Opening a bar or restaurant in anywhere can be a costly endeavor, one that will require patience, fortitude and stamina. You will need a thorough business plan, approval of many different governmental agencies, and quite a few permits and licenses. This guide will help outline the steps necessary to open a bar here in California. Different locals may have different requirements, but all of these principles apply.
1. Create Your Business Plan
Opening a bar is essentially starting a small business. Your location and operating costs will depend on the type of bar you want to open. A neighborhood pub will likely be cheaper than a sports bar. Before you invest your time and money into opening a bar, you will need to create a detailed business plan, which may include:
- Your overall concept
- Target market
- Demographic Target
- Operating costs
- Startup costs
- Potential revenue
The cost for opening a bar or restaurant can vary dramatically, depending on what type of theme you’ve decided upon. The ‘exact’ location of your new concept ‘will’ have a direct impact of the success of your venture. There are exceptions to this, however… a pub upstairs is a much more difficult ‘sell’ to your guests, because you are asking them to ‘work’ at it, to get to your place. (Upstairs). A nightclub with it’s necessary technological requirements could cost several million dollars to start, while a small neighborhood pub's startup costs might be closer to $200,000 to $250,000. When developing a budget, add about 25 percent to the total that you estimate for startup costs.
You should also consider the amount of time you will spend developing, operating, and working at the bar. New business owners should have a firm understanding of what their work schedules will be like when first starting out. Business ownership often comes with working long hours,
The most important aspect of a bar's business plan is figuring out what will encourage your potential guests to come to your restaurant or bar, rather than to wide range of your competitors.
2. Form a Business
“What are you going to call your new place?” “What will be the name of the business entity that is the parent of your new place?” There are four main types of businesses. Each type of business formation carries different tax implications, costs, formalities, and liabilities. It’s best to consult with your attorney, in deciding this step.
- Limited liability company
- Sole proprietorship
Small business owners most often choose to form a limited liability company (LLC). Owning a restaurant opens the door to a range of liabilities, so setting up your new bar as an LLC will protect you as the owner. If a lawsuit occurs, only the restaurant's assets are at risk, not your personal assets. Unlike corporations, LLCs do not require a board of directors or shareholder meetings, and profits can be divided in any way.
Businesses also have access to tax benefits that individuals can't claim. Tax advantages include credits for employees, along with sales tax credits for purchases of equipment for the business.
3. Find a Suitable Location
Your bar or restaurant’s location will dictate your client base and price, so pick your location and your concept very carefully. Zoning ordinances may also limit where you can open a bar, and what time you must close your doors at night, so check with your area's department of city planning or other government agency to see if the agency allows bars in your desired location.
Visit the neighborhood of the potential bar location at different hours of the day and night. If you see many moms with strollers walking around during the day, the family neighborhood may not lend itself to hosting a successful bar. But if you notice groups of co-workers heading to a spot for happy hour, the area could be a great location.
Once you find a location, you will have to negotiate a lease. This process can be complicated, and you should consult with an attorney or realtor who can provide advice, offer options, and review documents. For example, you will probably want a transferable lease with options to extend and contingencies about securing permits instead of a standard set-term lease. Working with an experienced legal professional can help you secure the best lease for your bar.
4. Secure Funding
Startup costs for bars will vary widely depending on the type of establishment you plan to open, but any new restaurant or bar will need large amounts of funding. Perhaps even a little more for the myriad of unplanned, unscheduled and unexpected costs that will undoubtedly come up along the way.
If you are starting a bar from scratch, you will need considerably more seed money. Expenses for opening a bar will include rent, a security deposit, improvements and renovations to your property, license and permit expenses, initial alcohol inventory, utilities, payroll, legal costs, insurance, and extra money to help with marketing during the bar's grand opening.
You can secure funding for your bar through your own assets, investments from your friends and family, a bank loan, a line of credit, or a business partner.
5. Apply for a Permit with the Alcohol and Tobacco Tax and Trade Bureau
All businesses that sell alcohol products must register with the U.S. Department of the Treasury. You must file a TTB D 5630.5d Alcohol Dealer Registration before opening and file again if you discontinue business. The average processing time for a permit is about two months for online applications and three months for mailed applications.
6. Obtain an Alcohol License
The California Department of Alcoholic Beverage Control administers liquor licenses. You can seek a license for only beer and wine or for all spirits. The type of license you'll need is a "42" for beer and wine, or a "48" for beer, wine, and distilled spirits. The other licenses require at least 50 percent of your revenue to come from food.
Be ready to wait at least three months for the license to get issued. After applying, a notice will get posted at your location to alert the public that you plan to serve alcohol on the premises. Members of the public will have 30 days to file any complaints about your intentions. If no significant objections follow, then the department will begin a background investigation on the people listed on the application, your business location, and the business in general.
