Business Plan for a Bar Business

Setting up a traditional bar or cocktail bar is still one of the most common ways to start a business in the US, Europe, Africa, Latin America, and some Asia countries, so we are going to give some tips to correctly prepare the business plan for this type of business. 

Offer density vs originality

In Europe, there are many breweries, taverns, bars, taverns, cafes, and other similar businesses mainly dedicated to the sale of beverages. It is usually considered that a European Union country like Spain is the country with the highest concentration of bars per inhabitant, an estimated proportion of one establishment for every 175 inhabitants, or what is the same, a country with 260,000 bars, that is to say, considerably more than in the United States. 

The offer is immense, and as it is mainly a leisure service, the sector suffers a lot during crises such as the economic crisis of 2008/2014 or the pandemic of recent years. However, it usually recovers later, helped by the recovery of tourism.

One might think that with such an important range of bars, there is no room for new projects, however, in a market, it is so large of course there is room for new proposals, as long as you bet on clearly differentiated models concerning the competition. As in many businesses, the key is to specialize and offer more services than others. You can bet on a theme, a special type of client, or additional services such as breakfasts, event organization, live music, tapas, etc.

Special income when opening a bar

One of the ways to get money when starting the project is by having two types of income.

• On the one hand, it is not surprising that the big brands of alcoholic beverages anticipate the discount for the purchase of a certain annual volume from the bars. However, if you opt for this option, you have to be sure that you can meet the minimum purchases.
• On the other hand, up to two arcade machines (of different categories) can be placed. The companies that commercialize them also usually advance the money for renting the space, in addition to paying a commission on the collection. Again, we must be sure that we are not going to leave before the end of the term since the penalties could be significant.

Normative

A bar is a business that must strictly comply with national, regional, and municipal regulations. Unlike other businesses, some neighbors annoyed by noise can take advantage of any breach of the law to report the establishment and force its closure. In particular, it is essential to ensure that you comply with all the regulations regarding the opening license.

Main costs and expenses

• The cost of drinks, or what is the same, the amount paid to suppliers, usually represents the largest part of a bar’s expenses.
• In addition to the cost of the products sold, the largest outlay of money is in the personnel section. It is a type of business with a lot of self-employment, but that needs regular and temporary employees (for times of greater activity).
• Finally, the chapter on main expenses closes everything related to the premises (rent, electricity consumption, gas). Keep in mind that a bar is usually open many hours, and usually has appliances that consume a lot of light, such as cold rooms or air conditioning.

Investing in a bar business plan

The amount of investment to open a bar is highly variable.

• If the premises are already fully or partially conditioned, a very considerable amount can be saved, but in general, when that happens, the previous owner of the business usually asks for a transfer which can be important.
• In the case of starting from scratch, the investment in a bar rarely falls below € 100,000 since there is usually a considerable expense to adapt the site to the regulations, not counting other important payments in terms of furniture, kitchen equipment, camera refrigerator decoration, advertising, and stock of drinks. A self-catering bar is significantly cheaper to set up than one that plans to prepare dishes.

How much can a bar bill?

It is undoubtedly one of the most common questions that entrepreneurs ask themselves, and when making a business plan for a bar, at some point you have to face that estimate. However, it would not make sense to indicate an average figure, because, unlike investment, in terms of billing there is no minimum, and the maximum is limited by the capacity of the premises.

What you have to be is prudent, and be aware of the type of customer that the establishment will have. A neighborhood bar is not the same, where during the day some neighbors will come to hang out and consume little than a bar in a nightlife area where customers will be more willing to consume.

However, a bar with an owner and 4 employees should invoice around € 200,000 per year to achieve correct profitability. That is the same as € 40,000 per year per person working, or € 3,600 per month per person working, assuming that the bar closes one month a year for holidays.

Be careful, it is an approximate figure, and in many places, it will be necessary to bill a lot more to be profitable, depending on factors such as the rental price, the salary of the employees, the amount of the investment, etc. Of course, if the bar is small and only the owner works, the billing will have to be much higher to make the site profitable. If the bar is large and with many employees, it may be very profitable with less turnover per person.

Profitability of a bar in the business plan

Each bar is different, but if we reason in percentage terms, some estimates can be made of what the average profitability of a bar is relative to its turnover, or at least what it should be in a bar that works reasonably well.

• The cost of the drinks represents around 35% of the turnover. Of course, this depends entirely on the price policy of the bar and the volumes purchased (there are discounts for major purchases).
• The cost of personnel represents around 30% of the turnover. That depends a lot on the size of the bar. In small establishments where promoters work on-site, the expense is smaller. On larger premises, more employees may be required.
• The rent and supplies (mainly electricity) account for about 20% of turnover.
• This leaves 15% of sales for a profit before taxes are paid.

As we said before, this depends a lot on the type of business. A place with higher prices and a good capacity can make a much higher profit margin. But there are also many stores with very low margins or even losses.

Advertising

In the era of social networks, a bar has to take advantage of existing tools to take advantage of the Internet, especially to transfer events and promotions, and to obtain good opinions on the increasingly used establishment rating websites. In particular, it is important to identify possible negative opinions that could damage the image of the business.

In addition, when opening the premises, it is necessary to think about a broader communication strategy, so that each one knows the premises and what is different about them. Having a great location helps customers introduce themselves naturally, but a promotional budget never hurts.

Bar and personal life

Before concluding, it is important to note that making a business plan for a bar is not just an exercise in numbers and forecasts. A bar is not a business like the others. Due to the long hours and the difficulty in taking vacations, it represents an important commitment to work that has an important effect on personal life. It is not something to be taken lightly.

When other workers don’t have to go to work, they go to enjoy the bar, and that implies that socially, whoever owns an establishment will have to make a lot of sacrifices.

It is also true that as the business consolidates, more things can be delegated, especially in large establishments. But before reaching this point, there are many months and years of effort.