Thinking about Opening a Bar in 2024? Here’s a Complete Guide to Getting Started in the Bar Business

Thinking about Opening a Bar in 2024? Here’s a Complete Guide to Getting Started in the Bar Business

Thinking about Opening a Bar in 2024? Here’s a Complete Guide to Getting Started in the Bar Business

The neighborhood bar is built into the fabric of many American towns and cities. If you have a passion for hospitality, and want to open a bar, you’ll be in good company. The US bar and nightclub industry includes about 40,000 establishments with combined revenue of about $24 billion annually, according to the Bar and Nightclub Industry report by Dun & Bradstreet First Research

Here’s what you need to know about opening a bar in 2024. 

State of the Bar Industry

The bar industry was hurt by the pandemic but it has been picking up again. “Over the five years to 2023, revenue (in the bar industry) will increase at a CAGR of 2.2% to $36.4 billion, including a decline of 0.3% in 2023 when profit will reach 6.3%,” according to the IBISWorld Bars & Nightclubs Industry in the US. report.

This industry includes bars, taverns, pubs, lounges, nightclubs and other drinking places that primarily prepare and serve alcoholic beverages for immediate consumption, explains IBISWorld. Bars may provide limited food services. Industry codes are NAICS Code: 722410 and SIC Code: 5813. 

Sales are steadily recovering but are not expected to experience complete recovery (to pre-pandemic levels in 2023) due to inflation, according to WSWA’s Sip Source end of year report for 2022. Related businesses that are growing include wineries, and breweries, according to US Census data.

Like any hospitality industry, there are numerous challenges in running a successful bar, but it can also offer a good business opportunity in the right location. 

Are Bars Profitable?

Like any small business, bars can be profitable—or they can lose money. Even when everything falls into place, it can take several years for a bar to become profitable. 

While profit margins on alcoholic beverages themselves can be high (as much as 80% to 85% gross profit) there are other costs that will significantly impact profitability, including lease or rent, labor costs, licensing, taxes, and insurance.

Success in the bar business depends on key factors such as:

  • Location
  • Marketing
  • Labor
  • Economic conditions

As with any small business, your bar’s financial success will depend on how much revenue you can generate while managing expenses. Delivering a great product to your customers, while retaining great employees, will be key to thriving in this competitive and constantly changing industry. 

What To Consider in Choosing the Right Location

There are several factors to consider when choosing a location for your bar:

Target Market: You’ll want to clearly understand who your potential customers are and where they go to drink. Location will be a key driver in identifying the right demographics. If you want to serve tourists, you need a location that attracts a lot of visitors. Sports fans may be key to filling a sports bar. College students and young professionals could be another possible market. The US Census Bureau offers free tools for market research. 

Transportation: Bars and restaurants do well in high-traffic areas. Bars in shopping districts, city centers, universities and other areas with lots of food traffic may do very well. Public transportation may be helpful to bring in business from those who don’t want to drive. Some bars can thrive in areas that require customers to drive, provided ample parking is available. Regardless, the location should be easy to find and reach.

Competition: Pay close attention to your competition. Sometimes the fact that other bars are succeeding in the area is a good sign (Las Vegas and Nashville come to mind), but you may also want to avoid an area where competition is too stiff. 

Size and Layout: You’ll need to choose a location that has enough space to accommodate the number of customers you want to serve, without wasting space (which can be expensive). The bar area, seating, restrooms, kitchen (if you plan to serve food), and outdoor space will all be key. Remember to factor in space to accommodate customers with physical limitations. 

Safety: Most business owners will want customers to feel safe coming to or leaving their business, and it’s even more important in the case of bars where people will leave after they have been drinking. Research crime rates carefully and visit the location at different hours to get a feel for how customers may perceive safety. 

Zoning and Regulations: Bars are often regulated and these regulations can make or break your business. Carefully research regulations before you jump in. 

Competition. How many other bars will you be competing against? Check out this list of America’s drunkest cities to get an idea of how many bars, breweries and nightclubs you’ll be competing against. 

Bar concept. What type of bar do you want to open? A full-service bar or a specialty bar  like a sports bar, wine bar, or beer bar that serves craft beer? 

It may make sense to buy an existing bar. You won’t have to buy as much new bar equipment, and you may be able to make tweaks to the drink menu or even overhaul the bar concept to make it more appealing. 

