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How To Start A Business In Texas

How To Start A Business In Texas

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How To Start A Business In Texas

How To Start A Business In Texas

Thinking about starting your own business in Texas? It’s a big step, but don’t worry, we have a guide to show what you need to do to get started. We’ll walk you through the important stuff, like choosing a business idea, selecting a business structure, getting the right licenses, and other key steps.

Steps To Start A Business In Texas

Step 1: Choose a Business Idea

Starting your own business in Texas begins with one thing: a great business idea. Maybe you’ve got a bunch of ideas buzzing around in your head, or you have an idea in place. Either way, we’ve got a collection of in-depth information on different industries, trends, startup costs, helpful tips, and much more.

Here’s a few things to think about as you sift through your options:

  • Play to your strengths: First, think about what you love doing and what you’re really good at. Maybe you’re a baking wizard, a tech whiz, or a social media guru. How can you turn these passions and skills into a successful business? Choosing a business that matches what you’re good at will not only increase your chances of doing well, but you’ll probably enjoy the ride a lot more.
  • Spot opportunities: Take a good look around. What do people need or want that they’re not getting? Maybe there’s a demand for homemade salsa in your town (not likely in Texas, but you never know) or a gap in child care services. Finding a need that’s not being met can set you up for success.
  • Check out the competition: Pay attention to businesses that would be your rivals. What are they great at? Where could they improve? Understanding this will help you figure out how to stand out.
  • Give your idea a trial run: If it’s possible, consider testing your idea before going all in. Start small – maybe sell a few products or offer a mini version of your service. This test run gives you a chance to see what works, what doesn’t, and make mistakes on a smaller scale.
  • Get advice from those who’ve been there: Talk to people who’ve started their own businesses. Their experience can give you insider tips, warn you about common traps, and guide you as you refine your idea.

By thinking through these points and getting insight from people who know the ropes, you’ll be well on your way to picking a business idea that’s set up for success.

Step 2: Write a Business Plan

Once a solid business idea is in place, it’s time to start working on the business plan.

Writing a business plan is not only usually needed to get funding, but it also serves as a roadmap, guiding you toward achieving your desired goals. The plan will take the ideas out of your head and work through the details so you can refine your business operations.

Several studies have shown that businesses that write a formalized business plan increase their odds of success compared to those that don’t have one.

Related: How to write a business plan

Step 3: Find Financing

Once the initial groundwork is completed, it’s time to get funds in place. There are various funding options available, and each option has its own advantages and requirements, so it’s essential to carefully evaluate which one is best suited for your specific business needs. The most common ones include:

Personal funds: Using personal savings, retirement accounts, or home equity to fund your business is the most straightforward option. This approach allows you to maintain full control over your company and avoid debt or share ownership.

Conventional bank loan: Traditional bank loans are a popular source of funding for small businesses. To obtain a bank loan, you’ll need a personal investment (typically between 15% and 25%), a strong business plan, good credit, and collateral. Interest rates and repayment terms may vary depending on the lending institution and your creditworthiness.

SBA loan guarantees: The U.S. Small Business Administration (SBA) offers loan guarantee programs that help small businesses access financing through participating lenders. The SBA guarantees a portion of the loan, reducing the risk for lenders and making it easier for small businesses to obtain financing. The most popular SBA loan program is the 7(a) loan, which can be used for various purposes such as working capital, equipment purchases, or real estate acquisition.

Microloan programs: Microloan programs provide smaller loan amounts to businesses that may not qualify for traditional loans due to a lack of credit history or collateral. These programs are often offered by nonprofit organizations or specialized lenders, such as Accion, LiftFund, or PeopleFund. Microloans usually have more flexible terms and eligibility requirements than conventional loans, making them more accessible to new or underserved businesses.

Investors: Seeking investments from angel investors or venture capitalists is another option for some startups. Angel investors are typically high-net-worth individuals who provide early-stage financing in exchange for equity in the company. Venture capitalists, on the other hand, are firms that invest in businesses with high growth potential. Both options involve giving up a portion of ownership and control in your business, but they can provide significant capital and valuable expertise to help your company grow.

