Opening a bar is probably one of the most exciting but, at the same time, scariest experiences you’ll ever have in your life.
The good news?
1) You’re not alone in feeling this way.
2) You’ve got access to resources that will make your journey toward opening a bar will be a successful one.
One of those key resources? Right here. So let’s get started!
Knowing how to open a bar is about finding the right balance between having a solid plan in place while allowing for flexibility to change things as you move along. Things rarely go exactly as planned, so this article will equip you with the basic knowledge you need for success and sustainable growth as you navigate all the unknowns.
This article will help you learn the fundamentals of how to open a bar successfully, including the most comprehensive information, best practices, and resources. We’ll take you through every stage of the journey, including:
How to plan your concept and get the right team on board
What to consider when building your bar, such as start-up costs
What you need to run your bar, including technology and staff
How to drive sustainable return on investment after opening your bar
How to Open a Bar: Planning
1. Developing Your Concept
The first step to making your dream bar a reality is to determine what type you’d like to open. There are plenty of options to choose from, so we’re going to outline the most common ones to help you start defining your own bar concept.
Everyone has a special place in their heart for the neighborhood bar. These are the small, cozy establishments where locals come for a round of drinks with their friends or co-workers on a Friday night. They give off a friendly “home away from home” vibe.
The start-up costs associated with this type of bar are significantly impacted by the location and types of licenses you decide to purchase. For example, will you be serving beer and wine only, or will liquor be on the menu as well? Costs will also depend on if you purchase an existing bar or build a new one.
Compared to neighborhood bars, sports bars usually offer a wider range of food on the menu such as pizza, finger foods, burgers, and other appetizers for spectators to munch on while they watch the game.
If you want to open a sports bar, there will be some additional furniture and equipment costs to consider. For example, you’ll have to invest in some wide screen TVs, decent audio, and even satellite TV – these are the things customers will expect when they come to watch a game with their friends.
Brewpub or Beer Bar
Since the interest in locally crafted beer has risen in recent years, beer bars have become much more popular. This type of bar offers a wide selection of different beers, including the establishment’s house brewed varieties.
Start-up costs usually run in the $50,000 to $100,000 range. You could end up spending less time and money on license fees (if you sell beer only – it’s often a different license). On the flip side, if you plan on producing your own beer onsite, the upfront equipment costs can be quite high, ranging from $450,000 to $800,000. But, if you start producing a popular beer, the investment can pay off quickly and there is potential to sell the product into other markets, like retail.
Specialty bars are focused on a certain theme or certain types of drinks such as wine, scotch, martinis, etc. The menu usually includes a variety of products that are all connected to the theme or drink. For example, if the theme is gin, the menu could include a gin tasting menu, gin cocktails, and even gin-inspired food dishes.
Like with any other type of bar, start-up costs for a speciality bar will depend on location and size. But for a speciality bar in particular, the type of product you offer will greatly affect your potential revenue. If you’re interested in going this route, make sure to conduct consumer research to determine the need, interest, and target market for this type of place.
Clubs come in a wide variety of sizes and themes. They can be a small lounge/cocktail bar with space for a modest DJ set; a medium-sized seating area with a stage to host bands; or a large full-scale dance club, potentially with multiple floors.
The start-up costs associated with a club can potentially be quite large, depending on the concept. There will also be additional types of licenses to consider that go beyond the requirements of a more straightforward neighborhood bar.
Another differentiator of a club versus the other bars described above is the amount of marketing and promotion that will need to take place – and on an ongoing basis – in order to get people to see a band or come out to a dance party.
Also, when choosing a location, keep in mind your proximity to institutions like churches and schools, or quiet residential neighbourhoods. In some areas, you may run into zoning laws that prevent you from getting a liquor license or, once you’re up and running, you may get noise complaints and community backlash, which could prevent you from maintaining the liquor license you do have.
2. Funding Your Bar
Start-Ups Costs 101
In the planning stages of opening a bar, the idea always seems exciting. And it is. But you also have to be ready for reality to hit – especially when you start considering how much money you need to open a bar. One of the most difficult challenges when opening a bar is figuring out how to handle all the hidden fees and expenses.
