How to Open a Bar in California

Opening a bar in California can be a costly, time-consuming endeavor. Just like opening a new restaurant, you will need a thorough business plan, approval of several government agencies, and many permits and licenses. This guide outlines the steps necessary to open a bar in California.

A Guide to Opening a Bar in California

Opening a bar in California can be a costly, time-consuming endeavor. But with the opportunity for high-profit margins on alcohol and food, along with cover charges, bars can be successful businesses. Just like opening a new restaurant, you will need a thorough business plan, approval of several government agencies, and many permits and licenses. This guide outlines the steps necessary to open a bar in California.

1. Create a 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
  • Operating costs
  • Startup costs
  • Potential revenue

Thorough research and planning can help you open your bar sooner and prevent unanticipated expenses. But the cost for opening a bar can vary dramatically, depending on what type of setting you want to have. A large nightclub could cost several million dollars to start, while a small neighborhood pub's startup costs might be closer to $150,000 to $250,000. When developing a budget, add about 20 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, managing unruly or unhappy customers, and overseeingg every detail of the company. The bar industry in particular comes with distinctive working hours, since many bars stay open until 1 or 2 a.m.

Successful bars can start earning profits within six months of opening. Owners and investors may be able to recover their initial investments within the first three to five years after opening the doors.

Potential bar owners should consider how the industry is changing. Increased awareness about health and fitness has turned some people away from drinking alcohol as often. Those who still drink alcohol might have more discriminating tastes, so consider offering a wider selection to appeal to more customers.

During this stage, you should also come up with a name for your bar. Think about a few names that you like and narrow down your choices. When considering options, keep the following questions in mind:

  • How will this name help attract customers?
  • How does this name fit with my ideal concept?
  • What kind of expectations does the name create for customers?

The most important aspect of a bar's business plan is figuring out what will encourage customers to come to your location.

2. Form a Business Entity

Four main types of business formations exist:

  1. Corporation
  2. Limited liability company
  3. Partnership
  4. Sole proprietorship

Each type of business formation carries different tax implications, costs, formalities, and liabilities.

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.

UpCounsel can connect you with an experienced small business attorney who can help you decide which type of formation best suits your needs. You should also study the following UpCounsel articles: "How to Form a Multi-Member LLC in California" and "How to Form a Single Member LLC in California".

3. Secure a Location

Your bar's location will dictate your client base and price, so match your location with your concept. Zoning ordinances may limit where you can open a bar, 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. Consider factors such as accessibility for your customers, parking, and safety when choosing a location. You may want to look into the history of the site to see what existed before and why it didn't succeed.

Think about the maximum number of people you want to host at your bar at a time. The size of the space will play a major role in this fact. For a neighborhood bar, a smaller space may be best. But for a nightclub, you'll need enough room for a dance floor, multiple bars, and places to sit.

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.

You don't have to limit your location to a spot that has been a bar in the past. For example, if the aesthetic of an abandoned warehouse attracts your attention, you may consider ways to modify it to fit with your bar's theme.

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. UpCounsel can connect you with an attorney with experience in negotiating commercial leases.

If you plan to remodel an existing structure at the location, work with licensed contractors, subcontractors, architects, and engineers. Doing so will help prevent dangerous conditions that could pose legal issues for your customers and staff.

4. Secure Funding

Startup costs for bars will vary depending on the type of establishment you plan to open, but any new bar will need significant amounts of funding. If securing funding will be difficult for you, consider buying an already-existing bar to save on the initial startup costs, but consult with an attorney to make sure that you're making a wise purchase. Investigate why the bar is for sale and review past financial information.

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. Your new bar may qualify for a government program designed to help small businesses.

5. Register and 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. In San Francisco, for example, the city is not issuing new licenses, so 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.

Your city or county may also require a separate application to serve alcohol, so verify with the authorities in your area.

7. Obtain Other 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.

8. Consider Special Licenses, Permits, Types of Insurance, and Other Items

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.

Subscribe to magazines: Publications such as Bar & Beverage Business Magazine or Nightclub & Bar Magazine can give you tips for running a successful bar, including drink ideas, strategies and themes, and technology that can simplify the operations.

Attend trade shows: The most popular trade show in the industry is the Nightclub and Bar Show, which takes place in a different city each year. The 2016 event hosted 600 different booths for thousands of visitors, so attending this show can be a way to network with other bar owners and employees. Smaller shows are also held in cities throughout the country.

9. Hire Staff

Hiring the right people to work at your bar can help with its opening success. Depending on the type of bar, you may want to hire managers, bartenders, wait staff, cooks, dishwashers, and servers. You should hire adequate security to check identification at the door and maintain security on the premises. Serving alcohol to a minor can come with stiff penalties and fines, so make sure your security staff members restrict access or service to minors by vigilantly scrutinizing IDs.

More information on hiring employees and complying with employment laws is available on the California Governor's Office of Business and Economic Development website.

Before hiring your staff, you may want to consider how you will handle money and ordering. Many bars allow customers to open tabs and pay for the drinks at the end of the night. Some neighborhood-style bars offer the cash-and-carry system, where the server takes a verbal order and the bartender adds to the order to collect payment. When the bar gets busy, bartenders may not have time to process every order, leading to loss of alcohol sales.

10. 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!

If you are uncomfortable handling any of these steps, UpCounsel can help you connect with a qualified attorney with small business experience in your area.

11. Complete Related Legal Forms and Review Guides

Employer's Tip Reporting Form (IRS)
I-9 Employment Eligibility Form (U.S. Department of Homeland Security)
California New Employee Report form

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