How to open a bar: licenses, layout, pour costs and the first month

On this page

1. Step 1: Decide what kind of bar you are opening
2. Step 2: Learn your state’s license system before anything else
3. Step 3: Choose the location
4. Step 4: Work out the numbers
5. Step 5: Form the business and register it
6. Step 6: Design the bar
7. Step 7: Buy alcohol the right way
8. Step 8: Price drinks and watch pour cost
9. Step 9: Hire, train and check IDs
10. Step 10: Tabs, tips and the end-of-night count
11. Step 11: Before opening night
12. Step 12: The first month
13. Where Advantage fits

A bar is built around one document: the liquor license. The license and the rules that come with it decide where you can open, what you can pour, when you can serve and how long it all takes. The lease, the build-out and the hiring should all wait on what the license allows. So this guide starts there.

It puts the work in order for an independent owner opening one bar. If you will also run a kitchen, read our guide on how to open a restaurant as well.

Alcohol laws differ a lot from place to place. Each state decides whether alcohol is sold through state-run outlets, private licensed sellers or a mix, and counties and cities add rules of their own. Nothing here is legal advice. Use this guide to build your list of questions, then take them to your state alcohol board, your city, an attorney who handles liquor licenses, and an accountant.

Step 1: Decide what kind of bar you are opening

Write down how the bar will work. Each answer can change the license you need:

• Beer and wine only, or spirits too?
• Food: none, snacks or a full kitchen? Ask whether the license you want requires food service or a share of sales from food.
• Entertainment: TVs, live bands, a DJ, games? Each may bring its own permits and licenses.
• Hours: how late will you stay open? Ask which hours your state and city allow.
• Size: how many guests at once? Ask the fire marshal what your occupancy limit will be.

Step 2: Learn your state’s license system before anything else

Federal registration

Every business that sells alcohol must register with the Alcohol and Tobacco Tax and Trade Bureau (TTB) before it starts, for each location, and keep records of the alcohol it receives. That registration is not your license to sell. The license comes from your state, and often your city or county too.

Questions for your state and city

Call your state alcohol control board, then your city or county. Ask:

1. Which license types fit a bar like mine, for beer and wine and for spirits?
2. Is there a limit on how many licenses can be issued here? If so, can I buy an existing license, and how does a transfer work?
3. Does the license belong to the owner, the location or both?
4. What does it cost, and how long does approval usually take?
5. Is there a public notice period or a hearing, and can neighbors object?
6. Are there distance rules from schools, churches or other bars?
7. What background checks and ownership disclosures are required for me, my partners and my lenders?
8. Which hours and days may I serve?
9. Must my servers and bartenders complete a training course?
10. What records must I keep, and who inspects?

Do not sign a lease or buy equipment until you know a license is possible at the address. Ask your attorney about making the lease depend on license approval.

Rules that shape how you run the bar

A few kinds of rules vary by state and are worth asking about early:

• Server training. Some states require responsible beverage service training, and others reward it, for example with lower penalties. The NIH’s Alcohol Policy Information System explains how these programs work.
• Drink specials. Some states limit happy hours, two-for-one deals, free drinks or unlimited-drink offers. There is no federal rule on these, so your state’s rule is the one that counts.
• Who may pour. States set minimum ages for servers and bartenders, and they differ by state, by job and sometimes by type of drink.
• Liability. In dram shop cases, someone who was harmed sues the business that served alcohol to a minor or an intoxicated person. Ask your attorney how your state handles these cases, and ask your insurance agent about liquor liability coverage.

Step 3: Choose the location

What matters for any business matters here: who passes by at the hours you will be open, parking, visibility and rent. A bar adds its own checks:

• Ask the city whether a bar is allowed at the address and whether it needs a special permit. Zoning can restrict or ban some businesses in an area.
• Ask about rules on noise, outdoor seating, live music and closing time.
• Look at the neighbors. Homes nearby can mean noise complaints and objections at a license hearing.
• Think about how guests get home: transit, taxi stands, a safe place to wait for a ride.
• If the space was a bar before, find out why it closed, what equipment stays and whether its license can transfer.

Have an attorney review the lease, and make sure the permitted use covers alcohol, your hours and any entertainment you plan.

