Start Up and Stay Up
Pitfalls to Avoid When Opening Your Own Nightclub or Bar, Part 1

Is 2008 your year to join the ranks of ownership? Or maybe you already own a place, and this is the year to branch off and begin another location or project. If you are already among those who have then you will remember how scary it was when you opened your first nightclub or bar. Hindsight is always 20/20, so here’s some hindsight up front for our first timers. These are some mistakes I have seen and/or repaired as a nightclub and bar consultant. Of course, we could not possibly fit every problem you could face into this article, but here are some major issues/problems that I have seen kill a project. Quite possibly, justone of these warnings will save you time and money.

Partnerships
A partnership is like a marriage; most go down in flames. In all seriousness, be certain who you are doing business with, because you will find that their reputation will become yours. If it is a financial partnership in which they are bringing money into the project, make sure the funds are verified and secured. Also, unnecessary partnerships are very common. Inexperience in the industry, self doubt or insecurity may cause you to bring on too many unnecessary or extra sweat equity partners. Avoid this. I have seen someone make a DJ a partner because they “knew” music and entertainment. In this business most good staff/employees will be knowledgeable about a few areas of the business, so hire them after the business is open. Your bartender might be a great DJ and promoter, but that does not make him an operator. When word gets out that you are opening a bar or club, everyone wants “in.” Make certain sweat equity partners can carry their weight in knowledge and skill. It is always a good idea to add or include a performance clause to your partners’ contracts or agreements to insure their performance. Make sure your terms are written and agreed to. Having an attorney write or review your agreement is a must.  

Location
Know your location and demographic and consider these factors:
A. Economic Region/Area. You wouldn’t put a beautiful piano bar in a bad or failing part of town because you got a great deal on a building or lease, would you? I’ve seen it tried. You may pay a little more in a nicer area, but your turnout and sales will be higher in that area of town to compensate. Place your venue where people want to be and where they are used to going for entertainment/nightlife.

B. Parking. Pay attention to parking and accessibility issues for your patrons. I have seen beautiful venues fail because parking was scarce or otherwise inconvenient.

C. Trendsetter Mentality. I’ve had clients that want to open a bar or club in a part of town where presently there isn’t one. Just because major or established local chains can do it does not mean you can do so as readily or easily as they do. In most cases, chains of bars have revenues from other locations to carry the burden during the initial phase after opening, in order to give the new location time to develop a following.

This location approach can work for a new operator, but just be prepared to eat some operating costs until your location becomes an established destination. Some people do it because they don’t want to be located close to or in near the same area of town as a competitor. However, if you can be located close to another successful venue, I find this can be beneficial. Think about it. Even you like to have options in the same area instead of having to drive across town to meet other friends or check out the scene. You may even set yourself up to piggy-back promotions or work off what the other bar or club is, or is not, doing. For instance, if your competitor is having a dance/electronic music night on Friday, you may do a Top 40 event that same night, and if their Saturday is Top 40, then you will do dance/electronic. People like changes of scenery and environment within proximity.

Buying or Leasing
Depending on your initial capital, this decision may already be made for you. And if you have a real estate background, you obviously will see the benefit of buying in the long run. There are so many factors involved in each state that will determine if this is right for you. If you are among the fortunate who have the capital to consider this option, talk it over with your accountant to run the numbers and determine if this option is right for you. For the majority of us who will lease, don’t be afraid to ask a landlord for improvement allowances, rent credits or, better yet, a build-to-suit deal before you sign a lease. Also do not lock yourself into a “light lease.” This is when your lease term is too short. What happens is that after your business becomes successful, and/or after you added some great improvements to the building or space, your lease comes up, and Joe Landlord Landlord sees the great opportunity to ask for a substantially higher rate for the same space because you both know other people would love to be in your established location. Always have a predetermined option at the end of your lease to remedy this. I am a huge fan of always having the option to purchase or first right of refusal. This is not always possible, but when it is, make sure you lock it in. Be sure to consult any decent real estate attorney to walk you through this process. 

Create Projections
This is a must! I recommend three sets of projections:

A. Contingency Projections. These are mediocre numbers that we do not want to see but are done to see a feasibility scenario.

B. Target Projections. These are the numbers about which you are confident but not overzealous.

C. Fluff Projections. These are the numbers to flirt with, but be realistic and practical.

When creating projections, I feel it is a must to know what accurate staffing projections also are. Do not “guesstimate.” Draw out your venue or walk it if it is built-out or existing. Visualize your working staff and your business in a full operating capacity scenario and a slow scenario. Be true to your expectations for each day, week and month. Do not forget your holidays and special events. Many times, accountants are not intimate or familiar with the entire nightclub and bar business, so it’s best to search for one who is. But besides the obvious considerations when producing projections, make sure to consider: Seasonal business income influx and reduction (college cities/tourist cities); accurate pay/compensation (staff, vendors, overhead); pour costs (calculate these high and shoot to keep them low); replacement costs (expected lost, stolen, broken or damaged items); accurate insurance costs (despite your business being cleared by fire inspectors, look into options such as sprinkling the building or additional fire exits or any similar improvements. Though these are costly, when you calculate the cost comparedto the savings on insurance, you may find that in the long run it is more cost effective to add one or more of these additional safety features.); and projected compensation for outside costs (promoters, marketers, DJs, entertainers, etc.). For more common pitfalls to avoid in starting up your bar, read Part 2 in the March issue of Nightclub & Bar.