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How To Open a Hookah Lounge

Hookah Lounge

If you're thinking about opening up a hookah bar, you probably already know a lot about shisha and hookah culture. Perhaps you have great ideas already about the products you'd like to offer and the atmosphere you'd like to create.

These details are essential, but you'll also need to make sure that you're aware of 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 business name that is unique and sets you apart from the competition. You also want to make sure that the business name that you choose 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, fictitious business name database, and trademark database.

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

Choose a Business Structure

As a new business owner, you will have to 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 your potential liability for business debts and losses.

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

If you register a DBA name or trade name, you will be able to use the name you registered instead of your own name for business purposes. One important thing to note about sole proprietorships is that there is no asset protection with this type of business structure. If the business is sued or bankrupt, a creditor could come after your car, house, or bank accounts.

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 that they have is considered to be separate from them.

Someone who sues the business for a business debt or obligation can't reach the owners' personal assets. However, it is 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 will have to file paperwork with the Secretary of State (or other agency) to form the organization. With a corporation, you will have to file paperwork with the Secretary of State (or other agency) to form the corporate entity. You will also have to pay the filing fees for forming an LLC or corporation. Corporations also have a rigid management structure that you will have to adopt to operate your business.

Business Structures and Taxes

The other big difference between the types of business structures is tax treatment. A sole proprietor puts business income and losses on their personal tax return. LLC owners may be taxed a few different ways by the IRS. Much depends on the number of owners and whether or not they choose to be taxed as a corporation. Owners of a corporation have to 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

Getting a solid business plan together is an important step in the process of 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
  • Pricing strategy
  • Business goals
  • Startup expenses
  • Ongoing expenses

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

For example, if you're interested in offering food and drink options to your customers, 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

You need to consider the licenses and permits that 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, then you may need a food service license and liquor license as well.

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

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

Get Funding for Your Hookah Business

Once you get an idea of the costs to open your business and keep 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. There are also loans that you could get from the Small Business Association. That business plan that you created will come in handy as you go through getting a business loan.

Get Set Up for Federal and State Taxes

The IRS (Internal Revenue Service) requires most businesses to have an EIN (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 that doesn't have 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 probably also want to get one or more social media accounts for your business. Social media allows you the opportunity to reach a broad audience with a click of your mouse.

You might be pricing your hookah by the bowl or by the hour, but you could consider offering a discount. If you provide a special or deal, be sure to include the offer in your marketing scheme.

Thinking About Opening a Hookah Bar? Get Help

As a new business owner, you want to make sure that you do things the right way. Consider using a trusted DIY business formation service to ensure you meet all of the legal requirements for your business. 

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

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