How Much Does it Cost to Open a Bar?
So many people dream of opening a bar. It makes sense. When you are in the bar business, your job is showing people a good time, providing a place for people to hang out with friends and make new connections, and of course, successful bars can be quite lucrative.
But how much does it really take to make this dream a reality? There are lots of financial considerations to take into account, and there are also many risks that come with starting a business in the highly competitive food service industry.
In this article, we hope to clear up the confusion, and provide you with the information you need, so that you can fully understand what types of costs go into opening a bar. Hopefully, reading this article will be one step towards making your dream a reality.
The U.S. bar and nightclub industry is among the largest in the accommodations and food service sector. The entire industry is worth roughly $28.6 billion as of 2022, and it grew 0.9% every year between 2017 and 2022. Moreover, there are 71,634 Bars and Nightclubs businesses in the US as of 2022, an increase of 2.1% from 2021.
The good news for prospective bar owners is that the general consumption of alcoholic beverages in the United States has increased in recent years, and in 2019 total alcoholic beverage sales reached over 250 million U.S. dollars.
There are currently over 350,000 people employed in the bar and nightclub sector, and wages for employees end up being one of the biggest, if not the biggest operating costs for bar owners.
Unlike many other businesses in the accommodation and food sector, bars and nightclubs have a very low market share. In other words, bars are primarily small businesses that are run independently of large businesses and corporations. For the aspiring bar owner, this is probably good news since competition from large corporate interests and franchises is slight.
When we talk about bars, one of the main things you'll have to consider is the type of business. Are you going to open a bar, tavern, pub, or nightclub? While all of these establishments serve drinks, the terms are not synonymous.
Bars typically only sell drinks (though there are certainly exceptions), while taverns and pubs also offer food. Nightclubs sell alcohol, music, and entertainment and are generally open only at night, as the name might suggest. Determining what type of business you are going to open up is certainly one of the first things you will want to do.
Average Cost to Open a Bar
The cost of opening a bar is between $110,000-$850,000, and the average cost comes out to 425,500. The price differs significantly whether you are renting/leasing or buying.
Opening a brand new bar is more expensive than buying an existing bar, which is just one of the many factors that contribute to this price. In what follows, we break down the different factors that contribute to the cost of opening a bar, as well as some of the first steps you need to take before investing money in your business venture.
The Breakdown: Bar Startup Costs
- Buying or financing equipment
- Purchasing or leasing a space
- Operational costs
- Licenses and permits
- Inventory and supplies
It is incredibly important for the future prospects of your bar to understand these different factors, and that's exactly what we plan to help you do.
The First Step: Formulating a Bar Business Plan and Bar Concept
One of the first steps towards opening a bar is formulating a business plan and a bar concept. This will be very important for you to have in order to figure out how costly opening a bar in your location and industry niche will be.
Moreover, having a solid business plan is essential for securing funding for business ventures like opening a bar. Thus, you will want to determine industry standards and competition, your operations plan, your financial analysis, your marketing strategy, and your launch plan.
Moreover, you will want to figure out your bar concept. There are many different types of bars. Will you be opening a sports bar, a dive bar, a nightclub, a high-end cocktail lounge, or something totally original?
Determining your bar concept will be essential to constructing an effective business plan, and it will also help contextualize the costs of opening a bar as they pertain to your situation.
There are some important questions you can ask yourself to help figure out your bar concept and be able to articulate it in a detailed and comprehensible way:
- What are you passionate about?
- What are your area’s demographics?
- What is your target demographic?
- Is your area oversaturated with certain kinds of bars, and are there areas that are underserved?
- What is your ideal venue size, and does this size work well with the type of bar you want to operate?
- What are the current consumer trends, and how might they change?
- What will make your bar unique and make it stand out from competitors?
If you can adequately answer these questions, then you should have a good bar concept, and this will have a considerable effect on your marketing strategy, financial analysis, analysis of competitors, and everything else associated with crafting a business plan.
In-Depth: Bar Startup Costs
1. Location and Building Costs
One of the most significant factors that contribute to the cost of opening a bar is the location and property values in that location.
If you are hoping to open up a bar in a dense metropolitan area, then it is more than likely that the property values will be quite high, while property values in a small or mid-sized town would be comparably cheaper.
Based on your business concept, you should already have some sort of idea about what size you want your establishment to be. The size of the building will also have a significant effect on costs.
The quality of the building is another important factor. If the building or space that you would like to purchase needs major renovations, then you will have to take that into account when conducting your financial analysis.
In fact, the need for renovations is one of the major reasons that opening a bar in a non-bar space is significantly more expensive than buying an already existing bar.
