Have you ever spent an evening at a local bar and wondered how bar owners are making a profit? With different levels of glitz and glamor, bars can come in all shapes and sizes. But opening a successful bar takes creativity and perseverance. You must do in-depth market research, have a solid strategy, and obtain the necessary bar licenses and permits.
Dreaming about opening a successful bar is easy. You’ve probably thought about your concept and your name, but to make your dream come true, you need to be ready with a clear goal and plan in mind. Running a bar can be lucrative regardless of the type of bar you are planning to open. If you have followed the correct steps, you’re already ahead of the majority of the competition.
This startup guide outlines the process of starting a successful bar that can help you turn your dreams into reality.
Why You Need to Start a Bar In 2024
Opening and running a bar can be very rewarding. You will not only be able to provide your guests with a place to get together and enjoy their time but also have the potential to earn big profits. The bar industry has grown steadily in the United States.
According to Statista, the market size of the bar and nightclub sector in the United States increased to 35.3 billion U.S. dollars in 2022. Therefore, as the market size expands, it offers new opportunities for everyone to try and test their luck in this business.
How Much Does It Cost to Open a Bar?
The cost of opening a bar is the first major hurdle to bar ownership. From real estate and documentation to additional costs, such as employee wages, insurance, and supplies, the total startup cost for a bar can range from $100,000 to $850,000.
When opening a bar, here are the top factors to think about:
- Bar Type: Different types of bars require different amounts of capital. A small intimate wine bar can be opened with a lower budget while the party bar requires more capital.
- Leasing & Buying: This is the second major factor that can have a huge impact on your bar opening costs. Renting or leasing a commercial space is a more affordable approach compared to buying it.
- Equipment Cost: The bar equipment cost can reach up to $30,000 depending on the equipment you need. From the bar POS system and inventory management system to glasswashers, ice machines, and much more, you need to make a list of equipment needed to make your bar operational.
What Is an Average Profit Margin for a Bar?
As you plan to start a new business, it becomes vital for you to understand the profit margin. The average gross profit margin is up to 70-80% for nightclubs and bars. However, the average net profit margin is anywhere between 10-15%.
The profit is not fixed, and it depends on the type of bar you open and how you minimize the operating cost. Once you establish your business there is always room to improve the profitability of your bar. Hence there is always a chance to make more profits. But how to calculate your profit margin?
How to Calculate Your Bar Profit Margin?
Calculating the profit margin of your bar isn’t difficult. Divide the net income (or profit) by the total revenue to get the exact profit margin. If you are looking to increase profit, you can always consider decreasing the pour cost.
To calculate your pour cost, you can divide your total inventory usage or cost of goods sold by total sales. Remember that a small change can make a big difference.
For example, if two bars, X and Y, are in the same town and sell around $1M each year, but Bar X runs at a 30% pour cost and Bar Y runs at a 40% pour cost then Bar X will make up to $200K more profit. This is the reason you need to focus on decreasing your pour cost.
6 Steps to Establish a Successful Bar Business in 2024
By now, you are already aware of the profit margin, and cost involved in opening a successful bar. But it’s not over yet. Establishing a successful bar business requires effective planning. You need to pin down the steps essential to successfully open a bar. Here are the key steps specifically created for beginners planning to step into the bar industry.
Step 1: Bar Concept & Brand
The first step in starting a bar is to decide on the type of bar you want to open. Is it to be closer to a craft beer bar or a sophisticated wine bar? You need to brainstorm ideas for the mood of your bar. Think about how you want your guests to feel when they visit your bar.
Always make sure to align your location with your bar concept. For instance, if you open a bar close to the university, a pub or beer bar would be a good option. Once you are done with the concept, you’ll need to make sure that you pick the right name.
Select a name that is short, easy to pronounce, and available for domain registration. If you have a long-term plan to build a chain of bars always consult a business attorney to understand the trademarking process. In fact, it’s recommended that you always consult with a trademark attorney regardless of if you plan to have fifty locations or just one.
Step 2: Develop a Bar Business Plan
Every type of business requires preparing a business plan. Without a business plan, no business can succeed. Therefore, when opening a bar, always develop a bar business plan that addresses all your questions. A business plan not only helps you determine your goals but also lets you talk to potential investors looking to finance your investment.
Elements of a Bar Business Plan
A business keeps you on track while letting you stay focused on every section. When developing a bar business plan always include the key elements discussed below.
- Executive Summary- An executive summary is where you grab the attention of your investors by writing an introduction, an overview of the budget, goals, core values, and a clear actionable vision for the product and services that define your brand.
- Financial Plan- A financial plan includes a detailed cost analysis specifying investments, risks, and rewards associated with owning a business.