So how much money is needed to open a bar?
As a starting point, here are some general start-up cost ratios to be aware of:
Major expenses: 75% of projected sales
Smaller expenses: 15% of projected sales
Profit margin: 4%–10% of projected sales
Here’s a quick breakdown of major expenses you will encounter as you prepare to open your bar:
Rent and utilities: 5%–10% of sales
Food and beverage: 25%–40% of sales
Staff salaries: 30% of sales; management salaries usually account for ~10% of this ratio (see part 2 of Phase 3: Enabling)
When purchasing a lease, ensure it doesn’t cost more than 10% of your total bar revenue. The ideal range for a bar lease is between 5% to 10%.
Your lease should not exceed 15% of your revenue. It might not seem like a huge difference – 10% versus 15% – but that extra 5% will have a great impact on your overall profit margin and could prevent you from budgeting for those pesky hidden costs that tend to pop up at the worst times.
On average, commercial electricity use in the United States costs 11.0¢/kWh, making for an average monthly bill of about $700. On an annual basis, bars spend an average of $2.90 per square foot on electricity, and $0.85 per square foot on natural gas. To get an accurate estimate, start with the approximate square footage of your space and then contact local providers to get specific rates.
Food and beverage
A bar’s success or failure is almost always related to its ability to manage beverage and food costs.
For bars, food and beverage costs need to be considered individually. Your beverage cost ratio (total cost compared with total beverage sales) should be considered across five combined costs:
Liquor: Typical cost is 17%
Bottled Beer: Typical cost is 23%–25%
Draft Beer: Typical cost is 21%–22%
Wine: Typical cost is 30%
Soft Drinks: Typical cost is 6%–8%
Overall, the combined beverage cost ratio should be around 21%. That means if your bar earns $30,000 per week in beverage sales, and your beverage cost ratio is 21%, you’ll pay approximately $6,300 in beverage expenses that week.
If your beverage cost goes above 21% of your total beverage sales, you need to re-examine your sales and pricing strategy.
Food cost, on the other hand, is considerably higher than beverage cost. It typically runs in the range of 29% to 32%, depending on the menu and pricing.
Create forecasts based on your bar concept, but keep in mind that your first few months are going to be trial and error. You’ll either overestimate how much you need and end up with a surplus (which may or may not become waste, depending on what it is) or underestimate customer demand and end up running out of stock on a busy Friday night.
It might take a little while, but if you pay attention to these cost ratios, you’ll be in a better position to create the right systems and procedures to control your costs and maximize your profits.
Here’s a quick breakdown of smaller expenses you’ll encounter as you prepare to open your bar:
Business registration: $100–$1,200
Consultants: Varies by region/expertise
Licenses and permits: Varies by region (see part 2 of Phase 1: Planning)
Insurance: Varies by provider and insurance type (see part 2 of Phase 1: Planning)
Design, construction, and renovations: $279,807 average total; $300–$500 per square foot for kitchen, $150–$300 per square foot for dining room (see part 1 of Phase 2: Building)
Bar equipment, smallwares, and furniture: $100,000 to $150,000 (see part 1 of Phase 2: Building)
Technology: $1,100–$7,000 + POS subscription of $70 to $400 per month (see part 3 of Phase 3: Enabling)
Marketing and promotions: Varies by venue (see part 2 of Phase 4: Opening)
To register your business, you’ll need to pay a registration fee, usually in the range of $100 to $1,200. Make sure you investigate up-front registration fees versus annual renewal fees. Some states require businesses like bars to pay a flat yearly fee, while others require payment of a percentage of sales.
Each state will have its own online license center, so just do a quick Google search using the term “business license” and include your state name.
Whatever past experiences and skills you have, when it comes to opening a bar, there are bound to be areas that you won’t know as well or that aren’t one of your strengths.
Here’s a list of general fields that bar owners usually need assistance with.
