Starting a hookah lounge can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful hookah lounge.
Importantly, a critical step in starting a hookah lounge is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Hookah Lounge:
- Choose the Name for Your Hookah Lounge
- Develop Your Hookah Lounge Business Plan
- Choose the Legal Structure for Your Hookah Lounge
- Secure Startup Funding for Your Hookah Lounge (If Needed)
- Secure a Location for Your Business
- Register Your Hookah Lounge with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Hookah Lounge
- Buy or Lease the Right Hookah Lounge Equipment
- Develop Your Hookah Lounge Marketing Materials
- Purchase and Setup the Software Needed to Run Your Hookah Lounge
- Open for Business
1. Choose the Name for Your Hookah Lounge
The first step to starting a hookah lounge is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your hookah lounge:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your hookah lounge.
2. Develop Your Hookah Lounge Business Plan
One of the most important steps in starting a hookah lounge is to develop a detailed business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your hookah lounge.
- Company Overview – this section tells the reader about the history of your hookah lounge and what type of hookah lounge you operate. For example, are you a traditional hookah lounge, cafe hookah lounge, or a bar hookah lounge?
- Industry Analysis – here you will document key information about the hookah lounge industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target market are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your hookah lounge? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your hookah lounge make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Hookah Lounge
Next you need to choose a legal structure for your hookah lounge and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the hookah lounge owner and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small business owners. It is an agreement between two or more people who want to start a hookah lounge together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a hookah lounge include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a hookah lounge is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your hookah lounge, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Hookah Lounge (If Needed)
In developing your hookah lounge business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a hookah bar to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage hookah businesses. Angel investors typically will invest in a hookah lounge that they believe has high potential for growth.
5. Secure a Location for Your Business
There are a few things to consider when looking for a location for your hookah lounge or hookah cafe. First, you’ll want to make sure that the space is big enough to accommodate your guests. Find a place that is quiet and has a relaxing atmosphere. You’ll also need to find a business location that is allowed to host smoking lounges.
Another thing to keep in mind for your hookah den is the availability of parking. You’ll want to make sure there is plenty of parking available for your guests. Finally, you’ll want to find a space that is close to public transportation, as this will make it easier for your guests to get to your lounge.
6. Register Your Hookah Lounge with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your hookah lounge’s name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your own hookah lounge to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
The licenses and permits you need to start a hookah lounge depend on your location. You may need a business license, a tobacco license, and a permit to sell tobacco products. Local laws may require that your hookah lounge be smoke free or allow smoking shisha. You should contact the local government to find out what licenses and permits you’ll need.
10. Get Business Insurance for Your Hookah Lounge
The type of insurance you need to operate a hookah lounge will depend on the state in which you reside.
Business insurance policies you should consider for your hookah lounge include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Hookah Lounge Equipment
You will need a few pieces of equipment to run your hookah lounge. Some of the essentials include hookah pipes, coals, and tobacco. You will also need space to set up your lounge, tables, chairs, and ashtrays.
12. Develop Your Hookah Lounge Marketing Materials
Marketing materials will be required to attract and retain customers to your hookah lounge.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your hookah lounge. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional hookah lounge website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your hookah lounge.
13. Purchase and Setup the Software Needed to Run Your Hookah Lounge
You will need a point-of-sale (POS) system to run a hookah lounge. This software will help you keep track of your inventory, sales, finances, and reservations. You will also need software that can handle administrative aspects of the business and track customer data.
14. Open for Business
You are now ready to open your hookah lounge. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Hookah Lounge FAQs
No, it's not hard to start a hookah lounge or a shisha bar. In fact, it's a fairly simple process. You'll need to find a location for your lounge, obtain the necessary permits, and stock your lounge with hookahs and other supplies. You may also want to create a marketing plan to attract customers to your lounge.
If you're looking to start a hookah lounge with no experience, the best way to do so is by doing your research. Learn about the global hookah market, what's popular in terms of flavors and styles, and what kind of atmosphere you want to create. You may also want to speak with experienced hookah lounge owners for advice.
According to sales figures from hookah suppliers, cafe style lounges are the most profitable. Cafe style lounges combine the relaxing atmosphere of a coffee shop with the socializing aspects of a bar. The soothing ambiance created by dim lights and background music allows customers to unwind after a stressful day.
Opening a hookah lounge costs anywhere from $10,000 to $50,000. This will cover the costs of things such as the construction of the lounge, the purchase of hookahs and tobacco, and the hiring of employees.
The ongoing expenses for a hookah bar business can include the cost of rent, employee salaries, inventory, and other miscellaneous costs. Depending on what state you are located in, there can be additional expenses related to licensing and taxes.
There are many ways hookah bars make money. Some of the most common are by selling food and drinks, charging an admission fee, and selling hookah products. They can also rent out rooms for private parties.
To open a hookah lounge, the cost of starting and operating the business is relatively low. Thus, if planned and managed well, it can be profitable. Additionally, a hookah lounge is a unique business that may be new to many people. Since it is not a common business, people may be intrigued and want to visit the lounge.
Many hookah lounges and shisha bars fail for a variety of reasons that can generally be grouped into seven categories:
- Unreasonable pricing for the clientele.
- Unreasonable expectations from customers and employees.
- Inability to keep up with competition.
- Lack of training, skills, and experience in management.
- Inadequate financial resources.
- Inappropriate marketing strategies.
- Underestimating running costs or overstating profits.