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.