An account/bookkeeper will help you prioritize the budget, advise on your business plan, analyze financial statements, and perform payroll and tax duties.
Depends on total construction costs (budget for 10%–17% of total building costs)
An architect will help you design the floor plan, liaise with the construction team, and advise on contractor hiring.
Real Estate Agent
A real estate agent will help you assess property, negotiate a lease, provide market insight, and complete the building transaction.
You may also want to help from individuals in more specialized fields, specific to bars and bar-related issues.
Liquor License Lawyer
$150–$800 an hour, depending on seniority
A liquor license lawyer will make the process of getting a liquor license much easier (and less stressful) for you. They’ll be able to anticipate and solve problems that arise, and they’ll be an expert in the process and forms required for obtaining a liquor license in your particular area.
Per project: $500–$10,000
Hourly rate: $99–$350
A bar consultant will help you develop the overall bar concept, advise on the menu concept, and provide guidance on training and customer service.
Hourly rate: $45–$200
Don’t laugh. You’ll want to have this expert on speed dial – before, during, and after opening. You’ll need to look for a plumber who is reliable and quick to respond when you run into issues with your bar or drink stations, as well as your kitchen and washrooms.
Forecasting Sales Before You Open
One of the most important steps you need to tackle before you open your bar is to calculate your forecasted sales. Having healthy and sustainable sales is going to be the foundation of keeping your bar up and running for years to come.
Getting help with forecasting your sales
One of the biggest challenges is figuring out how to open a bar with no money, or at least, with very little startup capital. If you’re applying for external financing, the quality of your financial documents is of utmost importance.
Remember to ask for help before drafting any financial documents related to your business. Your team of specialists has expert knowledge to make sure you’re forecasting your sales correctly.
Here are two experts to lean on when forecasting your revenue before you open your bar.
Before you forecast your sales, make sure you’re asking the right questions and making realistic assumptions about your business. A bar consultant can help you fill in any unknown factors, forecast your sales as accurately as possible, and assist you in developing a investor pitch.
Once the variables that are most likely to influence your sales are determined, your accountant will help translate those factors into numbers for your financial forecast spreadsheet. Your accountant also has access to knowledge and market research that will help you access the performance of similar bars, which will provide grounding for your financial forecasts.
Business assumptions that inform your financial forecast
You may not know if the public is going to love your bar concept right away or take some time warming up to it, but there are some things that should be firm in your mind. Like how much space you need for seating, a general price range for menu items, and which days you’re more likely to be at your fullest capacity. These are all important elements you need for a financial forecast.
Before forecasting sales for your bar, here are the questions you should be able to answer about your venue:
Square footage: How much space do you have for the front of house (i.e. customer seats) versus the back of house?
Seats: How many people will be able to be in your bar at any given time? (capacity for standing and seating room)
Prices: How much are you charging per menu item?
Hours of operation: Will you be open late every night of the week or just on weekends?
Market trends: When a similar bar opened in a similar location, how long did it take for that bar to operate at 100% capacity?
Basic math for sales forecasting
Once you’ve consulted with experts and other bar owners to fine tune your business assumptions on how to open a bar, you’re ready to do some simple math to forecast your sales.
Let’s say your bar has 32 seats, and your average bill would cost $30 for alcohol and food. At full capacity, your bar would expect sales of:
32 units x $30 per unit = $960 at full capacity
Then consider how much time an average customer might spend in your bar (this will depend a lot on your concept). If you estimate that customers will stay for about two hours each and your hours would accommodate three rounds of service like this, then your final estimate for would be:
$960 x 3 = $2,880 at full capacity
But remember that your bar won’t always be operating at full capacity. Based on what you now know about your sales at full capacity, you can calculate a baseline average for the week, and then the year.
Let’s say you anticipate selling at half your capacity on slow days (Tuesdays and Wednesdays) versus full capacity on busy days (Fridays and Saturdays). You’re not open on Mondays, so your sales for that day would appear at zero. Your anticipated sales per week might look something like this:
Weekly average = $1,868.57/day
You’ll want to scale this process by multiplying your average week times 52, then divide by 12 to get an average month. This would be your baseline month.