When you start your bar business you’ll need to take a number of steps to set it up properly. Choosing and creating a business entity is one of them.

With a bar, you definitely don’t want to operate as a sole proprietorship. Although many businesses in the US operate that way, there is no separation between the business and the owner’s personal finances. There is no personal asset protection, and in this type of business, that’s extremely risky. (In addition, you may not be able to get insurance, a business bank account, a merchant services account etc. unless you form a legal entity.) 

A partnership opens up each partner to unlimited personal liability, so it’s also not an ideal business structure for this type of business. 

Limited Liability Company (LLC): With a limited liability company (LLC) the members can avoid personal liability. Profits and losses flow through to the individual members’ personal tax returns. 

Corporation: A corporation is a completely separate legal entity from the business owner, and it can be an attractive entity for businesses that want to get investors. 

Note that an S corporation is a tax election. You can form a corporation or LLC and elect to be taxed as an S corporation. 

Licenses and Permits Needed To Open a Bar

You may need any number of licenses to legally operate your bar, depending on state and local regulations. These include:

General Business License: This license allows you to operate a business in your city or county. The requirements and fees vary. Learn how to get a business license here

Liquor License: Often the most difficult (and expensive) license to obtain, it’s a must for bars since they serve alcohol. In some local areas there will be a cap on the number of liquor licenses they can issue, which can make it more difficult to obtain one. 

Food Service License: If you also want to serve food, you’ll need to get a food service license (which may be called a food license or food service establishment permit). Typically that means you’ll need a health department inspection of your kitchen.

Music License: Unfortunately, you can’t simply hook your phone up to speakers and play music from your Spotify account in your bar. If your business plans to play live and/or recorded music in your bar, you’ll likely need music licenses from the major performance rights organizations: ASCAP, BMI, and/or SESAC. Learn more here

Building Health and Safety Permits: Depending on your location and the condition of your building, you might need permits related to fire safety, sanitation, and more.

More Helpful Resources: 

TTB (The Alcohol and Tobacco Tax and Trade Bureau) enforces the provisions of the Federal Alcohol Administration Act (FAA Act) to ensure that only qualified persons engage in the alcohol beverage industry. Certain alcohol businesses must file an application with and receive approval from TTB before engaging in business. Learn more here. 

Find state alcohol laws and regulations here

Learn about tipped wage regulations here

Hiring and Training Staff

Labor is a major expense for most bars, and finding, hiring, and keeping the right staff is one of the biggest challenges this industry faces. The median annual wage for bartenders is $34,490, according to the U.S. Bureau of Labor Statistics

You may also need waitstaff, bar managers, and in some bars, hostesses and/or security personnel. Some bars hire someone to do marketing, or outsource it.

Depending on the level of skilled employees available, bar owners may need to invest heavily in training bar staff. At a minimum, a bar should have a written employee manual. You may also need opportunities for hands-on experience and some type of ongoing training to improve skills. 

Some bars are investing in technology that allows them to reduce staff, such as ordering with QR codes or even self service beer taps. 

When choosing payroll software, consider one that supports employee time tracking and tipped employees. 

Inventory Management

If you want to run a profitable bar business, managing inventory is crucial. It can help you avoid overstocks (product you can’t move) or stockouts (where you run out of product that customers would buy if available). This can also lead to customer satisfaction, as they can get the drinks they want.

Inventory management is also a key driver of profitability because it gives you direct insights into your most profitable (and least profitable) products, so you make smarter decisions about pricing and promotions.

Here are some ways to ensure good inventory management: 

Invest in an Inventory Management System: A good inventory management system is the starting point for well-managed inventory. Inventory management software can track your stock and help you understand what’s moving and what’s not. It can help you identify wastage and may even help spot employee theft. As mentioned, it can also help you make smarter pricing decisions. 

In addition to inventorying alcohol and mixers, you’ll want to periodically inventory essential supplies like glassware, flatware, napkins and other crucial supplies. 

Often an inventory management system works closely with the bar’s POS system (point of sale system). 

Take Inventory Regularly: Depending on volume, you may want to do this on a weekly, bi-weekly or monthly basis. The important thing is to make it a regular practice so you don’t run into overstock or understock situations. 

Your staff should understand how inventory affects the business so they don’t overpour, for example. Understanding that inventory will be taken regularly may also help reduce theft. 

