The Complete Guide on How to Open a Restaurant in Philadelphia

Restaurant in Philadelphia

Food lovers must have thought at least once in their life about starting a restaurant. It looks fun and exciting, and the market is virtually free of any barriers.

As an up-and-coming restaurant owner, you must have wondered, “How to open a restaurant in Philadelphia?” This comprehensive article will tell you about all the necessary steps on how you should work toward a successful restaurant opening in Philadelphia.

As mentioned before, a lot of people want to enter the restaurant business but they cannot as they don’t know where to start. Competition is abundant already so you can not open a restaurant in Philadelphia any way you like. Apart from all the legal procedures, many processes, and steps needed to be followed when you start a restaurant in Philadelphia.

The Basics of Opening a Restaurant

The first thing that you need to do before you open a restaurant in Philadelphia is to decide the name, format, concept, theme, and idea behind the restaurant. It is going to be a QSR, fine dining restaurant, or casual dining restaurant. Who is your target audience? Why have you chosen this particular audience? What concept will you work on? Will there be any theme? What will be the idea behind your restaurant? What will be the name of your restaurant?

The factors that need to be considered and also the costs involved would change based on your restaurant type. Simultaneously, your restaurant marketing strategy should be unique according to your concept and target audience. You must follow all these points before proceeding with the actual opening of your restaurant.

Below are some key factors that you must consider:

  • Format of your restaurant, is it going to be a QSR, fine-dine, or casual dining?
  • The theme of your restaurant
  • Concept and reason behind opening a restaurant
  • Demographics and target audience
  • Name of your restaurant

Philadelphia is a Hub of Opportunities with the Right Location

Once you know what type of restaurant you want to open, the next decision is where to open the restaurant. You need to find the right location to start a restaurant. This decision is the most important decision that you have to take because some formats work only in some areas. This is also because the type of crowd keeps changing.

Philadelphia is full of vitality and variety for everyone. With such a diverse culture, Philadelphia has everything for everyone.

But location matters a lot, there is hardly any chance that exclusive fine dining will work near a university campus. On the other hand, chicken, wings and beer will not pull off the crowd in some other locations where people prefer having an elite and unique dining experience. As your format and target audience shift, so does your location.

To select the appropriate location for your restaurant, you need to consider three major factors and decide from the list based on minor factors.

Major factors influencing the location 

  • The target audience of your restaurant
  • Format of your restaurant
  • Your budget

Minor factors influencing the location

  • Parking space and valet
  • Safety concerns
  • Proximity to your vendors
  • Ease of access
  • Rush hour in the location
  • Level of competition
  • The propinquity of the corresponding business
  • Connectivity

While the safety of the location and proximity to vendors are not significant factors for you to decide your location, they are still critical and must be your priority to look at when you are picking from among the filtered potential location.

Permits and Licenses Required to Open a Restaurant in Philadelphia

The most intimidating part of the process to start a restaurant is getting all the licenses required. In the USA, the license is charged according to the state which makes the whole process extremely confusing. Below is the list of some important licenses that are required to start a restaurant.

  • Business License 

The first license that you need to operate and open a restaurant in the U.S. is the business license. A business license is required not to just operate the restaurant business but any business in the U.S, as it legitimates new businesses as legal entities.

Procedure: Firstly, type in your state and business license into Google search engine. Then abide by the application procedures laid out on the state government site.

Cost: The registration cost is approximately $60 and the cost of the license depends on the state, so it varies between $30 and $6500.

  • Foodservice License

A food service license is essential if you wish to start a restaurant. This license is usually issued by the country’s health department or by the city after an in-person visit. An in-person visit is to confirm that you are conforming to all restaurant food safety regulations. After the issuance of the license, the health department will still continue to make regular visits.

Procedure: The application can be obtained from your local health department either in-person or online. To get the license, you need the name of your restaurant, the address for the permanent kitchen, and also the owner’s data. Food service licenses expire automatically in some locations so take due note of when you need to renew it.

Cost: Depending on the number of employees and location, it can range from $150 to $1500.

  • Liquor license

You also need a liquor license only if you plan to sell liquor or open a bar at your restaurant. In certain states, you may be required to apply for a wine or beer license along with a liquor license. The license is issued by the liquor control board and so the process can be time taking and long. It will be better to apply for it as soon as possible.

