Some bars are set up for failure from the very beginning. The foundational structures of a bar are like the concrete foundation for an office building: the stronger the foundation, the taller the building can be.
And just like in the construction business, if there are any problems with the foundation after a structure is built on it, it’s typically very expensive and complex to fix. Sometimes the fix is prohibitively expensive, which ultimately leads to the entire business failing. The same concepts apply to the bar industry.
To make sure your bar is built on a solid foundation that can stand the test of time, watch out for these 4 pitfalls:
1. A Poorly Negotiated Lease
I once had a client who, despite selling anywhere from 2.5 to 3 million dollars a year and running a tight-knit operation, couldn’t keep their business profitable because they signed their lease at the peak of the real estate market.
When times were good, they were able to extract a meager profit and keep the operation running at break-even. But when the market dipped a bit, the losses were too great to sustain and the operation, despite having all the necessary ingredients for success, had to shut down.
As a rule, your rent should be approximately 10 percent of sales. So, if you’re selling approximately $200,000 a month, your rent shouldn’t be much more than $20,000. If it’s anything more than that, watch out. These numbers must be top of mind when you sign a lease. Poor sales forecasting leads to poorly negotiated leases, which will lead to the collapse of your bar’s operational foundation.
2. Poor Partner Choice
Firing uncooperative employees is simple; getting rid of a toxic partner can be difficult.
I once worked with a bar that had an operating partner who was financially invested in the operation but was causing all sorts of problems because of a drug and alcohol problem. Ultimately, the situation was resolved but not before a ton of money was put into lawyers and an eventual buyout.
Read this: Bar on a Budget, Part 1: The Big Question
Before getting into a deal with anyone at the ownership level, you must carefully scrutinize the character of that person. Partnering with a person who has poor work and personal habits will ultimately lead your bar to a disastrous situation that will require major changes to correct…if the situation can be corrected at all.
3. Concepts Based on Personal Preferences
Market demand is the biggest consideration for forming your concept. I’ve met and read about many bar operators who have invested hundreds of thousands—sometimes millions—of dollars into concepts that matched their personal passions but failed shortly afterwards because their theme had no market.
For example, there was one operator I’m aware of who built a sports bar with a focus on mixed martial arts. All throughout the bar there was décor that featured cage fighters, and the televisions played MMA nonstop. This just plain and simply didn’t make sense as mixed martial arts promotions only appeal to a niche market, and the frequency of live shows available for broadcasting is sporadic at best. Had the operator been more realistic, they would have opened a sports bar that promoted all kinds of sporting events. Limiting himself to one particular sport meant failing to take full advantage of all available broadcasting and increase his guest counts.
The concept of your bar must have a wide market appeal. Without it, the structure will collapse.
4. An Inappropriate Liquor License
To maximize the value of a bar, an operator needs the right kind of liquor license to allow for maximum profit. There are many operators who don’t know their licensing options, and this hinders their long-term growth.
For instance, some licenses allow for standing room, which is vital for nightclub operations. A nightclub operator who does not have a license that allows for standing patronage is doomed to fail. Other licenses will allow for the presence of minors, which allows for food operations during the daytime hours. But while this enables breakfast and lunch offerings to families, it prevents the presence of slot machines (in applicable markets). Some licenses will allow for slot machines but will cap them off at a limit. And some licenses will allow for a lot of slot machines provided the placement of machines meets the surveillance requirements, effectively building a mini-casino within the bar.
There are some operators that have no idea what options are available, and sometimes they will buy a bar that has a license that restricts their ability to reach their full profit potential. The liquor license plays a big role in helping the concept succeed. Having the wrong license greatly hinders the operation.
About the Author
Kevin is an operations consultant with over a decade of experience working directly with bar, restaurant and nightclub owners on all points of the spectrum: from family-owned single bar operations to large companies with locations on an international scale. Kevin works with them all and understands the unique challenges each kind of company faces.
He is the author of a book entitled Night Club Marketing Systems – How to Get Customers for Your Bar. He is also a regular writer for Nightclub & Bar, providing information high-level operators seek to get the extra edge in their marketing, sales and operations.
He continues to write today, providing specialized information directly to nightclub, bar and restaurant owners from his workshops, newsletters and magazine articles. He is also active in the field, operating an inventory auditing practice with Sculpture Hospitality.