Marketing and Promotion

There are lots of ways to market a bar, and like any business owner, you’ll find some work better than others. But if you don’t engage in regular marketing, you’ll likely limit your growth and potential profitability. 

Run Happy Hours and Special Events: Offering a happy hour or specials during holidays or during slow periods can help bring in business, especially if you do a good job getting the word out. Bar bingo, live music or other special events can help draw crowds. 

Get Active on Social Media: Using social media marketing your bar can be successful in driving business, but to really take advantage you need a regular investment in marketing on social media platforms like Instagram, Facebook, Twitter and TikTok. You may need someone to curate or moderate these platforms. 

Use Email Marketing: Using email marketing can be an effective way to stay in touch with loyal customers and get them back to your bar by letting them know about upcoming events and specials. Email marketing is a form of marketing that’s entirely within your control, so don’t overlook it. Consider a loyalty marketing program to reward frequent customers and encourage repeat visitors. 

Build Your Online Presence: When people search for bars in your area, does your business show up in search engine results (SERPs)? Local SEO can help your business appear on those results. You’ll also want to make your business’s Google Business Profile is kept up to date, and respond to reviews on Yelp, Tripadvisor and other platforms.  Getting customers to leave positive reviews can also help bring in more business.

Engage With Your Community. Your bar may have lots of opportunities to interact with your community, ranging from participating in local events to partnering with other businesses, to partnering with local charities and nonprofits. You’ll need to pick carefully so you don’t spread yourself too thin, but getting your business out there can be a great way to bring in more business. 

Build a Great Reputation. When you get a customer in the door, helping them have a positive experience is one of the best ways to ensure they will come back, tell their friends or share their experience on social media. Lots of factors can contribute to a positive experience, including how clean your bar and restrooms are, how welcome customers feel, as well as the quality of the drinks and any food they order. 

Financial Planning for New Bar Owners

Your bar won’t likely be immediately profitable, and startup costs can run tens of thousands of dollars or hundreds of thousands of dollars, depending on whether you’re buying the real estate 

That means you’ll need to plan carefully to make sure you have the funding you need to get to that point. Here are several crucial steps: 

Create a business plan. A detailed bar business plan can help you plan for your bar business income and expenses, and help you understand what your business will need to do to achieve profitability. Need help? You can get free help with creating or refinancing your business plan from SBA Resource Partners SCORE and Small Business Development Centers

Separate your business and personal finances. Commingling personal and business funds can create headaches at tax time, and can also jeopardize your legal structure. You may need to use personal funds as you launch your business, talk with your accountant about the best way to do that. 

And when it comes to paying yourself, don’t pay personal expenses from your business account. Instead, pay yourself a salary or owner’s draw then use personal funds to pay those expenses. Blurring the line between business and personal expenses can be very costly in the long run. 

Get a business checking account. You’ll want a business checking account as the central place for your business income and expenses. (This can also prove helpful if you want to apply for a small business loan, as many lenders will require proof of business revenues.) 

Get a business credit card. A dedicated business credit card will be helpful for business purchases, and you may be able to earn some serious cash back rewards or travel miles. A 0% intro APR credit card can be helpful for financing purchases interest-free for several months. Best of all, business credit cards are available to new business owners as most will use the owner’s personal credit (not business credit) to qualify the business. 

As a bonus, most business credit cards report to business credit bureaus, and can help establish business credit if you pay on time. 

Set up your accounting system. A good accounting and bookkeeping system, kept up to date, will be one of your most valuable financial tools. It will help you track income and expenses, and may integrate with your inventory management system. You’ll also be able to use it to generate financial statements. 

Get vendor credit. Your suppliers may allow you to buy what you need for your business and pay for it later on net terms. (Net-30 accounts means the bill is due in 30 days.) Supplier credit is very common in the hospitality industry and it can be useful for managing cash flow.

Secure funding. There will be times when cash flow is tight, and access to capital can be essential. A business line of credit is the most popular type of financing for many businesses, and for good reason. Once you secure funding through a LOC you can use it for working capital needs.

How Nav Can Help 

Running your own bar—or any small business—can be hard. Nav can make it easier for small business owners with tools and resources to monitor your business  financial health, view your top financial options from 160+ trusted loans and credit cards based on your business data, and more.

This article was originally written on March 1, 2024.

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