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The Economics of Opening a Local Bar

Ever dreamed of opening your own bar? Here’s what it takes to make that dream a reality. 

When you walk into the Whiskey Tavern in Chinatown, New York, it’s quite literally like walking into an episode of Cheers because everyone knows your name, the bartenders often clap as you enter, and your drink is poured before you can take a seat. In fact, the neighborhood bar was recently named “the place where everyone knows your name” on Thrillist’s recent list of 21 Definitive American Food, Drink, & Travel Destinations.

To make patrons feel part of the family, Rob Magill, a partner at Whiskey Tavern — which has brother/sister bars in Williamsburg, N.Y., called The Whiskey Brooklyn and The Whiskey Annex, and New York’s East Village neighborhood, called Whiskey Town — says learning patrons’ names is one of the first lessons emphasized during employee training.

“I know why I go to a bar,” he tells Fundera. “I go to bars not because the food is the best or the drinks are the best. I go because they remember my name, they go out of their way to make my night great whether it’s Monday or Friday night.”

“I always say to any of my bartenders, Fridays and Saturdays are busy, but on Mondays when you have five customers and you’re not making any money, that’s when you need to do your best,” says Magill, who’s been in the bar business for 24 years.

With its “let’s get weird” motto, generous pours, and rowdy crowd, Whiskey Tavern is one of those neighborhood bars you usually hate, but can’t because its undeniably charming. But getting a neighborhood bar to this level of success isn’t as easy as pouring drinks and keeping patrons satisfied. These businesses require around-the-clock maintenance, a good chunk of change in the bank to start, and aren’t recession-proof. As a result of Americans tightening their purse strings during the downturn years, bars saw their revenue slashed by 10 percent, according to MarketWatch, from $20 billion in 2007 to $17.9 billion in 2009. Fortunately for bar owners, market outlook looks much better today, but surviving the small stuff takes some big strategic planning. Below are a few points to consider if you’ve ever dreamed of becoming that neighborhood bar that’s “home away from home” for its patrons.

Upfront costs are overbearing.

From booths to point-of-sales software to insurance to licenses, getting your bar idea off the ground requires some serious bank. You can easily spend anywhere from tens of thousands of dollars in a small town to millions in a bigger city.

“For New York businesses, you always run over budget and you have to be aware of the difficulties in operating a business in this city, especially if you’re trying to get a liquor license,” says Gabe Schulman, founding partner of Beverly’s, a bar in New York’s Lower East Side neighborhood that’s known for its retro vibes and hybrid space for both bar and art.

While the popular notion is to have one year of rent saved up, Atlanta bar owner Nick Diascovis, who’s been in the business for over 20 years, told The Man Guide bar owners should have at least double that amount to get their operation off the ground.

Obtaining licenses requires a lot of money, patient, and time.

Nobody thinks about the hassle that comes with permits and licensing when they’re dreaming up their bar concept, but make no mistake: alcohol is a heavily regulated business. First, you’ll need a license from the Alcohol and Tobacco Trade and Tax Bureau (TTB), the entity responsible for enforcing laws “regulating alcohol production, importation, and wholesale businesses; tobacco manufacturing and importing businesses; and alcohol labeling and advertising.” This process will take anywhere from six to 12 months to complete because the entity will need to inspect your business and conduct background checks on directors, officers, and owners.

Next, you’ll need to obtain licenses at the state and local level. If you plan on serving food, you’ll need a food seller’s permit.

“There are just so many different departments,” says Magill. “It’s a business but you’ll also have to deal with the Department of Health and Mental Hygiene, the fire department, and criminal background checks.”

Once you obtain the necessary permits and licenses, be sure your bar is kept up to code as these businesses are often subjected to inspection.

Know your neighborhood.

If you’re going to be the neighborhood bar, you better know the people you’re serving. During planning, consider contacting your local chamber of commerce to get information on your target market. Are you catering to college students, blue-collared workers, the art crowd, or conservative suburbanites?

In the Lower East Side where fashion and art mingles on every corner, Beverly’s wanted to be “a platform for all different kinds of creatives and like-minded people,” explains Schulman. Beverly’s, known for its neon fluorescent lighting and minimalist decor, hosts regular art shows chosen by curators, “probably a show every six weeks,” says Schulman, and it’s this art community that he says “makes the place” what it is today. Art installations are often seen hanging in the bar’s narrow corners from the latest shows.

To cater to this crowd, Beverly’s keep things simple with one beer on tap, a few bottles to choose from, and basic mixed drinks, says Schulman, because the bar is “all about the environment.”

“I think that when bars close down, one of the reasons is that they tend to overcomplicate a concept,” he says. “[Another] is because there’s not a unified vision between the people running the bar and the people working there. Sometimes, it’s hard to foster a sense of community.”

Be prepared to always be exhausted.

It may look easy, but the people running around making life fun for you is physically and mentally exhausted by the end of their long days. In short, the bar business is no path for those easily burnt out.

Magill, who often runs from one Whiskey bar to the next to check-in, calls the industry “a seven day a week machine.”

“[The bars are] opened a long time,” he says. “During the day, most people check in at nine and check out at five and there’s nothing after that. For us, we’re opened at 10 in the morning until 4 in the morning. You’re never off. Someone can call you at 3 in the morning with a problem, and when you do repairs or fix problems, you have to do it during your downtime.”

“You don’t check in or check out,” continues Magill. “You’re on all the time, which is tough. It’s hard to have normal relationships or make plans.”

At the same time, if you’re exhausted, you still have to be a people person, because that’s the secret to your business: you’ve got to know how to treat people well. That’s why they’ll come back. That’s how you’ll start generating word-of-mouth buzz. And that’s when you’ll take over your ‘hood as the next “It” bar.


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Vivian Giang

Contributor at Fundera
Vivian Giang is a freelance journalist who covers strategy, leadership, organizational psychology and gender issues for Fast Company, Marie Claire, Fortune, Slate, among others. Previously, she was the lead entrepreneurship editor at Prior to that, Vivian launched the Careers vertical at Business Insider, which focused on the evolving office, emerging industries, and the most current employment trends. You can find her on Twitter at @vivian_giang.
  • Arlene Vega

    Great list! People often think it’s gonna be so easy. Coming from experience, hiring a good accountant is a must. With so many part time employers and late nights, the books can just get away on you.