But since your bar is just starting up, you need to assume you won’t reach full capacity for a little while. Most business owners divide their average estimates in half to come up with their final sales forecast numbers at the very beginning.
When to rework your sales forecast
Once you’re up and running, it’s best to revise your sales forecast once a month. But it’s also critical to review your forecast whenever there are major changes to your business.
Here are some key events that warrant a review of your sales forecast:
Your prices change
Your seating changes
Your operating hours change
You have real sales numbers
3. Licenses, Permits and Insurance for Bars
Every city has its own slew of requirements when it comes to insurance, permits, and licenses. The final number of each is affected by numerous factors, including your bar’s location, square footage, and staff numbers.
Licenses and Permits
As with any other type of service-oriented business, bar owners are subject to a number of licenses and permits. Serving alcohol, renovating, or having outdoor seating each require its own license or permit, which can take a long time – so start the application process as soon as you can.
In addition to nominal fees, you’ll have to provide details about your business in order to obtain these licenses and permits, such as:
Size and legal structure
Activities taking place within your business
Space you’re leasing or buying
Inventory and alcohol sales
Equipment and emissions
Renovations and changes to the building structure
Square footage of indoor and outdoor space
Staff insurance and training needs
No matter what type or size of bar you open, the most critical license you need is your liquor license.
We recommend hiring a liquor license lawyer to help you through this process because they will be able to help you negotiate with the State Liquor Authority and make sure you abide by all the zoning and state laws.
Here are a few tips to be aware of when approaching the liquor license process:
Start early. Consult a liquor lawyer and start the application process as soon as possible. It usually takes longer than what authorities predict. Since your bar depends on alcohol sales as a main source of revenue, don’t take a chance on not having your license for opening day.
Be strategic. If your bar concept doesn’t revolve around hard liquor (for example, a brewpub), apply for beer and wine license, which usually takes less time. You can always apply for the full license at a later point.
Get your lease in order. The liquor license is associated with the bar, not the bar owner(s). Double check with your own state, but license applications can usually be submitted 24 hours after the lease has been signed.
Set yourself up for success by making sure you’re fully aware of the expectations, responsibilities, and legal requirements when it comes to serving alcohol in your specific city and/or state.
Investing in insurance may not be the sexiest topic, but it’s inevitable that you’ll eventually need it once you open your bar. It’s also necessary to make sure you know how to protect yourself and your bar from lawsuits and claims.
When researching insurance companies, make sure to look for ones that specialize in bars. They will have more in-depth knowledge about the insurance needs of your business concept. Some examples of insurance companies that specialize in providing coverage for bars include EverGuard Insurance, Casswood Insurance, and Insureon.
Liquor liability insurance
For bars in particular, liquor liability insurance is critical.
Average annual premiums: $400–$3,000
Average deductible: None
General liability insurance will not cover claims against your bar that arise out of the sale or service of alcohol. That’s why you need to purchase liquor liability insurance. In some states, this coverage is required in order to obtain a liquor license.
Liquor liability insurance protects your business in the event that an intoxicated customer commits a crime, injures someone, or damages property – all risks when operating a bar, so make sure you invest in proper coverage.
The cost of liquor liability coverage depends the nature of your business, the percentage of your total alcohol sales, and the state where your bar is located.
Generally, you’ll pay more for insurance as your alcohol sales increase relative to your total sales. Liquor liability coverage is also more expensive in states where bar owners are liable for injury to third-parties caused by an intoxicated patron. Make sure your liquor lawyer advises you on your state’s regulations before you purchase insurance.
Pro tip:Both general liability and liquor liability insurance policies often have an expected or intended injury exclusion, meaning they won’t cover claims that result from bar fights. When buying liability insurance for your bar, make sure your policy covers assault and battery claims or purchase it separately.
For a more extensive list of insurance you need to run your bar and how much each one costs, check out our article on How to Open a Restaurant.
