Setting out the financial forecast is a key part of launching any bar business, as it helps you understand the steps you need to take to help your business flourish. To guide you along the way, here are 4 key elements to consider when carrying out the financial forecast for a bar.
1. Take seasonality into account for your bar financial forecast
How busy a bar (or restaurant) will often depend on what time of the year it is. This means you'll need to seriously consider the impact of seasonality when creating the financial projections for your bar.
Generally, your bar is likely to experience a fluctuating level of activity depending on the below factors:
- the time of the year
- the bar's location
- the weather
- the bar's concept
It is, for example, obvious that a bar situated in a seaside resort will experience a peak in activity over the summer and be much quieter in the winter. Adversely, a bar located near the student area of a big city will have to wave goodbye to its main customers during university breaks.
So when setting out the financial forecast for your bar, remember to take the influence seasonality has on revenues into account - as it will help you establish a more accurate cash flow figure.
You should consider creating a monthly forecast to ensure that your business doesn't run out of cash during the off-season, whenever that may be.
It's also advisable to have enough cash on reserve for your bar financial forecast to be able to compensate for unforeseen events during the high season, such as a rainy summer for a seaside bar.
2. Supply management and the weight of stocks in the WC
WC (Working Capital) is the amount of money needed to bridge the gap between a business's payment to its suppliers and the payment it receives from customers.
In clearer terms, it's obvious that you need to buy all the stock for your bar before you can sell it. But you won't always sell your stock at the speed at which you need to pay your suppliers. This creates a funding requirement for your business which you need to factor in your bar financial forecast.
The bar's working capital requirement may increase in the following scenarios:
- Cocktail bar: if your bar is a cocktail bar, you'll likely offer a wide variety of alcoholic drinks that require a wide range of ingredients. Stocking all these ingredients - some of which will be used significantly less frequently than others - will increase your WC requirement.
- Wine bar: now let's say your bar is a wine bar and you also offer a wide range of bottles (some of them being more high-end than others). With your best bottles being quite expensive, they may sell less frequently increasing your WC again. As their cost is significant, their weight in the value of the stock should be assessed closely.
Effective stock management is one of the key ways to reduce your WC. When writing up a business plan for a bar, keep these impacts in mind and try to mittigate them - for example by reducing the range of drinks on offer.
It's also important to consider the payment terms granted by your suppliers. Negotiating as long an interval between payments as possible is ideal, as this will afford you more time to actually sell your stock before having to pay them back for it.
3. Factor in the cost of obtaining licences in your bar financial forecast
Your financial forecast for a bar should also take into account the costs incurred by purchasing the licences needed for running a late-night business.
First things first, you'll need to obtain a license to sell alcohol. This is known as a premises license and is usually awarded by the local council. This license will also enable you to play live and recorded music and serve hot food and drinks after 11 pm.
If you plan on serving food, additional licenses regarding food safety also need to be obtained, including:
- Food business registration: if you're planning on preparing, storing, cooking, handling, distributing or selling food on your premises, then you must procure this license from your local authority at least 28 days before launch.
- Food premises approval: any establishment that handles meat, fish, egg or dairy products must be inspected by their local council before being able to obtain this license
- Food hygiene certificate: although bars aren’t legally required to have a food hygiene certificate, educating your staff on how to safely handle food will reassure customers that your bar is a safe place to eat with their family and friends
For more information on how to obtain the licenses above and how much they cost, you can visit the Gov.uk license finder.
In the US, you will be required to register for a business license. You can visit the SBA website for more details on how to obtain this.
You will also need a food service license, a food handler’s permit and a liquor license for serving alcohol. Each state has its own Alcohol Beverage Control Board that regulates the serving of alcohol.
To obtain a liquor license, you must contact your state's ABC board. You can find a national directory of ABC boards here.
4. Recruitment costs
Finally, whether you're developing the financial forecast for a bar restaurant or simply a bar, special attention must be paid to recruitment costs.
Indeed, it's an industry where staff turnover is high, which will have consequences for your financial forecast. Recruitment costs include:
- a financial cost: related to the time charged for the implementation of the payroll system by the accountant.
- an indirect cost: related to the time spent recruiting (sorting CVs, interviews, etc.).
Even if it's not financial, keep in mind that the time allocated to human resource management cannot be spent elsewhere. This means, for example, that you will have less time to spend on marketing the bar and therefore incur fewer sales. It's important to take this detail into account when drafting up your bar's financial forecast to avoid any unpleasant surprises.
Also, don't forget to factor in the time spent on staff training. This especially rings true for anyone running a cocktail or wine bar. Even if a staff member isn't necessarily behind the bar, they should have a minimum knowledge of wines and mixology so they can respond to any customer queries.
Recruitment costs will be higher if your bar's activity is very seasonal, as it will inevitably be more complicated to find top-quality replacements if two of your waiters let you down in the midst of a busy season. The extent of this problem, of course, depends on the size of your bar.
When creating your financial forecast for a bar, it's crucial to be aware of potential stumbling blocks and set out a contingency plan for each. Caution, as they say, is the parent of safety - so the development of your bar financial forecast should be guided by this maxim, with the four elements listed above forming a solid starting point.
We hope that this article has given you actionable tips as to how you can create a financial forecast for a bar. If you have any questions related to the creation of a bar, please don't hesitate to get in touch with our team.
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