Step 4: Work out the numbers

One-time costs include the license and legal fees, build-out, the bar itself, coolers, an ice machine, a draft system, a glass washer, sinks, furniture, sound and TVs, cameras, the register, opening inventory, deposits and working capital. Monthly costs include rent, payroll, alcohol and mixers, insurance, utilities, music licenses, card fees, security, repairs and loan payments. The SBA’s guide to startup costs and its loan programs are good places to start.

Break-even, with made-up numbers

Say the costs that stay the same every month (rent, insurance, salaries, loan payments, music licenses) come to $25,000. Say drink costs, hourly wages and card fees take 50 cents of every sales dollar. Each dollar of sales then leaves 50 cents for the fixed costs.

$25,000 divided by 0.50 is $50,000 a month. Open 26 nights a month, and that is about $1,923 a night. If the average guest spends $25, you need about 77 guests a night to break even. Try your own numbers in our break-even calculator.

Step 5: Form the business and register it

The steps are the same as for any small business: choose a business structure, register with your state, get an EIN from the IRS, open a business bank account, and register for sales and payroll taxes. Form the business before you apply for the liquor license, so the application names the right owner. Ask your state revenue department whether drinks served at a bar carry any tax beyond sales tax. Our restaurant guide covers these steps in more detail.

Step 6: Design the bar

Plan the bar around the bartender’s steps. Every reach and every walk costs time on a busy night.

• The well. Put the most-poured spirits, ice, glasses and mixers within reach of each bartender station.
• The back bar. Display bottles, but keep backup stock in a locked storeroom.
• Sinks and glass washing. Ask the health department which sinks and glass washing it requires, even if you serve only drinks, and whether you need a food permit.
• The draft system. Plan where kegs live, how long the lines run and how often they are cleaned.
• Registers. Place them so bartenders do not cross each other, with one at the service well where servers pick up drinks.
• Cameras. Cover the registers, the bar top, the door and the storeroom.

Bars are public accommodations under the ADA, so new construction and alterations must be accessible. Ask your architect about the entrance, restrooms, routes and the bar counter. Ask the fire marshal whether your occupancy limit must be posted.

Step 7: Buy alcohol the right way

Who you buy from. Federal rules say a retailer may buy distilled spirits for resale only from a wholesaler or a few other sources the rules list. Before you place your first order, ask your alcohol board who you may buy beer, wine and spirits from in your state, and how you must pay.

Offers from suppliers. Federal trade practice rules limit what alcohol producers, importers and wholesalers can give a bar to win its business, such as equipment, signs, money or services. States have their own rules too. Before you accept free coolers, taps or printed menus, ask which rule allows it and check with your alcohol board.

Records. Keep every invoice. Federal rules require a retailer to keep records of all the alcohol it receives: how much, from whom and when.

Bottles. Never refill a liquor bottle or add anything to one, including pouring two partly used bottles of the same spirit together. Federal law forbids it.

Receiving. Check each delivery against the invoice before the driver leaves, count bottles and kegs, and get credits in writing. Our article on catching vendor invoice mistakes has a routine.

Step 8: Price drinks and watch pour cost

Pour cost is the share of drink sales you spend on what goes in the glass. It is the bar’s version of food cost.

Cost per drink, with made-up numbers

A cocktail. A 750 mL bottle holds about 25.4 ounces. Say it costs $24 and your standard pour is 1.5 ounces. That is about 16.9 pours, or about $1.42 a pour. Add $0.40 for mixers and garnish, and the drink costs $1.82. At $9, the pour cost is about 20%.

Draft beer. Under federal rules, a barrel of beer is 31 gallons, so a half-barrel keg holds 15.5 gallons, or 1,984 ounces. That is 124 pints of 16 ounces if nothing is lost. Say the keg costs $180 and you lose 10% to foam and line cleaning. You get about 112 pints at about $1.61 each. At $7 a pint, the pour cost is about 23%.

Wine by the glass. The same 750 mL bottle gives five 5-ounce glasses. Say the bottle costs $12, so each glass costs $2.40. At $10 a glass, the pour cost is 24%.

