How to Go Broke: Opening a Bar

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This article has been updated to suggest recent helpful articles that can help you avoid the financial pitfalls that can accompany opening a bar, nightclub or restaurant: Raised by Wolves: Lessons in Concept to BuildoutProper Foundations: 4 Pitfalls to Avoid When Opening a BarGold from Dust: How to Pull Off an Incredible Grand OpeningTakeaways from the Palms Multi-Million-Dollar Revamp, and Marketing to the Community: What You can Learn from the Labatt Brew House.

Noah Rothbaum, CEO and Chief Analyst at Liquor Intelligence, moderated a panel of industry veterans who shared their advice for running a successful establishment, including tips on navigating the complexities of liquor licenses, writing a realistic business plan, dealing with difficult investors and cultivating loyal patrons.

"You need to get excited about hiring your staff. It's the most important investment you're going to make. If you don't have great staff, everything else is going to fall apart," said Anthony Caporale, Principal Consultant at ICE Consulting Group.

Anthony emphasized the importance of having a business plan, despite it being the least exciting part of starting a new company. "People come up with a cocktail menu and think they're ready to open a bar. Have a party for your friends, because that's all you're ready to do at that point,” he said. “Your business plan is a road map. In order to get somewhere, you need to know where your destination is. It should double as your standard operating manual, training manual, and packet that you give all your independent contractors. That way, everyone understands your goals.”

Susan Fedroff, Owner of Clover Club, added, “Your business plan should be cohesive; the bible for your business. Sometimes your idea of where your business is going is different than your partner's."

Allen Katz, Co-Founder of New York Distilling Company explained the importance of having your business plan looked over by others. “If you have people to look at it both in and outside your business, different questions are raised and give another perspective to it.”

Everyone agreed that it is crucial to pick a timeframe to check your business plan, (once a week, once a month) and make sure you're on track, your financial goals are on track and your marketing plan matches your product line.

Things got a little heavy when Ryan Malkin, Attorney at Malkin Law PA, started to discuss the dreaded topic of liquor licenses. “Start as early as possible. Depending on the state, it can take 3-6 months for approval…and that's if there's no back and forth. It could be very expensive depending on your state.”

All of the experts came together on tips such as checking the zoning and checking your state laws. With so much that goes into a liquor license, they were unanimous in saying that the earlier you start researching, the better. Because liquor laws are mandated by state rather than federally, there are 50 different sets of liquor laws. Their advice was to go to the State Liquor Authority or ABC website and get familiar with the requirements and download their checklists. Liquor laws are broken down by state, then by county, city and community boards, respectively. Each subcategory can tighten laws, but not loosen them.

“Establish relationships with the state. They want to help! When you make money, they make money,” Anthony stated.

Another imperative relationship that should be made is with your distributor. There is no formula for pour costs, so you must figure out what you want your profits to be. “When you're costing out your menu, you might have a cocktail that costs you $4.50 to make, and that's fine. Put it on an eclectic list and make sure you have a $1.10 cocktail that you're selling for $13 to make up the difference,” said Susan.

Remembering your Q factor – coasters, napkins, garnishes, etc. - when costing drinks is key. It’s not just what's in your glass, but everything around it.

Anthony then broke down what a profitable business looks like by giving real life examples from his career in consulting. "The average restaurant makes 10% profit. Most of my clients end up with 3-5% at the end of the year, and I am thrilled. That's realistic. If you do $1 million in sales, you might end up with $100 thousand. There are easier ways to make $100 thousand. If you spend $1 million to open a bar and project $1 million in sales and make $100 thousand in profit, it's going to take you ten years to pay that off. A 10-year ROI is not a good investment."

Starting or building a bar from scratch versus walking into an existing property and opening a bar has its own pros and cons. Anthony compared it to buying a new versus used car.

“If you are starting something new at an existing property, talk to the previous owner. Find out why the bar failed. Make sure you are not walking into the Bermuda Triangle,” Susan urged.

Allen discussed how he opened a brand new bar and just three-and-a-half years later he had to replace all the copper under the bar simply because all the citrus acid ate through the plumbing. “I didn't ask about the grade of copper before installation, and it came around and bit me.”

When asked about a rainy day fund, Anthony suggested putting 2 to 4 times your weekly operating costs aside for emergencies. “Tying up anything more than that in a bank account is irresponsible. You should be investing in your business.”\

You can get more tips and tricks for opening a bar or nightclub by attending the 2016 Nightclub & Bar Convention and Trade Show!

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