If the building you by was already a bar, then you will generally not need to spend nearly as much on renovations. Buying an already existing bar does not mean that you must be stuck with the aesthetics, atmosphere, or concept of the bar you purchase.
You can still do many renovations on an already existing bar, but you may find that an already existing bar already as much of the equipment that you need and is built in a way that makes transitioning the established bar to your new bar much less costly.
Finally, you will have to decide whether you are leasing the bar space or buying a bar space. Typically, startup costs will be significantly cheaper if you rent or lease rather than buy. The cost of renting a bar is about $110,000 on average, including costs for both rent and remodeling.
This option lessens the pressure in the unfortunate event that the business doesn’t succeed. Purchasing a bar outright can bring on some additional pressure, but can bring down overall costs, in the long run, depending on your circumstances.
Of course, over time it may be a better investment to buy, but leasing can save up to more than $100k-250k when you open the bar.
2. Securing Funding for your Bar
Often, prospective bar owners do not have enough money upfront to open a bar, and that is totally okay. There are ways to fund your bar even if you do not have much capital available from the start.
One of the most common avenues bar owners use to finance their concept is an SBA (Small Business Association) loan. SBA loans are great for small business owners – as the name suggests – because they have low-interest rates and come with an agreement from the federal government to pay back a portion of the loan if the borrower defaults.
This security allows banks to loan larger amounts of money to small business owners because there is less risk for the bank.
3. Licenses, Permits and Insurance
You’ll need to pay license fees for a number of licenses before you get started. The essential permit is a liquor license. Other licenses and permits would include a wine license, business license, building health permit, certificate of occupancy, and entertainment or music licensing.
The cost and other requirements for these licenses and permits can vary between states and municipalities so it is always important to check your local regulations. Liability and general insurance will be necessary to protect yourself and your business as well.
4. Bar Equipment and Inventory
To set your business up for success from the start, you’ll need to get all the right equipment ahead of time. At a minimum, you will need bartending and cocktail equipment, beverage dispensing equipment, bar furniture, refrigeration equipment, and smaller items like blenders and glass racks, and glassware.
If you plan to serve bar food, you will also need supplies and equipment for producing and serving the meals. This initial stock-up can cost tens of thousands of dollars.
One way to save money is to buy second hand equipment. This can save you thousands of dollars. This is a common practice for new bars, so there is absolutely no shame in buying high-quality second hand.
You will also probably want equipment that will improve the customer experience and increase sales right from the launch. For bars, this will often mean a digital menu board and other aspects of a digital signage system like outdoor signs and bar TVs. You might also want to buy a pool table if you plan to open a dive bar.
5. Operating Costs
Most of the revenue that comes in during your first several months will need to go back toward your initial start-up costs or repaying investors. This means you won’t be making a profit right away.
This is why it is so important to create a comprehensive and realistic budget from the start. Operational costs on average, including items like staffing, rent, and inventory, amount to about $20,000 per month.
One of the main operation costs will be your rent or mortgage, depending on whether you lease or buy the bar space. Rent will vary depending on the size of the city it’s located in, in addition to a number of other factors, such as local real estate values.
Utilities, like gas, electricity, and water, will also need to be paid on a monthly basis. You can call these vendors as you’re getting your plan together to find out if they offer any type of special contracts for new business.
Another major element of operation costs is stocking and restocking inventory. It is essential that you do not run out of inventory, so you will want to ensure that you or your bar manager is constantly keeping updated on the state of your inventory.
This will be an ongoing cost, but it is an essential part of the business. You will also have to invest in software, the most important of which will be a point of sale (POS) system. Finally, there are staff wages. Staffing can be quite expensive, but it is absolutely essential.
To be certain that you are getting the highest return on your staffing costs, make sure you’re really investing in training in support for your permanent staff – front and back of the house.
6. Marketing Costs
To ensure the success of your bar, you will want to make sure that you do not ignore the power of an effective marketing strategy.
Ideally, you will conduct marketing through a number of channels, including social media, a bar website, in-store digital signage, and email marketing lists. Investing in good marketing from the beginning can greatly improve your beginning cash flow and profit margins.
Following Your Dreams, the Smart Way
Opening a bar can be a challenging but potentially very rewarding decision. The first step is to really sit back and think about your bar concept and why you want to run a bar in the first place.
This first step will make every other part of opening a bar significantly easier. Moreover, you will be less prone to making mistakes. Opening a bar can be quite expensive. Luckily, it is quite possible to get an SBA loan, especially if you have done the work of creating a comprehensive business plan.
Now that you know what factors to consider when conducting a financial analysis, you should be in a much better position to make a great business plan and follow your dreams the smart way.