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How to Start a Hookah Lounge

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Published on May 31, 2022

Updated on August 11, 2022

How to Start a Hookah Lounge

How to Start a Hookah Lounge

A hookah lounge, or shisha lounge, is a relaxing place people visit to smoke tobacco through a water pipe. Hookah lounges have been popping up across the US and around the globe, with the global hookah industry set to double by 2030. 

If you’re a hookah fan, or just enjoy providing a chill environment, it could be a great time to get in on the action and start your own hookah lounge. You can have fun, help others have a great time, and make good money.

But before you fire up the pipes, you’ll need to know the business launch process. Luckily, this step-by-step guide will expand your knowledge and put you on the path to hookah success.

Fast Facts

Investment range

$23,550 - $48,100

Time to build

1 – 3 months

Industry trend

growing

Revenue potential

$200,750 - $501,875 p.a.

Profit potential

$60,225 - $152,562 p.a.

Commitment

full-time

Step 1: Decide if the Business Is Right for You

pros and cons word business background

Pros and cons

Starting a hookah lounge has pros and cons to consider before deciding if it’s right for you.

Pros

  • Fun Lifestyle – Meet lots of people that share your hookah passion
  • Growing Market – The hookah market is set to double in the next decade
  • Additional Revenue Opportunities – Sell food and alcohol and make more money

Cons

  • Smoking Bans – Some areas of the country have put restrictions on hookah lounges
  • Licensing Headaches – Stringent licensing and regulatory requirements

Hookah lounge industry trends

Industry size and growth

Trends and challenges

Trends in the hookah lounge industry include:

  • Mint-flavored hookah tobaccos are growing in popularity, and fruit flavors are another favorite.
  • Hookah is so trendy that companies have started making hookah merchandise, such as T-shirts with hookah-related phrases, which present a revenue opportunity for hookah lounges.

Challenges in the hookah lounge industry include:

  • Many areas of the country are passing laws to limit what hookah lounges can offer.
  • Hookah lounges are receiving a lot of negative press due to the health hazards of smoking hookah.

How much does it cost to start a hookah lounge business?

Startup costs for a hookah lounge range from $23,000 to $48,000. Costs include the space rental, space preparation, and hookah equipment and supplies. They also include a liquor license and liquor inventory.

You’ll need a handful of items to successfully launch your hookah lounge business, including: 

  • Hookah pipes and gear
  • Tables and chairs
  • Tobacco and flavors
Start-up CostsBallpark RangeAverage
Setting up a business name and corporation$150 - $200$175
Business licenses and permits$100 - $300$200
Insurance$100-$300$200
Business cards and brochures$200 - $300$250
Website setup$1,000 - $3,000$2,000
Space rental$2,000 - $4,000$3,000
Space preparation$10,000 - $20,000$15,000
Hookah equipment and supplies$5,000 - $10,000$7,500
Liquor license and liquor inventory$5,000 - $10,000$7,500
Total$23,550 - $48,100$35,825

How much can you earn from a hookah lounge business?

Hookahs are usually priced at about $20 an hour. Your profit margin after all costs should be about 30%. 

In your first year or two, you might serve 20 hookahs a day and serve $15 in alcoholic beverages to 10 people, bringing in $200,000 in annual revenue. This would mean $60,000 in profit, assuming that 30% margin. As your hookah lounge gains popularity, you might serve 50 hookahs a day and beverages to 25 people. With annual revenue of $502,000, you’d make a healthy profit of $150,000.

What barriers to entry are there?

There are a few barriers to entry for a hookah lounge. Your biggest challenges will be:

  • The startup costs of renting the lounge space and getting it ready for business
  • Meeting license and permit requirements

Step 2: Hone Your Idea

Now that you know what’s involved in starting a hookah lounge, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Why? Identify an opportunity

Research hookah lounges in your area to examine their products, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a hookah café that serves liquor or a shisha bar that offers food. 