Our markup and margin calculator checks the margin on any drink.

Actual pour cost

The examples show what each drink should cost. Actual pour cost shows what the drinks did cost. For each week or month:

1. Count your inventory at the start and the end, by bottle, keg and case. Count open bottles in tenths or weigh them.
2. Add up the period’s purchases from your invoices.
3. Work out the cost of what you used: starting inventory, plus purchases, minus ending inventory. This is the same cost of goods sold math the IRS uses.
4. Divide that cost by drink sales for the same period.

Do it separately for liquor, beer and wine. When actual pour cost runs above what your recipes say it should be, look for over-pouring, drinks not rung in, free drinks not recorded, spills, breakage and invoice errors. Measured pours with a jigger, and a rule that every drink is rung in before it is poured, help close the gap. Record every comp and spill in the register with a reason. Our article on inventory counts that match has tips for counting.

Step 9: Hire, train and check IDs

For every hire, complete Form I-9, collect a Form W-4, report the new hire to your state, and display the workplace posters that apply to you.

Wages and tips

Federal law allows a lower cash wage for tipped staff with a tip credit, under strict conditions. Many states set their own tipped wages, and some do not allow a tip credit at all. Managers and supervisors may not keep employees’ tips. If you take a tip credit, a tip pool can include only staff who customarily and regularly receive tips, such as servers, bussers and service bartenders.

Tips are taxable. Staff must report tips of $20 or more in a month to you, card tips included, and you withhold and pay taxes on them, as the IRS explains.

Training

Train every bartender and server on:

1. Checking ID by your written policy, and refusing a sale politely.
2. Spotting signs of intoxication, and how to stop serving.
3. Ringing in every drink before it is poured.
4. Who can approve free drinks, spills and remakes, and how to record them.
5. Calling for help when a guest turns aggressive, never handling it alone.
6. The end-of-night close.

Keep a log of refused sales and cut-offs. Our article on ID checks done right has a simple routine.

Step 10: Tabs, tips and the end-of-night count

Tabs. Decide how tabs work: whether you keep a card on file for each tab, who can transfer a tab, and what happens to a tab left open at closing.

Automatic gratuity. A tip is a payment the guest chooses to make and whose amount the guest decides. If you add a set gratuity for large groups, the IRS treats it as a service charge, and service charges paid to staff are generally wages, not tips. Ask your accountant how to run them through payroll.

Card fees on tips. Federal rules let an employer take the card fee out of a card tip, but no more than the fee itself. Ask your state labor department whether your state allows it.

The close. At the end of the night, every bartender and server should close or transfer open tabs, count the drawer, record cash, card and tip totals, settle tips by your written policy, and go over voids and comps with the manager before the cash goes in the safe. Our articles on voids, no-sales and refunds and finding where the cash went cover what to look for when the count is off.

Step 11: Before opening night

• License issued, TTB registration done, inspections passed, and licenses posted where required.
• Draft lines cleaned and tested, and coolers holding temperature.
• Every drink recipe written down with exact measures.
• The register tested: open a tab, split it, add a tip, void a drink, comp a drink, close the night.
• Staff trained on ID checks and refusals.
• Music licenses in place. Copyright owners control the public performance of music. Federal law has a narrow exception for some bars and restaurants that play radio or TV broadcasts, with conditions on the size of the space, the speakers and the screens. Ask an attorney before you rely on it.

Then hold a practice night or two for friends and family before you open the doors.

Step 12: The first month

• Every night: the end-of-night count, voids and comps, and the log of refused sales and incidents.
• Every week: count inventory, work out pour cost for liquor, beer and wine, compare labor with sales, and read sales by drink and by hour. Reorder from counts, not from memory.
• Every month: go over the profit and loss statement with your accountant, file sales tax and any alcohol taxes on time, and keep a calendar of every license and permit renewal.

Where Advantage fits

Advantage for bars asks for an ID check on age-restricted items before the sale goes through, and counts the drawer at close with the over or short shown. Advantage POS keeps tabs open, splits checks by seat or by item, and lets guests add a tip on the receipt. Tips records card and cash tips by person and by shift, shares them by the pooling rules you set, and puts each person’s payout on the shift report.