How to Open a Bar: Building
1. Design, Bar Equipment, Smallwares, and Furniture
When it comes to designing your bar, the most important thing to remember is what will help create the best experience for your guests. Your design decisions need to take into account your concept, budget, and staying within regulations. But overall, they must always consider what kind of customer experience will be offered.
Your bar should be designed in a way that maximizes efficiency. Time is of the essence after a customer places a drink order and, in many cases, they’ll be watching your bartenders as they make the drinks. Make sure to set up your bar layout in a way that makes most sense and allows them to produce the maximum amount of drinks.
The ideal bar layout will have the following items within arm’s reach of each other:
Liquor (bottom shelf in the liquor well)
Glasses (various kinds)
Shakers and other smallware
House wine bottles
Blender (if needed)
While it’s important to make sure your bartender has enough room to move, a key principle of bar design is incorporating as many items as possible into a small space.
You might consider designing your bar in an oval shape rather than a rectangular one because it will allow your bartenders to stand “inside” the bar rather than in front of it, which facilitates quicker movement and better ergonomics.
Also carefully consider which building materials you choose and the consequences they may have in the long run. For example, marble may look great and add to the ambiance of your bar, but it usually results in a higher number of broken glasses in comparison to a wooden bar.
Bar equipment, smallwares, and furniture
Total costs for bar equipment, smallwares, and furniture typically range between $100,000 to $150,000.
The most common equipment used in commercial bar design includes (with approximate prices):
Dump sinks: $600
Hand sinks: $600
3-bin sinks or glass washer: $2,000
Soda guns: $300
Ice bins: $1,800
Speed rails: $100
Blender stations: $400
Back bar coolers: $2,600
Slide-top coolers: $2,200
Ice machine and bin: $2,500
Draft beer system: $5,000–$12,000 (approximately $1,000 per line)
Total costs for these basics is usually starts north of $20,000, but since there are so many bar configurations that you can use to accommodate your bar design, you may not necessarily require each type of equipment. You can also look around for used equipment that can be purchase at a fraction of the cost, or lease equipment until you have enough budget to purchase.
Smallwares include tableware, utensils, glassware, and smaller bar equipment. Costs usually add up to about $80,000, depending on the type of food your bar will serve.
For a bar, glassware is particularly important to consider since you will be going through large quantities every night. The type of glasses you need will depend on the type of drinks you’ll be offering. Common bar glasses include:
Highball and Collins
Rocks and Old Fashioned
Cocktail and Martini
The number of glasses you need will depend on the size of your bar and number of customers you anticipate serving on a daily basis.The average number is about 18 types of glasses and 12 to 48 of each type for a bar that serves 50 to 75 customers every two hours.
A typical budget allocated for furniture when constructing a bar ranges between $5,000 to $40,000. The final cost will depend on the size of your bar, your concept, and number of seats.
2. Inventory Management
Bar Inventory Management Best Practices
Inventory management for a bar comes down to having solid processes in place. For bars in particular, it’s important to take weekly inventory of your food stock – at minimum frequency. For alcohol, you should be doing this daily.
Liquor shrinkage (i.e. lost product) is one of the top reasons why bars fail. If your bartenders are overpouring by even just one quarter of an ounce, in one year you’ve suddenly lost thousands of dollars.
Let’s take a closer look:
1oz. drink = $5.00 = $1.25 per quarter oz.
1 bartender pours 40 drinks/hour
Total hours of service = 7 hours
Here’s what all that overpouring can look like:
$1.25 x 20 drinks per hour x 7 hours = $175 profit loss per bartender
$1.25 x 40 drinks per hour x 7 hours = $350 profit loss per bartender
On average, you’d be losing $262.50 per shift for every bartender, which equates to $1,837.50 per week and losing$95,550 to shrinkage in just one year. And that’s just for one bartender!
To avoid this huge loss, make sure to weigh your liquor bottles at the beginning and end of every shift. If overpouring is a consistent problem, you’ll need to retrain your staff. Giving them a pour test will ensure they know how to properly pour drinks, prevent overpouring, and save you money.