You could also try seeking alcohol licenses for sale by someone who already went through the process, but you may likely pay inflated prices for such licenses, however, buying one from another license holder may be the only option. Some bar owners start by obtaining a beer and wine license, since that license is easier to get than a full liquor license. After a year in business, you may find upgrading your license to be easier.
7. Obtain Many Licenses and Permits
Running a bar requires several permits and licenses:
- Business license: Certain cities require business owners to get licenses from an agency in the city.
- Tax identification number: Business owners must register with the state of California and federal government for a Federal employer Identification Number.
- Health Permit: This permit is for the sale of edible goods. Your county will likely require you to get a health permit from its environmental health department.
- Food Safety Certification: California law requires a facility that serves food to have at least one employee or owner that has passed a state-approved Food Safety Certification exam.
- Food handler permit: If the bar serves food, all employees who handle food must have a permit. A "food handler" is someone who works in a facility with food and prepares, stores, or serves that food. You can find instructions and frequently asked questions about obtaining this permit on the ServSafe website from the National Restaurant Association.
- California law requires employers to maintain records documenting that each employee who handles food has a valid food handler permit. New employees have 30 days to obtain the permit.
- Workers' compensation insurance: California law requires employers to have workers' compensation insurance. You can purchase this insurance from any broker or agent authorized to issue insurance policies in California. You can also find a list of authorized insurers on the California Department of Insurance website.
- Sign license: Your city may restrict the type of signage you display outside your restaurant. Before you display a sign, check with your landlord and government officials to make sure your signage does not violate any laws.
- Music license: If you plan to play music in your bar, you will need to get a music license from at least one of the major music licensing companies such as Broadcast Music Inc. (BMI) or the American Society of Composers, Authors, and Publishers (ASCAP). Each association has a vast repertoire of music, so if you randomly play any song, you may owe royalties to both agencies. The yearly fees these companies charge can be expensive, but without a proper music license, you can be held liable for copyright infringement. In 2011, a restaurant had to pay more than $30,000 in damages plus $10,000 in legal fees to BMI for failing to get a music license and ignoring BMI's requests for yearly fees.
- Commercial liability insurance: You should consider buying commercial liability insurance for your small business. This insurance will protect your business from financial loss stemming from lawsuits filed by employees, customers, or others. However, this insurance is not mandatory in California.
- Renovations: If you are renovating a building, you should present your building plans with your area's department of building inspection and fire department to make sure that those plans comply with laws governing public safety and accessibility.
Business permits: The CalGold website allows you to search by the county and city where your bar will be located to understand exactly what business permits you need to operate your bar. The site also has contact information for each agency. Choose restaurant as your business type.
8. Hire Staff
Hiring the right people take car of your guests at your restaurant or bar can ‘will’ have a direct impact on the success of the planned venture. Hire for personality, responsibility and experience, in that order.
The culture that you develop to be the glue that holds your staff together, is a critical step in creating long standing success.
The training that your staff receives, right at the beginning, will set the tone of your restaurant or bar. Set your standards high, but achievable. Do not expect what you not inspect. Hold each position ‘accountable’ for every action that must take place, to pull off, what you have promised to your guests.
Also… very important… serving alcohol to a minor can come with stiff penalties and fines, and put you on the radar of the local police and the ABC. You do not want this to happen! So be sure to train your staff members to carefully restrict access or service to minors by vigilantly scrutinizing IDs.
9. Prepare to Open Your Doors
After handling all the formal matters, you can begin building the alcohol offerings and serving customers. When buying alcohol, allot about 40 percent of your budget to liquor, 5 percent to wine, 45 percent to beer, and 10 percent for mix-ins, such as soda, syrups, and other mixers.
To help with your new business, don't forget to create a website, launch social media pages, advertise in publications, and offer specials for grand opening and daily happy hours.
Successful bars tend to have much word-of-mouth advertising, so encourage customers to tell their friends and family about the new spot. You can also get involved by sponsoring charity functions or community events to share the news about your bar. Add special touches to make your bar more appealing to the target audience. Examples include big-screen TVs in a sports bar, high-end finishes in a luxury martini bar, or pool tables and dart boards in a neighborhood bar.
Bars are busiest on Friday and Saturday nights, so think about hosting promotional events to increase business on weeknights. Bar trivia, half-priced appetizers, holiday promotion, and live bands are all ways to get people to your bar.
Be aware that as a purveyor of alcohol, your bar may be held responsible for the actions of your patrons if they have had too much to drink after they leave. Some bars offer incentives to encourage designated drivers, such as free soda. Serve responsibly, and good luck!
10. Related Legal Forms and Review Guides
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