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How to Start a Bar/Club

December 22, 2010
URL: http://www.entrepreneur.com/article/41460

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.

The Stats

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.

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Target Market

As we've discussed, the bar/club industry can be a pricey undertaking. Because of the high failure rate, you may come across desperate bar owners willing to take a low purchase price just to get out of the business. You'll also find that startup costs for bars vary depending on size, location and target market. So we can't give you a concrete amount for what you can expect to pay to start your business.

We spoke with one entrepreneur in California who spent $25,000 taking over someone else's bar business. Another bar owner in Florida spent several million dollars starting his club (and he didn't even build the building!). The numbers vary all across the board. Your bar's size, location, type and concept will make your startup costs as individual as your business.

However, the chart below will give you some idea of what you'll be looking at--from the low end to the high end. Again, you could buy an existing bar that would nullify all the numbers on our low-end chart or start a large-scale club that's off the map from our high-end numbers. You'll have to do some research to find out what your bar will cost based on your concept, size and location.

Here are the startup costs for two hypothetical bars. The first, Night Owl, is a tavern with a maximum capacity of 100 people and serves only beer and wine with a limited menu. Night Owl has annual sales of $327,416. The second, Neverland, is a 1,000-person-capacity nightclub with a full-service bar. Located in the downtown area of a metropolitan city, Neverland has annual sales of $976,132.

Expenses Night Owl Neverland
Rent (security deposit and first month) $3,250 $6,125
Leasehold improvements (heating/air conditioning, electrical, plumbing, painting, carpentry, sign, flooring, smoke detectors) $18,000 $65,000
Equipment/fixtures $43,000 $212,000
Licenses/permits $35,000 $45,000
Beginning inventory $22,000 $38,000
Phone/utilities deposits $150 $375
Payroll $5,550 $18,730
Grand opening marketing $1,000 $3,000
Legal services $425 $1,150
Accounting $250 $650
Insurance $450 $2,350
Miscellaneous expenses (add roughly 10 percent of total) $12,907 $39,238
Total Startup Costs $141,982 $431,618


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Planning

Calling your bar an operation fits because of how much operating it takes to keep it running. Someone will have to mind the store every minute your doors are open and some minutes when they aren't, and your place will need some sort of monitoring during the off-hours to prevent vandalism or break-ins.

Many compare running your own business to raising a child. If true, then a smooth-running, problem-free, profit-making bar compares to parenting a happy, well-adjusted, self-assured teenager preparing for adulthood. But don't worry, the bumps in the road hold the best lessons. And as with parenting, you succeed with consistency and concern instead of rigidity and blame.

The Road to Success
The groundwork you lay to operate your bar includes the systems you use to track liquor and food. How much does the customer owe the server/bartender, and in turn, how much do they owe you? Also, what liquor and food do you sell the most? The systems you choose depend on the type and size of bar you have.

In most bars, only the bartenders and servers handle money. Cashiers or takeout staff may also have cash-handling responsibilities. Factors to consider when choosing an accounting system include the level of sales you expect, both from alcohol and food, and the efficiency needed for your staff to operate at its full potential. Also, look for holes that your accounting system might leave open for theft at all levels, not just servers and bartenders. No one thinks they are hiring a thief. Many people who might steal if the opportunity arose do not consider themselves thieves, either, so they don't come off as such.

If you use the cash-and-carry system, where the drink is ordered by the server verbally and then paid for before the bartender or server rings it up, you might find many "forgot to ring it up" drinks, as well as a few given away for free. It is the nature of the system. If your inventory controls are so tight that you will notice when too much has been used, or if your manager, who shares in the profits anyway, is your bartender, then you can use this system without much fear.

Finding Your Perfect Location
Your choice of location will depend on how you want your bar to look, what you want your bar to contribute to the community, and the kind of clientele you want to patronize it. Then you need to decide whether you want to buy the location or sign a lease. Again, that depends on your budget. Finally, you need to figure out how to fuse your concept with both your name and your location to your best advantage.

People who know this industry well have polar opinions on the concept of location. Some owners and experts we talked to put enormous importance on the bar's location while others refuted its significance altogether. It all depends on what you want your bar to be and what your strengths are as an owner. If you want your bar to get impulsive neighborhood traffic in a particular area, then you should be closest, and most obvious, to them. If you'd rather spend the time and money saved by more affordable real estate to develop your establishment's concept and create your own buzz and destination, your actual location won't matter so much.

You should consider factors such as safety, parking, accessibility to customers--even the history of the site--when choosing a location.

