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How To Open a Hookah Lounge

Hookah Lounge

If you're considering opening a hookah bar or hookah lounge business, you already know much about shisha and hookah culture. You may already have great ideas about the products you want to offer and the atmosphere you'd like to create.

These details are essential, but you also should ensure you know the basic steps of starting a new business. Following these steps could help you avoid legal problems down the road.

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Choose a Name for Your Hookah Business

Choosing a business name is vital for many reasons. You want a unique name that sets you apart from the competition. You also want to ensure that your chosen name is available for use.

To determine if the name you want for your business is available for use, you may want to do a name search. This could mean searching your state's business records and fictitious business name and trademark databases.

You can't register a business name already in use in some states. Using a business name that has been trademarked could also lead to legal problems. It's best to create a list of several business names you like, just in case you can't use one.

Choose a Business Structure

As a new business owner, you must decide how to structure your business. Do you want to operate your business as a sole proprietorship? Are you interested in organizing your business as an LLC or corporation? The type of legal entity you choose will affect your taxes and potential liability for business debts and losses.

If you operate your hookah bar as a sole proprietor, you won't have to file any formation documents with the state. Your personal name will be your legal business name unless you use a DBA name.

If you register a DBA name or trade name, you can use the name you registered instead of your own name for business purposes. An important thing about sole proprietorships is that there's no asset protection with this type of business structure. A creditor could come after your car, house, or bank accounts if the business is sued or bankrupt.

Limited Liability Companies (LLCs)

Limited liability companies (LLCs) and corporations offer limited liability to the owners. This means that the owners of an LLC or corporation have asset protection. The business entity is considered separate from them.

Someone who sues the business can't reach the owner's personal assets. But it's essential to note that forming an LLC or corporation is more costly and time-consuming than opening your business as a sole proprietorship.

With an LLC, you must file paperwork with the state to form the organization. With a corporation, you must file paperwork to form the corporate entity. You must also pay the filing fees to form an LLC.

Business Structures and Taxes

The other big difference between the types of business structures is tax treatment. A sole proprietor reports business income and losses on their personal tax return. LLC owners may be taxed in several different ways by the IRS. Much depends on the number of owners and whether they choose to be taxed as a corporation. Corporation owners must file their personal tax returns and a tax return for the corporation itself.

Considering the pros and cons of the different business types, it doesn't hurt to sit down and think about what's most important to you. Are you more concerned about the time and money it will take to form your business entity or the liability that you may take on?

Also, consider that you will need to have separate bank accounts for your business funds and personal funds to keep your liability protection under an LLC or corporate structure. For accounting purposes, no matter which business type you choose, keep business and personal funds separate.

Make a Business Plan

A solid business plan is an important step in opening your hookah bar. This is the time to ask yourself questions about how you want to market your service and products, how much it will cost to get the lounge open, and how much it will cost to keep it open for the next few years. A good business plan should include the following:

  • Business name
  • Business location
  • Business owner(s)
  • Marketing strategy
  • Target market research, including demographics and annual income
  • Pricing strategy
  • Business goals
  • Startup expenses and startup costs
  • Ongoing expenses

As you create your business plan, remember to keep your vision for your hookah lounge in mind.

For example, suppose you're interested in offering food and drink options to your customers. In that case, there are a few things for you to consider. On the one hand, offering food and drink options can help you get customers in the door and make them stay longer. On the other hand, you will have additional expenses.

In addition to the food and beverages themselves, you may also need kitchen equipment and kitchen space that you would not have otherwise required.

Licenses and Permits

Don't forget to factor in these typical costs for owners of hookah lounges:

  • Hookah pipes
  • Hoses
  • Shisha
  • Coals
  • Furniture
  • Sound system for music
  • Rent and utilities

You must consider the business licenses and permits you might need for your business model. You'll likely need a tobacco license for your hookah bar. If you'd also like to serve food and alcoholic beverages in addition to smoking hookahs, then you may need a food service license and liquor license as well.

Get Funding for Opening a Hookah Lounge

Once you know the costs of opening your business and keeping the lights on, you may need to develop another plan. Will you need to get a loan for your business?

Unless you have friends or family who can give you a loan, you'll probably need to look into loans from your bank for your business idea. There are also loans that you could get from the Small Business Administration. That business plan you created is useful as you get a business loan.

Get Set Up for Federal and State Taxes

The IRS (Internal Revenue Service) requires most businesses to have an employer identification number. An EIN is a number that the IRS uses to identify your business, similar to a Social Security number. Getting an EIN is easy and free. You can apply for your EIN on the IRS website.

Get Insurance for Your Hookah Lounge

There's always a chance, however slight, that someone could get injured or suffer a loss on your property. General liability insurance may cover you if this happens. You may also need to look into worker's compensation insurance. Worker's compensation insurance may kick in if an employee sustains a work-related injury.

Note that some types of insurance may be required in certain states. Check on the requirements in your state to make sure that you have any coverage needed for your business.

Pick a Location for Your Shisha Bar

Usually, shisha bars have storefront locations. Beyond that, think about how the site that you choose can affect your profits. Many owners of hookah bars set up shop in a plaza to take advantage of the foot traffic and easy parking.

What type of customers will you target? If you anticipate that your typical customer would enjoy coming to your bar after they leave a nightclub, then you might want to look for a location near a nightclub.

You'll need good ventilation for a hookah bar. As you check out potential locations, keep this consideration in mind. You might need to factor in the cost of renovations if you choose a retail establishment without good ventilation.

Hire Staff

When you start going through the hiring process, remember that you'll need people with the skills and experience required in your industry. Look for individuals who are knowledgeable about tobacco, hookah pipes, and hookah accessories.

You might get customers who've never experienced this Middle Eastern tradition. Experienced staff members can help answer any questions that your customers may have. Staff can also help customers with menu selections if you're serving food, alcohol, or tea.

Start Marketing Your Hookah Business

Word of mouth can bring new customers to your hookah bar. Ads and signage can also bring people in the door. Be sure to leave room in your budget for ads, signage, and your website. If you don't feel comfortable building your website, you can hire help.

You'll also need a social media account for your business.

You might price your hookah by the bowl or hour, but consider offering a discount. Include the offer in your marketing strategy if you provide a special or a deal.

Thinking About Opening a Hookah Bar? Get Help

As a new business owner, you want to ensure you do things correctly.

If you're unsure about the decisions you must make, it could be a good idea to reach out for more help. An experienced attorney could advise you as you work toward your goal. Don't hesitate to contact a business lawyer.

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