2021.2.24

How to Open a Hookah Lounge

Written by Austin Chegini

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Hookah lounges are growing in popularity in many new markets. They offer fun entertainment for people who might not like nightclubs or traditional bars. 

If you are a fan of smoking or want to create a place for people to feel welcome, starting a hookah lounge may be just the right choice. However, this business is not for everyone.

Before rushing to sign that lease and start your business, let’s review how to open a hookah bar. 

What are hookah bars? 

A hookah is a water pipe used for smoking tobacco. Also called shisha, this form of smoking uses a variety of sweet and flavorful tobaccos. The pipe has a long hose that is often passed around so everyone can share the hookah. 

A hookah lounge is often less complicated than a bar. People sit at private tables, enjoy food, music, drinks, and of course, tobacco. Not all hookah lounges offer alcohol, making these lounges appealing to those who simply want a low-key place to spend time with friends. Also, these venues typically serve as after-hours venues when bars close because they do not serve alcohol.

Steps to open a hookah lounge

If you are toying around with the idea of starting a hookah bar, make sure you do your due diligence. After all, you don’t want to open an incredible lounge in a place with no demand or fail to plan and end up drowning in debt. 

Follow a business plan

Creating a business plan is the most important step in this process. By analyzing your industry and defining your business model, you can maximize your potential and determine how to make a name for yourself. 

For a hookah bar, there are several items to consider when forming your business plan. Some of the basic steps include writing an executive summary, conducting market analysis, and planning your finances and sales strategy

The executive summary and company description will define your business and explain your purpose. This section will explain how your hookah lounge will operate, the type of shisha you’ll sell, and other essential details. You will also review your market and set goals for your business. 

The market analysis portion will include a deep review of consumers and competitors. You will show how there is demand for your hookah bar and how your business will appeal to a certain demographic. Next, you’ll analyze your competition and compare your strengths/weaknesses against these businesses.

The sales strategy and financial portion will explain how you’ll generate revenue and where you’ll obtain initial funding. You will also need to project your future finances, including annual earnings goals, profit margins, and loan repayment.

After completing your business plan, you should be able to determine if opening a hookah lounge is a wise idea. 

Create an LLC or other business entity

By forming a business entity, you show the world that your hookah bar separates you from. In most cases, you will create a Limited Liability Company, also called an LLC. 

An LLC is a simple business structure that shields owners from certain liabilities. The business is a separate entity, meaning most legal and financial issues stay contained within the LLC. The LLC will have its own bank account, assets, and business agreements. If the business accrues debt and cannot repay, the creditor cannot pursue the owners or their personal assets.

Not all businesses need to be LLCs. You can also form business entities like a sole proprietorship, partnership, S-corp.

Set up your tax and bank accounts

You will need to register with the IRS before making any business agreements. Likewise, you need to create a dedicated business bank account before you sign a lease or buy equipment. 

The government requires all businesses to get an Employer Identification Number. You can consider this as your business’s social security number. You will need it to open a bank account, file taxes, pay employees, and more.

Luckily, obtaining an EIN is incredibly simple. You only need to complete this EIN application form on the IRS website. 

Once you have this number, you should open a separate bank account for your hookah bar. With a business bank account, you add an air of professionalism to your company and prevent confusion by commingling personal and business finances.

Find funding

With your business model defined and your goals set, you need money to get off the ground. By now, you should also have an estimate of initial and ongoing expenses. 

Many entrepreneurs will need to obtain a small business loan from a bank. When applying for these funds, the lender will want to see your business plan and learn about your experience. 

You can also bootstrap your business and raise all funds on your own. This option won’t leave you saddled with debt, but it does take much longer to save up the money. 

Lastly, you can find a private lender or investor to help make your business idea a reality. Perhaps other entrepreneurs in your area can give you seed money in return for a portion of your profits for a set time. Depending on your agreement, these people can be considered business owners or investors.

Apply for licenses and permits

All businesses needed to comply with local authorities and obtain the proper licenses. First off, you will need to register your hookah lounge with the state and local government. Additionally, you will need to apply for permits to sell food, tobacco, and alcohol.

Some common business licenses for hookah lounges include:

  • Sales tax permit: You may need to collect sales tax from customers and pay the state.
  • Occupancy permit: Your business will have a maximum occupancy, and surpassing your limit can lead to fines and closure.
  • After-hours permit: Many hookah lounges are open later than bars and nightclubs. This status requires an additional license in most places.
  • Indoor smoking permit: Many states have outlawed smoking inside, but you can obtain permission with this license.
  • Foodservice license: Hookah bars often serve Mediterranean and Middle Eastern dishes. If you plan to offer food, make sure you consult your Department of Health for the proper permit.
  • Liquor license: Selling alcohol is not mandatory at a hookah lounge, but you will need a permit if you plan to offer on-premise drinking. 

Read over this guide from the Small Business Administration to learn more about licensing.

Select a location

Hookah lounges do not have a set business model. Some only serve shisha, while others might have food, drinks, dancing, and more. Nevertheless, your business model will determine the type of location you need. 

For a quaint lounge that will only serve drinks and shisha, you can choose a smaller space with an open floorplan. Typically, these spaces are in strip malls with communal parking lots. 

If you want a large lounge that serves food and drinks, you will likely need to rent a space designed for restaurants. You will need a kitchen and storage area, as well as ample seating for guests and employees to walk around.

On top of this, your location will need plenty of sprinklers and excellent ventilation. After all, people will be using hot coals and flames, so it is best to be prepared.

Buy equipment and decorations

Not only will your hookah lounge need to be inviting and chic, but it needs plenty of supplies to run smoothly.

Here are some common items to include when setting up your space:

  • Tables and chairs
  • Hookah hoses and bowls
  • Coal holders and foils
  • Kitchen equipment
  • Refrigerators

On top of this, shisha bars often have party lights and music. While these lounges are not as noisy as night clubs, they still have an ambiance that requires a special layout. You don’t need to go all out with a DJ booth and dancefloor, but you want a decent sound system and colorful lighting.

Lastly, you need a point of sale system to operate your business. A POS is responsible for collecting payments, managing inventory, generating reports, and more. You can also use your POS system to track staff hours and conduct payroll. 

A modern POS system also connects to the internet, giving you 24/7 access to your data. Everything is stored on the cloud, so you can oversee your hookah lounge from anywhere in the world. This online connectivity also lets you integrate with third-party programs, such as Mailchimp, QuickBooks, and BigCommerce.

Hire and train staff

As you wrap up decorating and installing equipment, you will want to start hiring employees. Depending on your business model, you might need door staff, hosts, kitchen staff, and managers. 

It’s essential to hire the right people for these tasks, especially if you will not self-manage the hookah lounge. Since the main duties will include serving customers and explaining different hookah flavors, you want friendly people who understand the industry. Likewise, you will want to hire staff who don’t mind long nights since many hookah lounges are open until early morning. 

Training should cover the following areas:

  • Memorizing the menu
  • Operating the POS
  • Taking stock and updating inventory
  • Managing unhappy customers
  • Cleaning hookahs between use

Begin marketing and open!

Once your staff is ready and your business is fully operational, it’s time to being advertising. Using your business plan, determine which marketing approach will best reach your target consumer. Additionally, you will want to run general ads to boost brand awareness in your area. 

Once you set a grand opening day, contact local media and let them know about your business. Invite reporters and journalists to come and write about your hookah lounge. Ideally, these people should come before your opening so they can mention it in their stories!

Need a POS for your hookah lounge? Speak with an Epos Now consultant today.

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