If you’re thinking about running your own bar or club, do you know the real costs involved? The bar and club industry is growing and more popular than ever. It’s also extremely competitive, so understanding all the costs involved can give you the information you need to walk into bar management with a good idea of the expenses involved.
Why? Because one of the biggest reasons that businesses fail is cashflow management and the bar and restaurant industry is no exception. This is why it’s crucial to understand the real bar costs when opening a new venue – from startup and operations to licensing and permits.
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Before you’re even close to opening the doors of your bar or club you’ll need to consider the startup costs.
Startup costs will depend on a variety of expenses, with each bar having a different specific set of costs. Here are the main factors to consider as you determine your startup costs:
The location of your bar is going to play a big role in startup costs. Whether you’re buying an existing bar or renting the premises, cost will vary in different areas. Buying an existing small neighborhood bar may cost you as low as $25,000 while building a new bar in the downtown district of a city could cost you more than a million dollars.
Type of bar or club
Whether it’s a small pub, sports bar, brew pub, or busy club, the type of bar you want to open will also make a difference to startup costs. While you can open a neighborhood bar for approximately $25,000, starting specialty bars, such as a brewpub or wine bar, may cost upwards of $100,000 depending on the product you’re serving and where you’re located.
If you’re planning on opening a club, be prepared for higher costs. The opening costs for a club can be over $500,000 due to higher expenses for space, utilities and equipment.
Renting or purchasing location
Another startup consideration is renting or buying the location. If renting space, you’ll need to factor in the expense of a security deposit and several months of rent in advance. The other option is to purchase a location and pay a mortgage, which is usually between $200,000 and $850,000 depending on size and location.
Buying an existing bar or club
Startup costs will also vary on whether you’re buying an existing bar or club or starting one of your own. You can purchase a bar that’s already established for as low as $25,000. Starting your own means that you’ll have to add in the additional opening costs of architecture and design, building permits, and construction costs.
Cost of renovations
Buying an existing bar or club may mean renovations to design the interior to reflect your brand and concept. After factoring in new fixtures, lighting, furniture, and building permits, the costs of a renovation can range from $50,000 to $100,000.
Whether you’re buying an existing bar or club or starting your own, you’ll want to ensure you have the right equipment to run your business. This may mean adding to existing equipment or buying new. To keep costs to a minimum, consider buying second-hand equipment when possible.
Some of the things to consider for running a successful bar include:
- Bar equipment and tools
- POS system and other technology
Ongoing inventory will be part of your daily operating costs, but you’ll also want to factor in your starting inventory for the drinks and food you’ll be serving when you first open. Determine what types of alcohol you’ll need, such as beer, wine, and liquor. Don’t forget mixes if you’re serving cocktails and mixed drinks.
Evaluate your menu and build an ingredient list, including alcohol and food. Then forecast how much of each you’ll need based on capacity of clientele for the size of your bar or club as well as your projected opening sales.
Don’t forget to add an operating reserve to your startup costs. This money is there to cover unexpected expenses, such as repairs, or cash flow problems. An optimum operating reserve of $75,000 to $100,000 is recommended to give your bar or club a safety net.
Licenses and Permits
In order to run a legitimate bar or club, operating costs will need to include all the necessary licenses, permits, and insurance:
You’ll need a business license to operate your bar or club. The cost will vary in each city or state and will usually include a filing and registration fee. You’ll need to renew your business license each year, with the annual cost averaging from $200 to $1,200.
Beer and wine license
If you’re going to be selling alcohol on the premises, it’s mandatory for every bar and club to have all the right licenses. Types of licenses and their cost will vary from one city to the next. For example, a beer and wine license in California will cost between $3,000 and $5,000 annually.
Don’t forget that after being approved for a license, it may take up to two months to be issued, so plan ahead.
In many states, you’ll need a license to play both recorded and live music in your bar or club.
Another bar and club operating expense that you can’t avoid is insurance. Expect to pay between $2,000 to $6,000 annually for insurance depending on the capacity and size of your bar or club. Insurance policies can provide coverage for items such as building, equipment, and liability insurance.
Once your bar or club is open and running, you’ll move from startup costs into operating costs. These are the recurring costs and expenses for maintaining the operation of your business on a daily basis:
After the initial startup costs, inventory will become an ongoing real cost of running a successful bar. You’ll need to keep your bar well-stocked with alcohol and food so you can give your customers what they want.
Implementing inventory software tools can help you stay on top of the control and management of inventory, accurately determining your weekly costs each week. Also consider reducing lost beverage and food sales with bar analytics.
The costs of running your establishment will include utilities, such as electricity, gas, and water. To reduce utility costs, consider investing in energy-saving measures such as using energy-efficient lighting and regularly maintaining equipment.
You won’t be running your bar on your own. Payroll will be a big cost as you hire the right team of employees which includes bartenders, managers, servers, and kitchen staff if you’re serving food.
Taxes and fees
There are a variety of different taxes and fees that apply to bars and clubs. These requirements will vary depending on the city and state where your establishment is located. Some of the taxes and fees you can expect to pay include:
- Sales tax that’s applied to drinks and food sold.
- Workers compensation fees and insurance.
- Federal taxes.
- City and property taxes.
Unless you have the knowledge and skills to manage the accounting and bookkeeping aspects of your bar or club, you may want to hire accounting services. Accounting software is another option, with many small-business options being available.
Hiring the services of an attorney ensures that you’ve covered on all legal grounds when it comes to licensing, permits, and taxes. Otherwise, it’s easy to be unaware of some of the legalities involved with bar and club management. Costs for legal services can be a one time fee or for continued advice throughout the year.
Marketing and advertising
Successful bars and clubs focus on marketing and advertising to reach existing and new customers. You’ll want to allocate some of your monthly budget towards marketing. Using tools such as social media and other digital strategies, you’ll be able to find affordable ways to market your business.
Calculate in the cost of miscellaneous expenses, such as maintenance repairs.
Profit and Loss
After opening a bar or club, you should look for a return on investment (ROI) in about two years. Anything less than two years can be considered a success, but having a longer ROI isn’t a big deal so long as your business stays sustainable.
You’ll also want to take the time to learn how to calculate your profit margin and understand the key metrics that contribute to the success or failure of a bar or club.
During the first two years after you open your doors, focus on three main areas as you navigate the profits and losses of managing the real costs of running your business:
- Watch your metrics and profit/loss numbers.
- Correctly manage your inventory.
- Market your business.
The real costs of running a successful bar or club can be high, but the investment can be both profitable and rewarding. When you take the time to understand the breakdown of costs, such as startup and ongoing costs, you’ll have the knowledge to open a bar or club… and succeed.