How to Open a Bar

You’re an expert at infusing your own bitters—or maybe you can just pour a shot and tap a keg like a pro. You love talking to people, and never felt cut out for a 9-to-5 office gig. But how do you know if you’re ready to invite others to belly up to the bar and run your own place?

"It's the bar business and not the bar hobby," said Scott Baird, a bar and cocktail consultant that is opening Trick Dog with partner Josh Harris in 2011 in San Francisco. "Bars can easily hemorrhage cash from every side until they are dead in the water. One of the keys involved in having a successful bar is being organized. You're not really going to be participating in the fun that guests are having so much as facilitating the fun."

Running a bar can be a profitable business—but one that is extremely risky. The National Restaurant Association projected that bars and taverns would bring in $18.8 billion in sales in 2010. Ray Foley, the founder and editor of Bartender Magazine, estimates that about 75 percent of bars fail in their first year.

Opening a Bar: Getting a Liquor License

If you're thinking of entering the business, one of the first things to investigate is how to obtain a liquor license in your area, which are subject to state laws as well as municipal ones.

"There is no uniform one-size-fits all, it can even vary block-by-block in a given community," said J. Riley Lagesen, a lawyer based in Portland that specializes in the restaurant industry.

There are different types of licenses—such as ones that only permit the sale of beer and wine, or ones that establish that a certain percentage of sales come from food. Some places, such as San Francisco, don’t issue new licenses, so you have to purchase from someone who has it, and there can be moratoriums in certain neighborhoods. In New Jersey, prices for liquor licenses in certain towns can fetch between $400,000 and $1 million.

Dig Deeper: Real Estate Purchase and Development Agreement

Opening a Bar: Finding a Location

Another key decision is finding a space.

Mike Wiley and his brother Ben wanted to open a bar that specialized in craft beer and microbrews on Smith Street in Brooklyn. They approached a divey, consistently empty bar and asked the owner if he wanted to sell. He did. Within about five weeks of getting the lease, Bar Great Harry was up and running.

A few years later, the brothers wanted to try a second project, one with a unique layout and outdoor space. They found an old auto repair shop in the Park Slope neighborhood of Brooklyn that they thought would be perfect. But altering the space to use as a bar presented more challenges and delays than they were anticipating, including numerous permits and inspections.

"It was just a nightmare. We opened about eight to nine months late and we’re still going through stuff," Wiley said.

The bar opened to glowing reviews, but the hiccups weren't over. They thought that Mission Dolores was far enough from neighbors that noise wouldn’t be an issue—but they were wrong. They worked to install noise-dampening material into the bar, but the outdoor space can still cause problems.

"A pissed off community can be really stressful and it makes you feel like a heel," Wiley said.

Death & Co., a bar in the East Village in Manhattan, saw what can happen when a bar upsets the neighborhood. After noise complaints, and disputes with the neighborhood community board and the New York State Liquor authority, the bar was shuttered for week-long periods, and had to operate for several months with a midnight last call. Eventually, the bar was able to maintain a 2 a.m. last call on weekends, but by that time, co-owner David Kaplan told reporters the establishment had lost hundreds of thousands in revenue.

Your location can also dictate what type of bar would be successful. Baird jokes that the kind of bar he’s opening in San Francisco wouldn’t work in a small town next to a college campus.

"Kids don't want me standing there in a vest, twirling my mustache and stirring a Manhattan for 50 seconds," Baird said.

Dig Deeper: How to Pick a Site for Your Business

Opening a Bar: Developing a Business Plan

Working at notable New York bars like Milk & Honey and Pegu Club, Chad Solomon was at the center of the industry when a revival in classic cocktails and mixology garnered massive press attention. Rather than the traditional model where people started as barbacks or bartenders and slowly worked their way up, young talent was being scooped up to run bars.

"Kids bartending a year or two were getting a lot of attention because they created on great drink or a menu, but had no operational experience and couldn’t cost out a menu to save their lives," Solomon said.

Along with business partner Christy Pope, Solomon hosted seminars in New York and at Tales of the Cocktail, a weekend annual festival in New Orleans, advising mixologists how to negotiate business partnerships and how to open their own establishments.

"The interest was massive," Solomon said. "People are so hungry for information, but they don’t know who to turn to."

One piece of advice Solomon gives: Know the area you are moving in to. Whereas a bar might be able to only serve alcohol in New York, the average number of drinks per ticket would be lower in a place like Los Angeles—where people might not stop in right after work, or might tend to leave earlier at night. In Los Angeles, an owner might want to consider developing a food menu so people aren’t just coming in to drink.

Foley said that many bars fail because they are undercapitalized. He recommends having enough money on hand to carry you through a year, and Lagesen said people should plan to have at least four to six months worth of rent and operating expenditures.

Lagesen said that as commercial lending has tightened, many businesses are funded at the entry-level stage by friends and family or strategic partnerships with landlords. If working with friends and family, Lagensen stresses that they need to be made aware of exactly what they are getting in to. Some states require that those who have 10 percent or more of an equity interest be on the liquor license—which requires personal financial information, fingerprinting and a background check—something the can make some investors uncomfortable.

"If you are going to be raising private funds, using a form of disclosure document informs prospective investors about risks associated with investment," Lagesen said. "Investors are entering into a relationship where they could risk losing everything."

There are also insurance issues that owners might not anticipate, such as the need for liquor liability insurance that protects purveyors of alcohol against the possibly negligent actions of their customers.

Dig Deeper: How to Raise Start-up Capital in 2011

Opening a Bar: Keep an Eye on Details

None of individual tasks of running a bar are all that difficult—like dealing with late deliveries or leaky faucets—but keeping on top of all of them at once can be exhausting, said Joel Teitelbaum, the bar manager for Zero Zero in San Francisco.

"You have to go through every liquor and beer invoice with a fine tooth comb," Teitelbaum said. "Profit margin in this business can evaporate if you don’t keep your eye on the little things. If you have a bartender that misread a recipe and is pouring 2 ounces of a primary spirit instead of 1.5, it won’t sink you but it will skew things. If you have five bartenders doing the same thing because you mistyped the recipe sheet, you have a problem."

Gust Hookanson, who opened two bars in New York, The Lion’s Head Tavern and later American Retro Bar and Grill, said that one of the biggest shocks he got when he started running his own place was the sheer number of hours he had to spend at the bar.

"There's a lot of cash that goes in and out of the business and a lot of product, and you have to monitor to make sure those are going into the right places," Hookanson said. "If you are not there to actually see what is going on—you really don’t know what is going on."

Harris with Trick Dog in San Francisco says it’s key to combine an affection for the industry with business acumen.

"You have to allow the business sensibilities to check the love that you have, and your passion can temper it from being bland," Harris said. "We love what we do—but we also want to be successful at it."

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