Related: Understanding the different types of business funding

Step 4: Select a Business Structure

The next step to starting a business in Texas is selecting a business structure (also called a business entity). A business structure refers to how a business is legally organized, and understanding the different options is important, as the choice plays a role in tax implications, the extent of personal liability, and other factors that influence a business’s operations.

In Texas, there are four common types of business structures: sole proprietorship, general partnership, corporation, and Limited Liability Company (LLC), and I’ll explain each further.

Sole proprietorship: This is the simplest form of business structure, where the individual and business are legally considered the same. As a result, the owner has unlimited personal liability for the business’s debts and obligations.

Pros

  • Easy and inexpensive to establish
  • Complete control over business decisions
  • Minimal regulatory requirements

Cons

  • Unlimited personal liability for business debts
  • Difficulty raising capital (can’t sell shares of the business)
  • Lack of continuity in case the owner becomes incapacitated or dies

Related: How to start a sole proprietorship in Texas

General partnership: This type of structure involves two or more individuals who share the ownership, management, profits, and liabilities of a business.

Pros

  • Relatively easy and inexpensive to establish
  • Shared decision-making and management responsibilities
  • Potential for increased capital and resources

Cons

  • Unlimited personal liability for each partner
  • Potential for conflicts between partners
  • Lack of continuity if a partner leaves or dies

Corporation: A corporation is a separate legal structure that is owned by shareholders. This structure provides limited liability protection to its owners, meaning their personal assets are separate from the business’s debts and obligations.

Pros

  • Limited liability protection for shareholders
  • Ability to raise capital through the sale of stock
  • Continuity in case of ownership changes

Cons

  • More complex and expensive to establish and maintain
  • Potential for double taxation (profits taxed at the corporate level and dividends taxed at the shareholder level)
  • Increased administrative requirements and record-keeping

Related: How to form a Texas corporation

Limited Liability Company (LLC): An LLC is a hybrid business structure that combines the limited liability protection of a corporation with the pass-through taxation of a sole proprietorship or partnership.

Pros

  • Limited liability protection for members (owners)
  • Greatest flexibility in how the business is taxed

Cons

  • It is more complex and costly to establish compared to a sole proprietorship or partnership, though less than a corporation.

Related: How to form a Texas LLC

Forming a corporation or LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular formation services include:


IncFile - Great service and free registered agent the first year.

Northwest - Privacy-Focused: Free registered agent and private business address for 1 year!

ZenBusiness - Easy to use and free registered agent for 1 year!

Step 5: Register the Business Name

After setting up the entity, the next step is to take care of the necessary licenses and permits. Some common registrations include:

Business licenses: There is no state of Texas general business license; however, licensing may be needed at the local level. The licenses needed will vary by location and what the business does, but some common ones include a local business license, building permits, zoning permits, and others.

Employer Identification Number: The EIN is a nine-digit tax identification number issued by the Internal Revenue Service (IRS). This number identifies a business operating in the U.S. and is used for paying payroll taxes, filing tax returns, and more. Much like what a social security number is to a person, the EIN is similar to a social security number for a business.

While most businesses will need to get an EIN, some do not.

Partnerships, corporations, and most LLCs OR sole proprietorships with employees MUST register for an EIN.

Sole proprietorships or single-member LLCs with no employees are NOT required to get an EIN. In these instances, the owner’s social security number can be used to identify the business.

Business name registration: If you plan on operating a sole proprietorship or partnership under a different name than the owner’s legal name, you will need to file an Assumed Name Certificate, sometimes known as a DBA or Doing Business As with the County Clerk’s office where the business will be located.

Sales tax permit: Businesses selling products and certain services will need to register for a sales tax permit with the Texas Comptroller.

Professional licensing: Some services, such as therapists, tattoo artists, and food establishments, require licensing with the Texas Department of Licensing and Regulation. While this isn’t a license on the business, licensing is required to operate.

Related: What business licenses and permits are needed in Texas?