- Operations Plan– The operations plan is a guidebook to your bar’s success. You need to add the pre-launch timeline, business hours, day-to-day routine, number of employees, and their responsibilities to the operation plan.
- Market Analysis- You need to conduct a market analysis based on your target customer behaviors, competitors, future expansion, location, and type of bar you want to open.
Step 3: Acquire Licenses & Permits
You need to obtain licenses and permits to run a bar legally. There are different licenses and permits that you need to get to serve beer, drinks, and food in your bar. Each state has different regulations; therefore, you always need to check with your state law. The most common licenses you need to make your bar operational include
- Business License
- Certificate of Occupancy
- Sign Permit
- Pool Table Permit
- Dumpster Placement Permit
- Fire Department Permit
- Commercial Liability Insurance
- Liquor License
- Employer Identification Number
- TTB (Alcohol and Tobacco Tax and Trade Bureau) Registration
Step 4: Search Location
Searching for a location is one of the crucial steps that have an impact on your overall business operations. Therefore, consider the following factors when selecting a location for your bar:
- Assess Target Demographics: You need to assess the target demographics based on your bar concept. For instance, if you plan to open a sports bar, you need to select a location that is convenient for sports fans, college and university students.
- Competition Analysis: Know whether the other bars are operating in your area. The less competition you have the more foot traffic you can have.
- Rent & Utilities Cost: You need to analyze the cost of rent and utilities and ensure that they fit within your budget and align with your financial plan.
Step 5: Select Liquor Supplier
Liquor is the backbone of any bar business. Most of the customers will be looking out for their favorite drinks. Therefore, search for a liquor supplier that is not only reliable but also has a variety of alcohol types. When selecting a liquor distributor consider the following factors:
- Promotional Material- Know if the supplier provides promotional materials that can help you to improve your sales.
- Payment Options & Discounts- Know the available payment methods as well as the discounts for bulk orders.
- Purchase Requirement- know the minimum purchase requirement to make sure that you can effectively manage your inventory.
- Delivery- You need to know what the expected delivery dates are and do they meet your inventory needs.
Step 6: Purchase Equipment
The sixth yet most essential step in opening a bar business is purchasing equipment. Depending on the type of bar you open, you’ll need equipment that does not affect the quality of your bar. The most essential equipment that every bar will need is as follows:
- POS System– A bar POS system is essential to automate your ordering process. Modisoft POS serves as a one-stop solution for bars and breweries. You can easily view top-performing brands, customize and design receipts with your branding, and grow sales faster.
- Bottle Coolers– The bottle coolers will sit under your bar and provide space for all the bottles and cans.
- Ice Machines- Ice machines are essential to serve chilled beverages. You’ll need a reliable ice machine that can produce large volumes of ice.
- Bar Blender- If you are looking to prepare popular blended drinks like daiquiris, and margaritas go with a reliable, commercial-grade bar blender.
Start Running Your Bar
Starting up a bar business isn’t difficult if you follow the major steps discussed above. However, you need to keep in mind that running around catering to patrons can be exhausting. You need to spend long days and nights learning how to open and run a successful bar. But once you’ve filed all the paperwork, selected the right location, and obtained all necessary inventory, it will become easier for you to manage.
Modisoft is here to help. We have all the necessary tools you need to start, run, and boost your business growth. Our tools work together as one system, helping you to save time and money- and make more informed decisions. See our bar POS system Features.
FAQs
- How to Open a Bar in Texas?
The bar startup cost in Texas can be anywhere from $110,000 to $550,000 and up depending on whether you rent a location or not. You need to follow the steps discussed in this guide. The major permits and licenses that you will need to comply with the law and regulations include- Business License- Get more details on this by visiting Texas Economic Development.
- Liquor License- To obtain a liquor license you need to visit the Texas Alcoholic Beverage Commission.
- Certificate of Occupancy- The certificate can be obtained from the local small business department.
Note: Please consult with your state’s attorney for complete details regarding permits and licenses.
- How to Promote Your Bar?
Dealing with a lot of empty seats is one of the major issues when running a new bar. The top cost-effective strategies that you can implement to promote your bar are as follows:
- Focus On Online Experience- Make the process easier for your customers. Set up Modisoft loyalty program software to increase sales and manage online orders.
- Form Partnership with Local Business- You can host pop-up events by partnering up with local restaurants and cafes. This will help you to increase sales and promote your bar.
- Advertising- Social media advertising is not only affordable but a more effective way to reach out to your target audience.
- What Makes a Bar Successful?
If you are making a gross profit of up to 80-85% then you are successful. To measure the success of your bar you need to determine the profit margin and the number of customers that visit you daily.
