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A Guide to Buying a Bar for Sale for Aspiring Business Owners

Published: 09-28-23 Category: Buying

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Did you know that bars and nightclubs in the US generate over $20 billion in revenue each year? If you live for the nightlife, aspire to run your own business, and don't have a problem with patrons spilling alcohol everywhere, then buying a bar for sale may be a smart investment.

While bars in the US generally experience seasonal activity and tend to thrive on the weekends, the right cost-management strategy can help your business absorb slow periods and retain healthy profit margins.

Here, we'll cover the basics that you should know before buying a bar for sale. We'll discuss bar acquisition costs, financing options, bar operating costs and more.

Grab a mop, and let's get started.

Is It Cheaper to Build a Bar or Buy One?

A Guide to Buying a Bar for Sale for Aspiring Business Owners

All other things being equal, buying a bar for sale is usually cheaper than buying commercial property and building a bar from scratch. According to data from RestaurantOwner.com, the average cost to open a newly constructed bar is about $193 per square foot compared to an average cost of $73 per square foot to buy and remodel an existing building.

The same data indicates that sales-to-investment ratios are higher when you buy an existing bar. Existing bars already have some kind of identity and customer base, which make the transition to new ownership easier to manage from an investor perspective.

Your best bet for buying a bar for sale is hiring a restaurant broker for your investment team. Restaurant brokers are commercial real estate brokers that specialize in restaurant, bar, and fast food property acquisitions. Restaurant brokers know what kinds of bar properties in your local market tend to have the most intrinsic value. They'll also help you negotiate sales contracts with sellers.

How Can I Finance My Bar Purchase?

As with many business purchases, investors should look into securing an SBA 7(a) loan to finance their commercial real estate purchase. These 7(a) loans are government-backed and can provide up to $5 million in funding for real estate acquisition, renovation, and construction.

Other financing options for buying bars for sale include conventional bank loans and lines of credit. Many bar owners will also take out equipment loans to pay for fixtures like range stoves, deep fryers, beer tap systems, refrigeration, and dishwashers.

Equipment financing rates for restaurants range between 4% and 30%.

Can I Lease a Bar?

If buying a bar for sale is out of your budget, you could consider leasing a standalone bar or bar space in a mixed-use building for your business. Leasing can be ideal, especially if this is your first bar: You won't be financially tied to a piece of special-purpose real estate and can leave the property a lot easier if the location turns out to be less than ideal.

Average leasing rates for restaurants in the US come in at about $5,000 a month. This is just an average—rent will vary depending on the state and bar location. For example, rents in San Francisco will most likely be higher than in Jacksonville, FL.

How Profitable Is Owning a Bar?

Bars typically have very high gross profit margins of anywhere between 70% and 80%, which is significantly higher than the overall service industry average of 30%. High profit margins for bars are largely due to markups on alcohol and beverage sales. For example, typical liquor markups at a cocktail bar range between 400% and 500%.

Average net profit margins for bars hover around 10% to 15%. The lower net profit margin reflects the high overhead of running a bar, which includes inventory, staff wages, licenses, utilities, and more.

What Kind of Bars Make the Most Money?

There is no one-size-fits-all answer to this question, as different types of bars can produce wildly different incomes depending on expenses and management.

A small bar that serves only drinks might have higher profit margins than a larger pub with a full-size kitchen because costs are lower and management is streamlined. However, data shows that the typical bar generates about $27,500 a month in revenue.

For bars, one of the most important metrics is pour costs—the amount it costs to make a drink at the sales price. If a bar has an average liquor profit margin of 70%, then pour costs are 30%. Pour costs for drinks in a bar usually range between 10% and 30%, depending on the type of alcohol. So, the key to maximizing bar revenue is minimizing pour costs.

What Are the Operating Costs of Buying a Bar for Sale?

Below is a quick breakdown of the management and upkeep costs bar owners need to include in their budgets:

Inventory costs for food and alcohol can cost over $10,000 a month. Ideally, inventory costs should amount to about 15% of your total sales.
Utility bills for bars can be high because of the lighting and the cost of running fridge equipment. Electrical bills make up about 5% of restaurant operating costs or about $2.90 per square foot.
Labor costs for wait and kitchen staff generally take up about 30% of operating revenue.

It takes about two years on average for a bar to start turning a profit. It's important to note that about 30% of bars fail in the first year, so it's crucial to manage your expenses and not over-exert your resources early.

Is Buying a Bar a Good Idea?

We wouldn't recommend buying a bar for sale as a first-time commercial real estate purchase, but experienced commercial real estate investors with food industry knowledge can fare well in the industry.

Aside from the profits, buying a bar for sale can be highly fulfilling: You'll be creating a center of social engagement and fostering a vibrant community of patrons.

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