Step 6: Open a Business Bank Account

Now that the business is registered, opening a bank account is a common next step. While not a requirement for sole proprietorships and partnerships, keeping your business and personal finances in separate bank accounts is highly recommended for several reasons, a few of which are outlined below:

Reduces risk of commingling funds: Depending on the type of business entity you’ve established, maintaining separate accounts helps protect your personal assets from any business liabilities. For example, if your business is an LLC or a corporation, keeping your finances separate means the limited liability protection of the entity remains intact, and your personal assets are protected.

Simplified bookkeeping: Maintaining separate accounts for business and personal finances streamlines your bookkeeping process, saving you time and effort.

Tax compliance: Separating your business and personal finances simplifies your tax preparation process and makes tracking deductible business expenses easier. Mixing personal and business expenses can lead to confusion and potential errors, which may result in penalties or an increased likelihood of an audit.

Step 7: Hire Employees

Hiring employees is a complicated process for a new small business owner as there are several agencies to register with, such as the Texas Workforce Commission, Texas Department of Insurance, and Internal Revenue Service.

In addition to properly registering the business, employers are responsible for reporting new hires, verifying employees are eligible to work in the U.S., income tax withholding, unemployment insurance, unemployment taxes, and payroll withholding taxes, including Social Security and Medicare.

Related: Steps to hiring your first employee in Texas

Step 8: Obtain Business Insurance

Many people overlook insurance when starting their business, but insurance coverage protects your company from various risks, including financial losses, legal liabilities, and unexpected disasters. A few types of insurance policies small business owners should consider when starting their business in Texas include:

General liability insurance: This type of insurance is used by most businesses and protects against financial losses resulting from bodily injury, property damage, or personal and advertising injury claims.

Commercial property insurance: Property insurance covers the physical assets of your business, including buildings, equipment, inventory, and furniture. It protects against risks such as theft, vandalism, fire, and natural disasters.

Workers’ compensation insurance: While Texas does not require most private employers to carry workers’ compensation insurance, it’s highly recommended to protect your business and employees in the event of work-related injuries or illnesses.

Professional liability insurance: If your business provides professional services or advice, you should consider professional liability insurance, also known as errors and omissions (E&O) insurance.

Commercial auto insurance: If your business owns, leases, or operates vehicles for business purposes, commercial auto insurance is needed. This type of insurance covers liability and physical damage resulting from accidents involving your business vehicles and provides coverage for uninsured or underinsured motorists. Personal auto insurance won’t typically cover a vehicle when used for business purposes.

Related: Types of insurance your business may need

Step 9: Set Up Bookkeeping

While most commonly thought of as a way to stay out of tax trouble, bookkeeping provides insight into the financial health of your business. There are several ways to organize and record financial information for a business. One method is to use accounting software, which can help streamline the process of recording data and generating reports. Another method is to establish a paper filing system, which can help to organize all physical documents related to bookkeeping. Small business owners can also outsource their bookkeeping process to professional accounting firms.

Whichever method is used, you can set your business up for long-term success and financial stability by maintaining accurate business financial records

Related: Setting up accounting for a business

This material is property of StartingYourBusiness.com

Common Questions When Starting A Business In Texas

What are the steps to starting an LLC in Texas?

There are three main steps to starting an LLC in Texas. These include:

1. Making sure the LLC name is available
2. Appointing a Texas Registered Agent
3. Filing the Certificate of Formation

To learn more, check out how to start an LLC in Texas.

How much does it cost to start an LLC in Texas?

The cost to start an LLC in Texas is $300, which is the Texas Secretary of State filing fee to submit the Certificate of Formation.

Texas Small Business Resources

There are 3.2 million small businesses in Texas, which is 98.8% of all businesses in the state,1 and 44.3% of Texas employees work for small businesses.2 Because of the economic impact of small businesses, the state of Texas has invested in several small business programs to help Texas businesses start and grow. Some of these resources include:

Sources

  1. Small Business Administration ↩︎
  2. Census Bureau ↩︎

Author

  • Greg Bouhl

    With over two decades as an entrepreneur, educator, and business advisor, Greg Bouhl has worked with over 2,000 entrepreneurs to help them start and grow their businesses. Fed up with clients finding and acting on inaccurate and outdated information online, Greg launched StartUp101.com to be a trusted resource for people starting a business.

How To Start A Business In Texas

How To Start A Business In Texas

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