How to Start a Sports Bar

As far as starting a new business goes, starting a sports bar is a pretty straightforward process. The primary complexity that most entrepreneurs face when developing this type of company is the acquisition of a liquor license. This is going to be one of the more complicated aspects of creating a sports bar given that in most states the acquisition of a liquor license requires a waiting period, public hearings, and a substantial amount of paperwork that needs to be filed with the state as well as most municipal agencies. Of course, the most important thing to do when planning to start a sports bar is to retain a highly qualified attorney in order to walk the entrepreneur through the liquor license application process. This usually takes out 45 to 90 days in most jurisdictions although some states have far more rigid laws as it relates to the issuing of these licenses. In most states, the average cost for the acquisition of a liquor license runs anywhere from $5,000 to $10,000 although in more stringent states these fees can run anywhere from $50,000 to $100,000. Of course, before even beginning to think about starting a sports bar – it is imperative that all the underlying costs are determined so that appropriate arrangements can be made during the business planning process. While most entrepreneurs that are developing sports bars wait until they receive their liquor license back before commencing operations, a substantial amount time can also be spent planning for the business during this waiting period.

 

As it relates to the corporate structure of most sports bars, most entrepreneurs typically use a limited liability company or S corporation in order to carry out their operations. A qualified certified public accountant can assist any entrepreneur with determining with the most appropriate structure for the business should be. Most importantly, the sports bar is going have a number of different business partners – some who may be operating partners and some that may just be contributing capital as members – it is important that a well drafted operating agreement is put in with the formation documents. The vast majority of states require that an operating agreement is submitted as part of the overall application process and forming a new limited liability company. This is true even when it is going to be a single-member limited liability company. Both an attorney and a CPA can assist greatly with this part of the process especially if a limited liability company is going to formed and it is going have a number of members. A properly produced operating agreement can substantially reduce any ongoing issues that these businesses may face as it relates to potential disputes down the road.

 

The vast majority sports bars are typically financed with a combination of owner funds, investor funds, as well as financing for a bank. Given the highly predictable streams of revenue and high gross margins generated from alcohol sales, food sales, and cover charges – most financial institutions are receptive to providing a business loan or line of credit it is principally going to be used for the acquisition of tangible equipment and liquor inventories. It should be noted that most banks do not provide capital as it relates to the ongoing expenses of the business. Is this portion of the capital structure that is usually put up by either the entrepreneur or investors. As it relates to the acquisition of of equipment, most sports bars typically have a small kitchen, and these pieces of equipment can typically be financed either with the proceeds of a business loan or via lease.

 

There are tremendous benefits to either using a lease or loan depending on how the certified public accountant wants to have the finances of the business structured. As it relates to leasing, this can substantially reduce the risk associated with starting a new sports bar given the fact that in the event of a business failure the equipment can simply be returned and the lease will be terminated. Most specialty leasing companies do have certain clauses within their contracts that provide an entrepreneur with a way out given the fact that many businesses do struggle and can often fail. With the usage of a business loan, the entrepreneur gains the benefit of being able to deduct both the depreciation as well as the interest associated with any borrowed proceeds and any purchase of equipment. A qualified accountant can assist the entrepreneur in determining which capital structuring makes the most sense to balance sheet perspective. In the event that leasing is used, this will create cleaner balance sheet that will allow for the easier acquisition of expansion capital down the road.

 

Sports bars have to have a number of employees on staff including bartenders, wait staff, security staff, administrative personnel, as well as a bookkeeper. As it relates to bartenders and wait staff – these individuals are typically paid primarily on a tip basis. As such, the annual expense for most bartenders and wait staff typically ranges anywhere from $12,000 to $20,000 a year depending on the state and depending on the number of hours worked by these individuals. It should be noted that most days to have a minimum threshold as a how much money a bartender or wait staff member can make – and it is imperative that the owner be able to compensate these employees in the event that their tips do not exceed the minimum wage. As it relates to administrative staff and bookkeeping staff, for most sports bars these are considered to part-time positions. If it is a full-time position than the owner can expect to spend anywhere from $22,000 to $30,000 a year on an administrative assistant and $500 to $1,000 per month on a part-time bookkeeper. Only in instances where an entrepreneur owns a number of sports bars do these individuals to become full-time employees given the fact that numerous locations need to be managed.

 

One of the key things when focusing on how to start a sports bar is the development of a marketing plan. It is no secret that there are usually tens if not hundreds of nighttime entertainment venues in most suburban and metropolitan area markets. In major metropolitan areas, especially in major markets like New York, Boston, Miami, San Francisco, and Los Angeles – there typically thousands of bars in operation in the specific markets. As such, it is very important that the entrepreneur develop a number of promotions and methodologies that will allow the business to effectively differentiate itself from other competitors in the market.

 

The vast majority of sports bar businesses use a broad-based localized marketing campaign that typically includes billboards, television advertisements, highly vigilant visible retail signage, as well as use of radio promotion. Especially among larger scale sports bars, the use of radio promotion among regional radio stations still remains very prevalent. A sports bar owner can anticipate that anywhere from 1% to 4% of revenues will be allocated towards ongoing marketing expenses.

 

Beyond the acquisition of a liquor license, it should be noted that most states also require that a sales tax license is issued as well. In most cases, all food and alcohol served by a sports bar is going to be subject to sales tax. However, these rules and regulations can vary by state to state as well as by municipality to  municipality – and as such, it is important that an attorney also advise the client as to what sales are going to be considered taxable. It should be noted that there are also a number of pieces of sports bar management software that are available that assist in making these determinations so that mistakes are kept to an absolute minimum.

 

Sports bars are going to be one of the most popular venues for nighttime entertainment moving forward. Always all Americans joy enjoy a substantial amount of sporting activity, and they will be able to always find an audience. One of the key things that many sports bars have done lately in order to differentiate themselves from other competitors is offer a huge selection of high quality foods that are torque normally found in these types of businesses. Some places have also taken to integrating fusion dishes into their operations in order to create a repeat customer base. The high gross margins generated from these businesses coupled with their moderate startup cost that typically range anywhere from $100,000 to $200,000 makes these attractive small business investments for an experience food and beverage entrepreneur. Once established, these businesses are generally always able to produce a substantial amount of predictable income on an ongoing basis.

 

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