With young populations and increases in spending power, many believe this could be a good time to enter South Africa’s nightclub sector.
Though many have proved this idea is viable, it should always be approached as a business proposition rather than a ‘lifestyle’ choice. So, here are some things you need to consider as a would-be club owner.
Nightclubs are businesses with a local focus.
So, whether that means easy-going township clubs or uptown nightspots, each neighbourhood audience will mostly choose to frequent enterprises which reflect its dominant cultures and ethnic diversities.
South Africa’s rapidly advancing urbanisation means cities accumulate rising populations of young students, single professionals, visiting tourists and travelling business executives who expect good nightlife and entertainment facilities where they can unwind, socialise, and enjoy drinks, great food and great music.
According to the CIA Factbook (2017), 65.8% of South Africa’s population live in urban areas, and urbanisation is estimated to progress at an annual rate of 1.33% during the period 2015-20.
The World Bank report that out of a South African population of 54 million, more than 39 million are under the age of 40 and most live in cities.
McKinsey demographics show that Africa has the world’s highest proportion of young people with more than 50% of its population less than 20 years old. And that addition, 16 to 34-year-olds in Africa now generate around 55 percent of income.
As mentioned above, buying a nightclub should be all about purchasing a profitable business.
You need to conduct your due diligence to authenticate the financial records of any prospective business you may wish to buy. Research the potential of the enterprise, look into their financial records and ensure you thoroughly understand what will be demanded of you to turn over a decent profit.
What to look for when buying a nightclub business
You will need to find a business that meets your needs and has the potential to accommodate any plans you may have to expand and diversify.
Let’s take the situation where music is currently supplied by an in-house DJ and you wish to expand to include live music acts, guest DJs etc.
At the very least, you will have to check that your access arrangements can cope with the new arrangement, and at worst you may find you need to add soundproofing and revamp or rethink your drinks/food/dining layout.
If your potential business includes equipment and facilities with the deal, consider carefully whether this will enhance or restrict your future ideas. For instance, kitchen and catering equipment can be expensive, so why pay for items you will replace anyway?
Choosing your location/premises
Select your city location carefully. You must be certain that the population you wish to attract can get to you, will really want to come, and will keep returning.
Remember too they must have easy access, and somewhere to park. Furthermore, you must thoroughly analyse your competition to be sure there are enough customers. And finally, don’t commit to a venue where your fixed costs are so high you won’t make a profit even when you attract a crowd.
Licences and permissions
To operate a nightclub, you must register as a business, inform the tax authorities, and apply for a trade licence.
You may also have to apply for planning permission, rights of use, and parking permission if you plan to make changes.
In addition, the nature of your business will require licensing and certification for food and liquor, plus inspections and certification to comply with fire, health and safety, and smoking regulations.
Furthermore, you are likely to require two separate licences to cover different aspects of sound and music on your premises.
Secondly, any lender or investor who may express interest will expect to see you investing a substantial amount of your own funds in your proposed project.
Occasionally, you may find a nightclub owner selling up who is prepared to offer some vendor financing as part of the sale.
Whilst you will, of course, need to seek professional advice, this may offer one route into the sector if other aspects of the potential sale check out to your satisfaction.
If you’re just looking for friends, laughter and fun, then the nightclub sector may not be for you. But if you’re genuinely a warm, people person who won’t be daunted by long, unsocial hours, then with good planning and a clear vision of what you want to do, you could soon be the owner of a financially rewarding business.