Nightclub Business Plans: Investors beware says Night Club Consultant

The allure of investing in a sexy new nightclub business plan is ripe with failure if one approaches these high risk investments differently than others, says this Night Club Consultant. Still, the attraction of high drink profit margins, long lines waiting to pay a cash cover charge and being a part of the newest hot spot in town makes nightclubs a worthy investment for even the most savvy of finance professionals if you know when, where and what to consider in a particular nightclub business plan: Nightclub scene Night clubs, like the entertainment and music business, have short life spans typically lasting up to 3 years. Then, the concept must be reinvented in its present location, sold or moved elsewhere. Some night clubs have longer staying power and may last 5 to 15 years in business. Urban locations with dense populations usually work best for night clubs because the crowds change often and migrate from place to place. Other good locations include multiple suburban communities nestled together where one night club acts as its center for entertainment, dancing and group socializing. Operating profit margins on drink sales can be as high as 45%-50% after product costs, labor and direct expenses are deducted. Cover charges add to the overall profits with no direct cost. However, pilferage, giving away drinks and embezzlement of door covers is very easy because of the high volume of cash and credit cards exchanged. Therefore, it is critical that good accounting and security systems are factored in as added expenses to control the money and minimize theft. If you are a minority investor or limited partner, it is customary for a nightclub business plan to have a payback within 6 to 12 months after opening provided the night club is profitable. The majority investor or general partner, who usually provides up to 50% of the investment funds, is customarily paid back with their desired return within 3 years or once the concept is closed, reopened, sold or expanded to another location. Like any high risk investment, many investors are promised returns-on-investment (ROI) of 20%-25% but never see it.