Open after dark: starting a nightclub is tough, but with the right location, look, and a little bit of luck, you can make millions

Black Enterprise, June, 2005 by Wendy Harris

On a typical Saturday night, Gregory Bowyer can be found moving swiftly and inconspicuously through the crowd at Excalibur, his year-old nightclub. While he's checking on operations and making sure his clientele is happy, hip-hop and R&B beats swell the air. And the number of young club-goers sipping mixed drinks and hitting the dance floor grows by the hour.

Patrons arriving at the Washington, D.C., hot spot are welcomed by medieval decor. There's a knight's full coat of arms, and replicas of King Arthur's legendary sword--the namesake of the lounge--adorn the walls and ceiling of the 2,200-square-foot space. Excalibur is the top floor of The National Grill, Bowyer's three-level restaurant, bar, and lounge. By day, customers can dine on classic American fare as they sit amidst walls decorated with pictures of area landmarks. When the sun goes down, the clientele head upstairs for the nightclub experience.

Business is solid. Bowyer's establishment generated $350,000 in revenues in 2004 and he anticipates generating $500,000 in 2005. But success has not come to the 33-year-old entrepreneur without a lot of hard work and long hours. "This isn't the type of business where you sit home and wait for a check to come to you monthly," he says. "You have to be involved on a daily basis with the intimate details of it--down to cleaning the bathrooms and shellacking the floor. There's no time to be hands-off, so your heart really has to be in it."

Bowyer is just one of many people looking to cash in on the demand for the dimmed lights, music, drinks, and dancing that is the nightclub business. According to the National Bar & Restaurant Management Association, the nightclub and bar hospitality industry is valued at upward of $50 billion. But half of all new nightclubs fail within the first three to four years of operation. Some succumb to increasing competition. Others find it hard to keep up the financial and work pace needed to maintain such an operation. But those who plan properly and tough it out have the potential to make millions. In this installment of the BLACK ENTERPRISE Dream Business series, we look at some of the pitfalls and rewards of starting a nightclub.

COVER CHARGES

Whether it's a Technicolor dance club, ultra-hip lounge, or another type of space, it takes a lot of money to get this party started. Startup costs vary greatly depending on the location, size, and type of club, but a small club in a small market may cost between $50,000 and $100,000 to launch. New club owners wanting to open larger establishments in more posh areas can expect to spend $500,000 or more to get started. "A million-dollar club used to be a big deal, but when you start talking about real estate prices, a million dollars can be eaten up really fast," says Michael Harrelson, chief editor of the NBRMA's Nightclub & Bar magazine.

Bowyer's space may be small by club standards, but its price tag wasn't: $2.7 million. But rather than purchase the property outright--an initial outlay that most new nightclub owners couldn't afford anyway--Bowyer instead opted to lease the space with an option to buy. Still, he needed more than $150,000 in seed money to cover the costs of his lease ($8,900 a month), renovations to the dub ($70,000), permits/liquor license ($5,000), equipment ($50,000), food ($10,000), liquor ($7,000), and promotions ($10,000).

Using $50,000 in personal savings, a $20,000 bank loan, and a $100,000 investment from Maroon Bachare, a real estate developer he had met years prior, Bowyer signed the lease for the property. He renamed it The National Grill in March 2004 and quickly started renovating the space. It opened for business in July. Bowyer created fliers, ran newspaper ads, and bought radio time to advertise the club, but he also formed alliances with on-air personalities at radio stations that reached his demographic, creating special events at his venue.

The costs for all the materials, manpower, permits, and other essentials required for a successful opening can mount quickly. NBBMA experts say typical startup costs for a nightclub include the following:

Rent: Bates vary depending on a number of factors, including city, state, size of space, and proximity to residential areas, and can range from $2,000 to $30,000 per month.

Liquor license: This is a requirement for any nightclub. Costs range from $1,200 to $170,000 depending on the market. You can't acquire a liquor license if you have a criminal record. Liquor License Specialists (www.liquorlieense.com) is a national organization that assists nightclub owners and other hospitality professionals with locating, negotiating, and purchasing or selling their liquor license.

Other permits/licenses: There are a host of other legal documents that new club owners must acquire. These may include cabaret, patio/zoning, restroom, and live music permits, as well as health, tobacco, outside/sidewalk cafe, and food and beverage licenses. Fees vary for each but can range from $400 to $1,000. Check with your local municipality for the exact documents required for your club.