  • Employer identification number

Just like the business license, an employer identification number must be obtained by all businesses to operate in the USA. This is a TAX ID number and is assigned by the IRS. You need to sit on this for a while as the IRS issues one EIN per day.

Procedure: You can apply through the IRS website or by phone, fax, or mail.

Cost: Free of cost

  • Food handler’s permit

Usually known as an Employee health permit, the food handler’s permit warrants the food safety certification of your staff. Your employees need to apply and pass a state-approved food handler permit with specific training resources put out by the FDA for employee food and health protection.

Procedure: You can Google your employee health and state permit for further information.

Cost: It depends on the state and can range between $120 to $520.

  • Sign Permit

The city government is the body issuing the sign permit which is needed before putting up any signs outside your restaurant. The specifications regarding location, size, and lighting differ from city to city.

Procedure: You need to get approval from the local government.

Cost: It usually varies from $25 to $60.

  • Certificate of occupancy

After the location passes the final inspection of the building, the zoning departments in the city will issue the certificate. A certificate of occupancy is also required to certify that the building is built properly and also maintained by following all the norms.

How to get: The whole process relies on the structure of the building and differs based on jurisdiction. You need to adhere to all the steps on your local government website for this.

Cost: Approximately $150

  • Music license

If you wish to open a restaurant in Philadelphia that would have music, you need to have a music license to avoid copyright contravention because of the music. This also includes live music, music from CDs, and also music from streaming services. Playing copyrighted music without license can incur a fine ranging from $ 800 to $35,000.

Procedure:  You can pay either the broadcast music or the American society of composers, publishers, and authors or get the licensed music solution to pay these fees on your behalf.

Cost: The cost also depends on various factors. Some of these are:

  • Whether the music is audio-visual or audio
  • Whether the music is recorded or live
  • If the admission is free or charged
  • The number of nights the music is offered
  • For background music, the cost can differ between $ 350 and $ 550.

Insurance is required to open a restaurant in Philadelphia

  • Restaurant owners must consider business property insurance, which will cover all the physical and interiors of the building
  • Liability insurance also provides coverage if your business is to be blamed for injuries to others and their property
  • Workers’ compensation is needed in almost all states if you hire employees

Once the insurance part is done, the next step is to acquire all the funds

Once your business plan is in place, you must know the total amount of funds you need to acquire it. Apart from investment money, you can also raise capital from various other sources. These also include bringing in investors, partners, or sponsors, borrowing money from friends or banks and family, or also raising capital through activities such as crowdfunding.

Whatever way you opt for, always weigh the pros and cons and get the terms and conditions of the whole process of acquiring the funds in writing.

Opening a Restaurant in Philadelphia: Things to Consider

Understand the margins

Usually, people start a restaurant without actually understanding the basic mechanics of the industry. As a result, most of the restaurants end up failing in the first year of operations. So before you finalize the vendors or decide on your budget, it is always better to understand some of the basic industry norms and margins first.

This is also important because the vendors you want to deal with will understand the margins and if you have no idea what they are talking about, chances are that you will get the short end of the stick or even worse than that. Some terms that you must get familiarize yourself with are:

  • Break-even point: This is the point where total production is equal to total expenses. To put it in simple words, this is the point where your revenue is equal to cost, and after this, you will get profits. Calculating the break-even profits is vital to know how much you must do in sales to get back your investment before you can start generating profits. This is how you can calculate-

Total fixed costs / total sales-total variable costs= break-even point

  • Costing of goods sold: This is the cost of making the dishes that have been sold to the customers. In simple terms, this number is also a representation of your restaurant inventory at any point without accounting for the wastage. The formula for this-

Cost of goods sold= beginning inventory+ purchased inventory-final inventory

  • Overhead rate: This type of cost accounting helps you to understand how much it costs to run your restaurant on the basis of your fixed cost on an hourly basis. Here is how you can calculate your overhead rate-

Overhead rate= total indirect/total amount of hours open

  • Prime cost: The prime cost is the sum of labor costs. This makes up 60% of the restaurant’s total sales and also represents a bulk of the restaurant’s convenience expense. This is also the cost of the restaurant owner which can be optimized to increase the profits.