You might consider targeting a niche market by specializing in a certain aspect of your industry, such as herbal shisha or flavored tobacco. This could jumpstart your word-of-mouth marketing and attract clients right away. 

What? Determine your products or services

You’ll want to create a hookah menu with different flavor mixes. You could also serve liquor with the proper licensing. If you put in a kitchen, you could offer food as well. 

How much should you charge for hookah?

Hookah prices range from $15 to $25 per hour. Check prices in your area to make sure you’re competitive. Your profit margin after supplies, rent, and overhead should be about 30%.

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your target market will be Hookah smokers, which are likely to be a younger crowd, so you should focus your marketing on TikTok and Instagram.

Where? Choose your business premises

You’ll need to rent a space for your hookah lounge. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
Should you start a hookah lounge busines

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better 
  • Name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “hookah” or “shisha lounge”, boosts SEO
  • Name should allow for expansion, for ex: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step Business Name Generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your offerings in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist at Fiverr to create a top-notch business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running. 

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to hookah lounges. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your hookah lounge will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

  • Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
  • General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
  • C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
  • S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using ZenBusiness’s online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have. 

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

  • Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
  • Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a hookah lounge business. You might also try crowdfunding if you have an innovative concept. 

Step 8: Apply for Licenses/Permits

Starting a hookah lounge business requires obtaining a number of licenses and permits from local, state, and federal governments. For starters, you’ll need a tobacco license as well as a liquor license if you serve alcohol. 

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

financial information content business concept

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your hookah lounge business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

You may want to use industry-specific software, such as Restaurant365lightspeed, or  toast to manage your menus, inventory, schedule, and invoices.

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Marketing

Some of your business will come from the casual passerby or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness. 

Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products: 

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area. 
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Reserve Now”. This can sharply increase purchases. 
  • Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.

Kickstart Marketing

Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Signage – Put up eye-catching signage at your lounge and website 
  • Start a blog – Start a blog and post regularly. Change up your content and share on multiple sites.
  • Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
  • Payper-click marketing – Use Google AdWords to perform better in searches. Research your keywords first.
  • Influencer marketing – Pay people with large social media followings to promote your hookah lounge. You can find micro-influencers with smaller followings and lower rates.
  • Make a podcast – This allows you to make a personal connection with your customers

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your hookah lounge meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your hookah lounge business could be: 

  • Skip the tobacco – come enjoy our herbal shisha bar
  • Exotic hookah flavors and unique signature cocktails
  • Bring your friends and share a hookah over a bottle of wine

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a hookah lounge business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in hookah lounges for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in hookah lounges. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a hookah lounge business include:

  • Hookah Makers – prepare hookahs
  • Bartender – make cocktails
  • Servers – serve hookah and drinks
  • General Manager – scheduling, ordering, accounting
  • Marketing Lead – SEO strategies, social media

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Start Making Money!

Hookah lounges have been common in the Middle East for centuries, and recently made their way to the United States. The hookah market is taking off, expected to double in the next decade. If you’re a hookah lover and want to share your passion with others, now is the right time to launch your own hookah lounge. You could help people enjoy their evenings out and make a good living at the same time. 

Your business knowledge is fired up now, so it’s time to start buying water pipes and getting your successful hookah lounge off the ground. 

Hookah Lounge Business FAQs

How much does it cost to start a hookah lounge?

You can start a hookah lounge for about $18,000. Costs include renting the space, preparing the space, and your hookah pipes and supplies.

Is a hookah lounge profitable?

Yes, a hookah lounge can be profitable. You’ll need to design an interesting hookah menu and create a great atmosphere, and you can be successful.

What licenses do I need to start a hookah lounge?

You’ll need a tobacco license and a liquor license if you’re going to serve alcohol. You may also need other business licenses and permits at the state and local levels. Check with your local governments for requirements or visit MyCorporation’s Business License Compliance page.

How much should I sell my hookahs for?

Hookah prices range from $15 to $25 an hour. Check prices in your area to make sure you’re competitive. Your profit margin after supplies, rent, and overhead should be about 30%. Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points.