Your Bar: The Place to Be
The word "location" can refer to two different things--what area your bar is in (downtown, uptown, suburbs, etc.) and where you are in relation to your customers. Are you on their way home from work? Or do they have to make it a point to get to you?

Michael O'Harro, a National Bar & Restaurant Management Association board member, explains how he took a bar location nobody wanted in Virginia and made it work. "It was in an alley," he says. "It was a 15-foot-wide alley, and we were 128 feet away from the street. No one would go up the alley--[people] were afraid of it. So the building sat empty for 50 years. But the bar at the end of the alley was spending $20,000 a month in rent, while my rent was $500. I figured I had $19,500 to put toward marketing per month. I made the alley fun and chic. In the alley, I put down Astroturf that I purchased from a football stadium. I had signs, lights and banners. It became the alley. Nobody knew it was there, and then all of a sudden it was the hottest alley in town."

On the other hand, you can have an incredible spot and still not be successful. For example, if you are lucky enough to have the only sports bar right outside your town's athletic coliseum, you should be rolling in cash at least during every in-season homestand. But if your staff is stealing from you, operating procedures are badly managed, or your service isn't up to par, you could quickly find yourself out of business--grade-A location and all.

Naming Your Bar
When it comes to naming a bar, experts generally fall into two major schools of thought. The first says your bar is your dream--your hard work--so you should name it anything you want. The second approach to naming says your moniker is the first and greatest form of advertising for your drinking establishment. A name like Bill's Bar & Tavern doesn't really tell the public anything about your business, but The Haystack, Romp and 3rd & Vine give customers something to connect you to. You wouldn't consider going to bar called Romp if you just wanted a quiet drink. Likewise, you wouldn't travel up and down 4th Street looking for a place called 3rd & Vine.

O'Harro advises that your name should exemplify your concept. "First, I would try to figure out what my concept is going to be," he says. "Sports bar? Discotheque? High energy? Low energy? Singles bar? What exactly am I going to be? Then, what's the name of this business going to be? I would do tremendous research to try to come up with a name that literally fits with the concept."

When coming up with different names, don't stop until you love at least three. In your brainstorming sessions, keep these three questions in mind:

  1. How well does the name fit the concept you want to create?
  2. What types of customers will the name attract?
  3. What will people expect based on the name?
     

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It's time to start planning how you're going to get people into your bar to enjoy it. Just like any other aspect of operating your bar, marketing is an ongoing process. Many bar owners think marketing is the most fun and exciting aspect of running a bar. The entrepreneurs we interviewed agreed that advertising in the media didn't bring as much reward for the cost as it does for many other types of businesses. Generating a buzz for your bar will mostly come from word-of-mouth and the special promotions you set up.

"The only cost-effective way to advertise a bar is word-of-mouth," says Bob Johnson of the Beverage Management Institute, in Clearwater, South Carolina. "When you don't have word-of-mouth working for you, you are in serious trouble. It's not necessarily terminal. There are still ways to get some advertising and marketing out there without spending a ton of money. But anytime you reach into your own pocket to buy advertising for a bar, it's not good.

"Word-of-mouth advertising is priceless," he continues. "It means everything is right. Everything is happening. The bar is alive. Your employees love working there. They are talking and saying great things about the place, and that is passed on to your customers. The customers love being there, and they tell other customers. If you can get to that point, it's just priceless."

So what are some ways to generate word-of-mouth buzz? You can get involved in community events and charity functions to gain exposure. You can launch a direct-mail campaign with a newsletter for regular customers, develop a website, and use any other creative marketing techniques you can dream up.

A great way to promote your bar is to create special internal promotions. If you fully developed your bar's concept, your promotions and events will seem so natural you may even take them for granted. R.C. Colvin, a neighborhood bar owner in Niles, Michigan, got into the bar business because he loves to play pool. "We have pool tournaments several times a year that bring in people from all over. We [also] have a couple of hayrides every year, and people get a kick out of them," says Colvin.

Staging Promotional Events

Once you have established what your promotions will be, it's time to start making them happen. After you bar is up and running, you'll have a better idea of what nights need a little boost. Most bars are busy on Friday and Saturday nights, with Thursdays coming in third place. You might decide you need to pump up business on Monday or Tuesday, so pick one day and keep it going until you have established enough regular business to move the promotions to a different day. Of course, you'll still do your holiday promotions, like July 4th, Super Bowl, Cinco de Mayo, etc., on the appropriate days.

Here are some ideas to keep in mind when you're working on promotional events.

Resources

Associations

Books

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