Prime cost= labor costs + COGS

  • Food cost: One of the imperative restaurant metrics, the food costing percentage represents the difference between the cost of producing a precise menu item and also selling price of that particular item. The ideal food cost percentage of a restaurant should lie between 30% to 37%. It can be calculated as-

Food cost percentage= food cost/total sales * 100

  • Gross profit: This profit is generated on what the restaurant makes after accounting for the COGS. It also represents the money available to pay for fixed profits and expenses. You can calculate it by-

Gross profit=total sales-COGS

  • Employee revenue rate: We all know that the restaurant industry has an extremely high employee rate which is a piece of very bad news for the restaurant. Employee turnover represents the number of employees who are fixed or on leave and need to be replaced during a specific period. It is important to calculate your employee turnover rate and keep it low if possible for the sake of operational competence. This is how you can calculate it-

Starting no. of employees + ending no. of employees / 2 = average no. of employees

Lost employees/average no. of employees = employee turnover

Focus on Your Menu

Once you are clear about the concepts, margins, and format the next step is to create a unique menu. You can involve your head chef and make a tentative menu. At this step, the menu will be the list of items that will be available at your restaurant and also a tentative price for the same.

You must observe your competition before creating your menu, and why they are serving those dishes at this price. Always try to keep the menu short in the first step. A great way to design the menu at this stage is to try and keep the basic ingredients common so that you can save a lot on the cost of raw materials. The menu should be short and practical and also includes items that are your own and also represent your restaurant.

An ideal menu will have something for all. Try to keep a mix of all the dishes which are basic and will be ordered by anyone, which are also popular among the people and competitors, and also the dishes are unique to your restaurant and its concept as well.

Finalize the vendors

Once you know the location and also a unique menu, the next is to finalize the vendor. It will always be better if your vendor is near your restaurant, but that must not be the only factor to look at. Selecting a vendor is like choosing a business partner. Make sure that the vendors are reliable and will not leave you hanging in the crisis.

Always compare the prices of the vendors with at least three or four other suppliers but do not choose your vendor solely based on the price as well. Some important factors that need to be considered are credibility of the vendor, the rapport you build, the reputation and track record, and most importantly how well your terms and requirements will be looked after.

Tip: it is always a good idea to be the big client of a small vendor rather than an irrelevant client of a big vendor.

Generate a Business Plan

The next step to starting a restaurant is to have a business plan. A business plan is not just about the document but a roadmap for you to follow. It should have all that your restaurant stands for, where you mean to take it and how you plan to achieve it. Additionally, it is needed for applying of funding from any external source apart from the separate business proposal for the investors. It is so because even the business proposal will be based on the business plan which will also comprise all basic and important information.

A business plan should have:

  • Executive summary:a small summary of your restaurant concept, why did you choose this concept, and where you want to take it
  • A mission statement: what is the concept of your restaurant and what is your mission
  • Sample menu: what do you plan to offer in your restaurant
  • Name of the stakeholders: the name and other details of the owner, partners, head chef, and core members of the team
  • Financials: estimated profits, details of all the costs, estimated time to reach break-even, and funds required
  • Marketing strategy: how do you plan to market the restaurant and also the specific strategy
  • Hiring strategy: who, why, and when do you plan to hire
  • Conclusion: a quick recall of your entire business plan

Hiring Staff

Once you have all the licenses in place, the next step to start a restaurant is to hire a staff. The staff you employ is an extension of your brand image, so you should be very sure of the people you want to hire. All the staff requirements will be based on the format and size. You might need a manager, kitchen staff, and chef. Depending on the QSR, as a self-service restaurant or just a regular restaurant, you need to hire wait staff as well.

The Restaurant Launch

Finally, the last step to starting a restaurant is to prepare a soft launch. It is always better to have a soft launch so that you can get the hang of operations and also tweak yourself according to the consumer’s review you get before doing the big launch.

The big launch of your restaurant will also comprise a grand opening like calling the media, getting a local celebrity, and inviting food bloggers and also other relevant industry players. As a newbie, it could be extremely tricky to master an event of such scale and hence, a soft launch is always a better idea than a hard launch.

The restaurant industry is a very lucrative business with a lot of space. If opening a restaurant in Philadelphia is a dream, then this guide will surely help you.