
What's Your Bar Type?
Before you get started on the actual nuts and bolts of creating your dream bar, you have to decide what kind of establishment you'd like to own. Let's take a trip through the various kinds of bars--from neighborhood bar to large-scale club--and see which one is right for you.
- Neighborhood bar. Conceptually, the neighborhood bar is still an American version of the English pub. You'll find them everywhere in the United States. If you own this kind of place, you can expect to know many of your regular customers. As on the TV show "Cheers," you may find yourself taking phone messages for customers or cashing their paychecks. It's because of the friendly "home away from home" atmosphere that neighborhood bars are successful. Some of these pubs open as early as 6 a.m., and they sometimes close earlier than other bars--depending on the clientele. This type of bar is perfect for small-scale entertainment options, such as darts, pool tables, video games and jukeboxes.
Across the country, this is probably the most popular type of bar you'll find. There are a lot of neighborhoods out there, but you might find that there is room for one more in your area. According to the experts we interviewed, the startup cost for this kind of bar ranges widely, depending on the size and concept, but mostly on location. You can buy an existing neighborhood bar in a small town for $20,000, or you can spend a million dollars building a brand-new one in a big city. Not coincidentally, the amount of revenue these businesses produce varies greatly, depending on your bar's location and capacity.
- Sports bar. Depending on the establishment's capacity, sports bars can be a specific version of the neighborhood tavern, or they can take on a life as big as a club. You may have the latter in mind, but your market research may point to the former. It's important to do your homework!
Generally, sports bars offer some kind of menu options, such as sandwiches, burgers, pizza, sandwiches and appetizers. Since the main attraction is sporting events, sports bars have televisions in view of every seat, sometimes all tuned to different channels. Audio and video technology comes into play, with some owners spending a large percentage of their revenue on keeping up with the latest in technology--from satellites to big-screen TVs. As with neighborhood bars, startup costs and revenue potential vary widely, depending on the size, concept and location.
- Brewpub or beer bar. Studies have shown that although consumers are drinking less alcohol, their tastes are becoming more discriminating. As a result, microbrews are more and more popular. In a brewpub, you can brew your own beer right on the premises. In a beer bar, you can offer a large selection of different types of beer, including microbrews produced elsewhere. It's often easier to get a liquor license for a brewpub or beer bar than a full-scale liquor license, since you don't need a fully stocked liquor bar.
Most brewpubs only sell their own beer options on tap (draft beer), with a few selections of bottled beer options, too. Since you're creating your own product in a brewpub, you also have the ability to control what you make and sell--from quality to quantity. The startup costs of a brewpub can be quite high--from $100,000 to $1 million--because of the brewing equipment you need to have. If you produce a popular beer, you have the opportunity to grow into a very successful operation.
Beer bars tend to have lower startup costs, which can often mean obtaining a less expensive, fixed-price license from your state government. Beer bar startup costs range from about $20,000 to $100,000, depending on size and location. The revenue potential depends on the geographical location and drinking trends in the community.
- Specialty bar. Specialty bars, which concentrate on one type of libation, from wine to martinis, or theme, like cigar bars, are gaining popularity. Although some specialty bars focus on only one drink category, there must be a wide variety available within the genre. Take martinis: They have become very popular due to the variety they offer. The traditional martini still has a solid appeal if made with quality vodkas and gins, but other mixes, like sour apple martinis, have expanded the martini-drinking base, especially among women. But even with their increased popularity, martinis are still looking up at wine.
Beyond the traditional glass or bottle with a nice dinner, for many, wine is the drink of choice. In fact, women order wine more often than any other alcoholic beverage. Wine bars offer guests the opportunity to taste a variety of different kinds of wine and the ability to learn more about their qualities.
Specialty bars tend to stay small and intimate in size and are located in more sophisticated neighborhoods. The costs and revenues you can expect to find when opening a specialty bar depend mostly on the type of product you serve and your location.
- Club. Like the neighborhood bar, nightclubs can take on a number of different personalities. You can open a small cocktail lounge with a jukebox or a tinkling piano in the corner. A medium-sized club might look like a neighborhood bar during the lunchtime hours, then spring to life with a popular band at night. Or if you have a big enough budget, your club might be a large dance club where the most fashionable people and hippest celebrities hang out every weekend
Whichever path you take, you must be prepared to spend a great deal of time and money on promotion to create your "buzz." Clubs can make plenty of money if they're managed properly. Most successful clubs draw on a city population of 500,000 or more. If you're in a small town or suburb, you may not have the customer base to open a large dance club. Market research is key.