How to Start a Bar

Part 1 - How to start a Bar business - Background

Bars make for a good business idea in part because they are a staple of just about every community. Obviously, bars primarily focus on serving alcohol, but the rise of America’s fascination with “pub grub” means there may be an opportunity to provide delicious food to patrons as well. Finally, bars provide an opportunity to show off your creativity by creating a unique theme and atmosphere that helps your business stand out from the rest.

Our guide is in 3 parts:

• Part 1 - How to start a Bar business - Background
• Part 2 - Our planner tool to see if this idea is the right fit for you
• Part 3 - Action plan to get started

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.

Day-to-Day and Growth

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.

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.

Part 2 - Is a Bar business the right fit for you?

Part 3 - Action plan to launch your Bar business in 90 days