In order to avoid some of the common mistakes that new business owners make when starting a pub, you should have a clear business plan, detailed execution plans and a plan to manage partners and investors.
Pubs and bars can be real cash cows if you know how to plan and manage the business properly. Some people will make money and others will lose, what will you be?
Unfortunately, just like the majority of small businesses, most of the pubs that open will fail within the first few years of business.
However, for the few that get the formula right, a pub business can generate a steady income over many years to come.
So, the answer would be yes, you can make money by starting a pub IF you are the minority that have the knowledge, experience and expertise to run a pub efficiently.
In order to open a money making pub, you should have a very detailed business plan, an experienced team, a suitable location and a lot of luck.
There are many things that can be planned for, and also many issues that you cannot predict. By having a good plan, you can address the common problems from your business system and let the experienced team handle ad-hoc matters that arise in the day to day operations.
Try to focus on your pub’s business plan and financial projections in as much detail as possible as it will be your road map once the business starts. Take your time to plan well and thoroughly.
A lot of pubs are started and operated by owners that do not have experience in business, in running a pub or both. This can be a recipe for disaster unless the problem is acknowledged and addressed.
For example, there are pubs that are family owned and operated with the owners actually living on the premises above the pub. In these cases, if the pub is successful, the family will have found the right formula to run the business efficiently.
However, in many family-run pubs, the business is usually not as good as it could be because of the lack of business experience for marketing, cost control or various other management areas.
Another common problem is that family operated pubs sometimes stick to outdated methods that worked in the past, but are not so appealing in today’s market. Change and innovation is sadly lacking in pubs that have not evolved with the times.
Pubs started by a few friends who feel that it’s a good idea to own a bar usually fail miserably as they do not have experience in opening a pub or running a bar.
Having business experience from another industry is a head start to understanding the requirements of managing a bar but it may not be enough to fully understand the inner workings of a pub.
An Experienced Team
One of the best ways to gain direct experience in starting and running a pub effectively is to learn from someone who has years of experience in operating successful pubs. There will be many tricks of the trade that you can be taught rather than learning the hard way.
If you’re one of these inexperienced owners, try to surround yourself with good, experienced managers and staff to assist in the startup.
As with any business venture, before opening a pub or bar, ask yourself, why are you doing it?
Owning a bar may seem like an attractive proposition on the surface, but after evaluating the operational dynamics in detail, you may want to reconsider your reasons for getting into the business.
One of the main problems with a lot of such F&B startups is that they are owned and operated by people who have little experience in the business. Many of these entrepreneurs enter the industry with the perception that it is glamorous, fun and highly profitable, without fully understanding what it takes to make the venture successful.
So what does it take to operate a profitable bar?
Well, there’s an endless list of things we could discuss here, but before getting carried away in the finer details, it may be useful to reconsider the more basic question of whether bars and pubs are in fact profitable businesses.
On paper, yes, they look like they make money. However, that really depends on the assumptions in your financial projections. If you’re new to the business, it’s safe to say that some of the forecasts may not be totally accurate. To account for this, it would be prudent to stress test your model by lowering your sales projection by 25% to see if it’s still profitable. In the same way, try raising your operational costs by 25%, is it still profitable?
Naturally, the effectiveness of this simulation will depend on the accuracy of the initial/base set of projections. As a general guide, if you can raise your costs by 25%, lower your sales estimates by 25% and still show a hefty profit, it may be a signal that something’s not right in the projections.
If you’ve refined the numbers and are still convinced about the profitability, now add in the cost of you and/or your (business) partners’ time in managing the business, assuming that at least one of you will have to quit your job to actively manage the bar. Is it still profitable?
Most of the time, once all the detailed costs have been accounted for, a pub venture which appears to be profitable at the start turns out to be a money loser, especially when depreciation and amortization charges are added to fully reflect the true state of the financial accounts.