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Business Fundamentals New Bar Owners Need to Know

From negotiating contracts to managing liability, Tales of the Cocktail panelists discuss best practices for bar ownership

Photo credit: iStock.

Bar ownership entails more than just creating and mixing good drinks. In a seminar titled Anticipating the Unexpected: Business Fundamentals for New Bar Owners at the annual Tales of the Cocktail conference, held July 16–21 in New Orleans, industry experts shared their best practices for bar management and ownership. 

Moderated by Chall Gray, the author of The Cocktail Bar: Notes for an Owner & Operator and the proprietor of Little Jumbo in Asheville, North Carolina, the panel featured Erick Castro, owner of San Diego’s Polite Provisions and Raised by Wolves; Dennis Kiingati, owner of Hamlet & Ghost in Saratoga Springs, New York; and Ivy Mix, a co-owner of Leyenda in Brooklyn, New York. The discussion ranged over negotiating contracts and leases, navigating trademarks and insurance, understanding financials, and other best practices for launching and sustaining a successful business.

Negotiating Contracts and Leases

While bar owners tend to enter into partnerships with friends and even spouses, the panel stressed the importance of an operating agreement“a prenup for your business,” as Mix called itsetting out provisions for everyday operations such as who is responsible for payroll, contingencies for an owner leaving the business, or even the death of a partner.

“Whether it’s one of the partners passing away or someone getting a divorce,” said Castro, “you need to determine ahead of time how these things are going to affect the business and plan for them. You don’t want to risk the company being put out of business just because someone wants to leave.” 

The panelists also agreed that hiring a personal attorney—separate from the business’s attorney—to review potential agreements is crucial to protecting your personal interests and liability. If that’s beyond your budget, you might try an online service like LegalZoom, which charges a small annual flat rate to review legal documents.

On Choosing and Managing Property

While owning a property is preferable to renting because of tax benefits, if you are leasing, an attorney can help uncover hidden costs or unfavorable terms. Gray warned against “triple net” leases, which make the tenant responsible for taxes, insurance and maintenance on the space, which could result in “a 20 to 30 percent increase in rent and be the difference between viability and lack of viability” for a bar, as well as zoning laws that could potentially derail your business.

“I know someone,” Gray said, “who put thousands of dollars into a bar location and later realized there was an obscure zoning law that said liquor couldn’t be served in that area.”

Although short-term leases can seem more favorable on paper, it often takes a bar the agreed-to “short” period to break even financially, so Gray suggested terms of at least 20 years. Beyond lease terms, Mix said she favors a turnkey agreement, by which the landlord is responsible for any buildout and equipment. “Otherwise,” she said, “you could be waiting five to six months or more on buildout, which means you could be $1 million, $2 million, or even $5 million in the hole before you open.” 

And even with favorable terms, a landlord can make or break a business. “There are people with great spaces,” said Kiingati, “who are extremely difficult to work with, so figure out if that’s a price you want to pay.” 

Anticipating The Unexpected: Business Fundamentals For New Bar Owners
From left to right: Chall Gray, Ivy Mix, Dennis Kiingati, and Erick Castro. Photo by Laura Scholz.

Protecting Your Brand

For businesses in the U.S., the panel recommended using the website of the United States Patent & Trademark Office to search for business names and file a trademark before you open.

“It’s just a few hundred bucks to trademark online,” said Mix, “and it gives your bar so much protection. You don’t have to worry about another bar opening and stealing your name”—or worse, incur thousands of dollars in legal fees to rebrand if the name you’ve chosen for your bar has already been claimed.

Equally important is insurance, especially in the case of a natural disaster such as a flood or fire, events Kiingati has experienced firsthand. “While it’s tempting to underestimate sales to get cheaper insurance,” he said, “don’t.” He noted that being underinsured can result in severe penalties when filing a claim. “Be realistic with your numbers and your insurance agent,” he said. “Yes, you’ll pay $100 more a month, but it’s worth it when shit hits the fan.” 

Crunching the Numbers

“Bars open and close on pennies and dollars,” said Castro, so it’s important not only to keep your business’s books up to date but to understand how micro and macro trends in goods, labor, and sales affect the bottom line and fluctuate by season.

And, said Kiingati, “having clean books from recording all of your sales and doing all of your expenses affects how you categorize things for tax purposes, reconcile bank accounts, pay bills, and keep your business running.” 

He recommended setting benchmarks for things like food and liquor costs and understanding how small decisions, such as whether to comp a guest meal, and large ones, such as whether to hire a new bartender, will affect the bottom line over time.

And given that many states and municipalities are moving toward a fixed minimum wage, the panelists agreed that to manage costs it’s crucial to staff appropriately and monitor the amount of overtime. “If you go into your busiest time of year with four bartenders,” Castro said, “don’t open with four bartenders in January. If you’re near a concert venue, add more people to work shifts when there are events, and fewer when there aren’t. Labor needs aren’t one size fits all, and they vary by season.”

And most importantly, pricing products correctly is a key for success. Mix suggested that drinks should be priced within a $2–$3 range of each other (for example, $12–$15 drinks versus $12–$20), as the higher-priced drink in the wider range won’t sell. Your best-selling drinks should be simple, cost effective, and easy to execute.

In the end, said Castro, “if you don’t know your metrics, you can’t improve your business or be financially viable. And when 30 people are depending on you to support their families, you want to be as viable as possible.” 

Laura Scholz, a writer and editor based in Atlanta, has covered food, spirits, wellness, and travel for the Atlanta-Journal Constitution, the Atlantan, Eater Atlanta, Liquor.com, Tales of the Cocktail, VinePair, and other publications. She is currently the fitness editor of Atlanta magazine. Follow her on Instagram @lbscholz.

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