Here’s is a simple 5-step process for taking bar inventory on a daily basis:
Step 1: Create a master inventory list for your bar. Focus on the following columns:
Alcohol type: beer, wine, spirits
Location: bar back, storeroom, walk-in, or any other part of your restaurant where your alcohol is stored
Step 2: Count the open bottles at your bar and record the amount you have in your master list.
Step 3: Count the bottles in every liquor storage area, including at the back of your bar, and in the walk-in and storage rooms. Make sure you have columns in your master list for cases and individual bottles.
Step 4: Weigh your bottles. A quick way to do this is by using a scale that can be connected to a computer. This way, you can upload the results automatically (manual inputs into your master list also works).
Weigh an empty liquor bottle and record it in your master bar inventory list. At the beginning of each bar shift, weigh your bottles and record the numbers in your bar list.
The weight of the liquor itself is the total weight on the scale subtracted by the weight of the empty bottle. At the end of each shift, reweigh each bottle and record in your list. By the end of the week, you should be able to reconcile your numbers with every ounce of liquor sold.
Step 5: Reconcile your liquor sold versus inventory. At the end of each week, add up the daily total weight counted for each bottle recorded in the master list and the amount of liquor shipments you received that week. Look at the sales report generated through your POS to see how much liquor was sold during that week and compare this number against the amount that was left at the end of each shift.
Here’s the formula to use:
Starting inventory + received inventory – ending inventory = the amount of liquor inventory sold.
If there are large discrepancies between your sales reports and inventory, that’s a sign that something’s wrong – it could be overpouring of even employee theft. You’ll need to investigate as soon as possible to figure out the problem.
If you’re looking for more information on managing inventory for food, we cover processes and best practices in our article on How to Open a Restaurant.
Time is money. For some bar owners, investing in inventory software is worth it because it frees up a huge chunk of their time, letting them to focus on other parts of the business. Look for inventory management software that will aggregate data and present you with at-a-glance information about historical trends in ordering, discrepancies, and costs.
Here’s a list of three inventory management platforms to get you started in your research:
This app is specifically designed for bar inventory. It connects your inventory with your POS and allows you to reorder stock through their online system. You can also use several devices at the same time to record inventory. They also offer compatible scanning and weighing equipment for the fastest and most accurate inventories and detailed reporting.
Partender offers similar features to Bevinco Mobile, but also lets you record your numbers using multiple devices. You can snap a photo of the liquor bottle and tap where the liquor level is on the bottle.
TouchBistro is a well-known software is used in over 100 countries. A major benefit of this software is that it’s a complete point of sale (POS) system, which includes inventory tracking and other software integrations, so it’s easy to understand how all the elements of your business impact each other.
How to Open a Bar: Enabling
1. Technology for Your Bar
The most common and useful technology that a bar can have is an efficient POS system. POS systems have undergone groundbreaking innovations in recent years. Gone are the days of the simple cash register.
POS systems are now more like an operating system for your entire bar. With the right system, POS software can help manage your staff and inventory, build customer loyalty, and provide valuable data that will enable you to make more efficient and impactful decisions for your business.
Choosing Your POS System
The type of POS system you choose for your bar will depend on your venue, payment processing requirements, and, ultimately, your priorities and strengths as a bar owner.
No matter what, it’s important to consider all the options available for POS systems before making a final decision about what’s best for your bar.
Traditional POS systems, also known as “legacy” POS systems, have been used in the food scene since the 1980s. A traditional POS system usually consists of a network of stationary terminals with touchscreens connected to an internal, back office server. All payment processing is done at the terminal.
Common functions of traditional POS systems include managing reservations, splitting bills between customers, inventory management, and limited sales reporting and data forecasting.
Considerations for traditional POS systems are that they require an upfront license fee, monthly maintenance, need to be installed by a technician, and you can’t access your data offsite.
Advancements in tablet technology (i.e. iPads) have made mobile POS systems a great option for bars and restaurants. iPads have taken the stationary POS terminal and literally placed it in the palm of a server’s hand.
