Opening a bar or managing a bar is not as easy as many would have you believe. Although the rewards for those who get it right can be great, a large majority fail for the same few reasons again and again.
We’ve listed the 10 things we have come across most often that have ended up costing a lot of money, alienating customers and even contributed to the closure of the business. In no particular order:
1. No research done on location or market
Too many times I have met with struggling bar owners who spent a fortune on a concept that worked well somewhere else but for some reason it isn’t doing the business for them. Could it be because the high end bar/restaurant you built is in a brand new neighborhood where the inhabitants are young couples tied into mortgages and childcare costs? Could it be that the area doesn’t have sufficient passing traffic to capitalize on walk in trade? If you’re wondering why a particular style or concept hasn’t opened in your area before, don’t take it as a sign that this is a gap in the market. It may be, but it will take extra research to determine the local market, local businesses, spin off business from sports/concerts, disposable income available to your potential customers. Some bar chains spend months “casing” an area to count footfall, passing traffic and much more, so if you as an individual aren’t learning from the big boys, then you should be.
2. Not analyzing the recipe cost of everything
Everything you serve has a cost. What is the cost of the bottle of beer or the nachos and dip, or the steak and fries? If you don’t know the total ingredient cost (which includes salt, pepper, garnishes and everything else) then you probably won’t know whether you’re making money or losing money until your month end or worse, you run out of cash to pay vendors and staff. Create a spreadsheet and track the ideal cost of everything. The ideal cost is what it should cost you to serve that item. Human error will always make that figure fluctuate, but it shouldn’t be by much. If it is, then you need to provide additional training to staff. Anytime I’ve done this exercise with bar owners, they were shocked by the cost of at least a handful of items every time and needed to increase their prices to make their margins.
3. Skimping on the purchase of essential technology
There are some things you cannot do without as a bar owner and you should not try and cut back on costs when it comes to buying them. These include Video Surveillance Systems, Inventory Control Software, POS systems, Lighting & Sound Systems if running a club and ovens for the kitchen. There is no way around these items if they are needed in your business to provide the service you advertise. You should spend as much money as you can possibly afford on these items as without them, you could be scammed by staff and customers not spotted robbing from you due to faulty video cameras, you might be receiving short deliveries or not spotting the bottle of vodka a week that’s going to the staff party in the case of inventory software. So budget wisely and if there is something you need to save on, it’s not these items I can assure you!
4. Not understanding the bookkeeping or accounts
Many bar owners delegate the task of bookkeeping to an external bookkeeper to manage, yet how many of them know what the bookkeeper is doing? Could the bookkeeper be siphoning out cash on a weekly basis without the knowledge of the owner? It can and does happen. While outsourcing services is important, you need to know what you are outsourcing. This is important for two reasons, one, you will know when the contractor is trying to scam you if you have an understanding of the service and two, you will know how long the outsourced tasks should take when you are paying by the hour. It takes some time to learn the essential aspects of accounting but could save you a fortune in the long run.
5. Waiting too long for financial results
As a business owner, there are a few key results and numbers you need on a weekly basis and you need to setup the reporting to accommodate this. Waiting for quarterly management reports to identify problems isn’t good enough. Your three biggest costs are most likely going to be food, beverage and labor. Have these figures available each week and compare them to your sales. Are you spending more than you are making? Don’t forget you still have utilities and other expenses to come out of your sales, so make sure these figures are to hand each week and make changes as necessary to meet your targets.
6. Setting a bad cost control example for staff
If you as a bar owner are frequently seen by staff giving away drinks to friends, comping meals for family and having a few drinks yourself without paying, then you are sending the message to staff that you consider this practice acceptable. It doesn’t matter that you own the place, you need to show staff that every item is accounted for. Make it a habit to pay for these items out of your pocket and ask a staff member to ring it up for you and give you your change. You’ll be surprised how staff will respond to this example. Cost control policies come from the top, so start making the change yourself.
7. Hiring unsuitable staff
Not every job applicant has the qualifications or personality to work for you. As a bar owner, if you are doing the hiring and you are paying the wages, then it’s your responsibility to eliminate the applicants that clearly don’t meet your requirements. Once you have narrowed down your search, then it is essential to check past references of prospective staff members. Previous employers will be more than happy to let you know how suitable the applicant is for the job so make this step a priority in the hiring process. If after all this, the hired employee turns out to be unsuitable, waste no time in removing them from your business. A bad apple can infect the rest of the staff too, so don’t waste any time.
8. Being a friend before a boss.
A bar is a very social environment, not just for patrons, but for staff alike. Don’t make the mistake of crossing the line between boss and friend. You as the owner are there to make decisions that won’t always endear you to the staff, but you’re not there to make friends, you’re there to make a profit and that sometimes calls for unpopular decisions. Stand by these decisions and don’t let personal relationships affect your judgment. Staff will come and come and go, but businesses might not.
9. Not playing a role in the community
You rely on your community for business and likewise you ought to show the locals that you are doing something to give back. Nothing alienates communities more than businesses that alienate them and try to exploit them. If local community groups want to hold their meetings in your bar, don’t charge them for a private room; if the football team wants you to be a sponsor, do everything you can to oblige, you will most probably be the centre of any celebrations for the fans and team afterwards. Donate to local causes within reason and your business will be held in high esteem locally.
10. Spending too much time in the office and not enough time on the floor with customers and staff
Wal-Mart head office has a policy whereby they call the managers offices in Wal-Mart branches around the country and if the manager answers, they are asked what they are doing in the office when they should be out in the store! Office work is for outside of bar hours or at the very least in the quietest times of the day. By spending time with your customers and staff, you will quickly learn what works and what makes customers happy as well as ideas for improvement. Don’t rely on staff and customers to seek you out to tell you what’s wrong with the business. It’s your job to find out!
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Barry Chandler is Managing Director of www.manageyourbaronline.com , the complete online resource for independent bar and club owners and operators, designed to assist bar owners manage their business more effectively and provide all the tools/downloads/templates/articles for prospective bar owners to research and plan their new bar.
Photo courtesy of paintMonkey’s photostream on flickr