The main reasons bar owners are embracing mobile POS technology are:
New payment processing requirements and options
To provide better security for customers, bars and restaurants are now required to accept chip-and-pin (EMV) credit and debit cards. Also, more and more customers want to pay with e-wallet apps, like Apple Pay and Google Pay, which means there is pressure for businesses to accept these forms of payment as well.
As a best practice, one of the easiest ways to comply with ever-evolving data security requirements is to use a mobile POS system that integrates with handheld credit and debit card machines. These can be taken right to the customer’s table for each transaction.
Cloud installation and easy access to data
Mobile POS systems don’t require onsite installation for their software, because they can do a cloud-based deployment. Hardware setup at the bar can usually be completed within a day or so. Bar owners are also able to access all their sales reporting and financial forecasts from anywhere in the world, and on any device.
A mobile POS lets you easily integrate other management software directly within the system, so additional apps meant for labor management, customer loyalty, inventory, and more are all connected.
Having a system like this gives you more key information you can use to make better business decisions and optimize your operations.
Hiring Your Team
When it comes to staffing your bar and running your business, the team you select will be absolutely critical to your success. You may have an amazing menu with an innovative space, but if your team isn’t able to deliver on an equally incredible customer experience then all your work and money will be for nothing.
Choosing a manager: Many owners choose to manage their own bars, but consider this decision carefully because it will mean that your entire life will be devoted to the bar. If you decide to hire a manager, make sure they are as passionate about your vision, have previous bar or restaurant management experience, and are highly organized.
Choosing bartenders: Being a good bartender requires many skills – not just being able to make a great drink. Anyone can learn how to make cocktails with enough practice and repetition. When hiring your bartender team, look for people who are focused on providing outstanding customer service that’s in line with the tone you’ve set for your bar concept.
Choosing security: Your bar concept will also determine how much security you need. You probably don’t need a bouncer if you have a small wine bar, but if you’re opening a massive multi-story nightclub, you’ll definitely need bouncers on a regular basis.
When considering the ideal labor ratio for your bar, aim for a target of 25% to 35% of gross sales. Get familiar with your state’s minimum wage, since it could be higher than federal minimum wage.
Each state will also specify if a tip credit is allowed, which allows you as the employer to count a portion of the tips earned toward a tipped employee’s total wage (tipped minimum wage + tip credit = general minimum wage).
The Department of Labor defines a tipped employee as someone who “customarily and regularly receive more than $30 per month in tips.” If your state permits tip credits, remember that it’s still your responsibility to make sure your tipped employees make the equivalent of minimum wage after tips.
You’ll also need to create a process around staff schedules. In the U.S., many states have passed “fair scheduling” acts that require managers to give their staff at least two weeks notice when assigning shifts, and provide additional payment for coming into work last minute.
Schedules and wages are both factors that affect your ability to find – and keep – top talent.
How to Open a Bar: Opening
1. Operational Finances
Understanding Your Data and Financial Reports
Congratulations! You’re about to open your business and see your vision come to life. To keep that vision alive for years to come, now is the time to make sure you understand your financial reports.
Here are the most important financial reports that you should pay attention to and learn to analyze in as much depth as possible, empowering you to make the best business decisions:
Food and beverage sales report
Your food and beverage sales reports should be generated on a daily, weekly, and monthly basis.
Sales reports are a standard feature of any cloud-based POS system, showing you:
Daily, monthly, weekly sales activity
Sales by employee
Sales by menu item
While your sales reports are only part of your business’ financial health story, they act as the basis for generating any other type of report.
Prime cost report
Prime cost is the total cost of sales plus all payroll-related costs (including management salaries, hourly staff, as well as payroll taxes and benefits).
Your prime costs will roll up into your profit and loss statement (see below). Best practice is to be generating a weekly prime cost report.
To calculate your prime costs, you will need to use your POS to generate the following reports:
Weekly labor cost report
Weekly cost of goods sold report
Weekly sales report
You can then calculate your prime costs:
Cost of goods sold (gross sales) + Total labor cost (include taxes, benefits and insurance) = Prime cost
Now calculate the percentage of your prime costs against total sales. Your prime cost ratio should be around 60% or less. If your ratio is greater than 60%, it means you’re spending too much on inventory and labor. It’s time to cut down.
Profit and Loss Statement
A profit and loss statement is used to review the total revenue and expenses of a business. At its most basic level, this report reflects costs that are subtracted from sales.
This number gives you an idea of your bar’s financial health. A profit (i.e. positive result) indicates that your bar is doing well. A loss (i.e. negative result) means that you need to reassess your business strategy and decide where you can cut costs or increase revenue.
For new bars without a bookkeeper, we recommend generating these statements monthly. However, you may find it helpful to generate a weekly report in the beginning, so you have a more real-time snapshot of the overall health of your business as you grow.
Your inventory report will help you accomplish three major goals:
Tracking the number of goods in your bar
Determining the latest unit cost of each item
Calculating the total cost of your current inventory
You should be doing inventory reports every week, at minimum – with the exception of alcohol, which should be done daily.
Cash flow statement
Cash flow is literally how much cash you have on hand to pay your bills. As a new bar owner, you’ll need to know this on a pretty much constant basis, so it’s best to generate this report on a weekly basis.
There are two main components of cash flow: inflows and outflows. Cash inflows are the combination of cash from customer, sold assets, and financing sources. Cash outflows are the combination of cash spent on operating costs, asset purchases, and payments to financing sources.
Total cash flow within a specified time period is your cash inflows minus your cash outflows. Simple as that! When your cash inflows are more than your cash outflows, it means that you can start considering how to invest in growing your business – and how you want to celebrate!
2. Marketing & Promotion
How to Write a Marketing Plan for Your Bar
Once you open your doors to the public, continual marketing and promotion will be key to keeping customers coming back. Using a combination of digital and traditional marketing tactics is the best approach to promoting your bar and maintaining business growth.
Before investing in marketing initiatives, it’s best to write a marketing plan. These are the steps to crafting a solid marketing plan for your bar:
Step 1: From your business plan, revisit your brand’s mission, vision, and position statements and make sure that you are consistent when applying a marketing lens.
Step 2: Remind yourself of your target audiences and ensure your marketing campaigns address at least one of these segments.
Step 3: Perform a SWOT (strengths, weaknesses, opportunities, and threats) analysis on your competitors.
Step 4: Define your market differentiators by repeating the SWOT process on your own bar.
Step 5: Craft an elevator pitch with messaging that can be used in your promotional activities.
Step 6: Define and prioritize your marketing objectives, ensuring they serve at least one of three objectives – branding, customer acquisition, and/or customer retention.
Step 7: Decide on the right mix of digital and traditional marketing strategies.
Here are a couple of marketing and promotional ideas to get you started:
Happy hour promotions:
Does your bar have a theme? If so, play on that. For example, if you have a tropical island theme, choose your slowest day of the week to promote and discount Piña Coladas.
Are you located in the heart of the financial district? Schedule a discounted cocktail hour for after work so people can come by with their colleagues to relax after a long day.
Events and community partnerships:
Consider collaborating with other local business owners to host a community event such as a street festival to increase foot traffic in your area. A good way to get involved is to join your local Business Improvement Area Association.
Keep an up-to-date events calendar on your website. Make sure it’s easy to navigate and that each event listing is search engine optimized using keywords related to the event.
Incentivize people to spread the word about your events, especially through social media. Create a unique hashtag and encourage people tag your business in their photos. In exchange, you could offer perks like special food or drink offers.
Now that you understand the basics of how to open a bar, you’re on your way to making all those hopes and plans a reality. Armed with solid plans, processes, and reporting – plus the right resources! – you’re ready to create a strong foundation for your business success. Cheers!
Silvia is the former Digital Marketing Manager for TouchBistro. During her time with TouchBistro, she managed and coordinated content for the RestoHub blog.