They say location is everything, and that rings true when it comes to small business incorporation. Texas is a prime location for starting a small business, with over 3.1 million small businesses making up a whopping 99.8 percent of all Texas businesses. Talk about a booming small business landscape—and one your small business could soon join!
Texas is the second largest economy in the U.S., and remains one of the strongest and most diverse to boot. During the fourth quarter of 2023, the Texas economy grew faster than the nation as a whole for the sixth quarter in a row, and it is valued at more than $2.4 trillion.
Texas is an ideal state for starting a business, due to the small business-friendly tax policies that allow you to keep more of the money you make.
The already low business tax rate can even drop to zero depending on your revenue, eliminating tax burden in your early years as a business owner. To start a business in Texas, you’ll have to consider relevant regulations, licensing and permits, business structure, and tax responsibilities. You’ll also need to choose a suitable business location, consider zoning regulations, and the needs of customers.
But there’s no need to feel overwhelmed. Our guide will lay out all the requirements for starting a small business in Texas and help you prepare for small business ownership.
Starting a business in Texas: a step by step guide.
Legal details are important, but before you can tackle the paperwork, you should make sure your small business idea is prepared for everything. This includes solidifying your business idea, conducting market research, developing a business plan, and creating a financial roadmap. Then you can consider different business entities and their implications on taxes, control, and legal status in Texas.
Follow these steps to make sure your small business is ready to get rolling:
Step 1: Solidify your business idea.
Before you can dive head first into business ownership, your business idea should be rock solid. That means understanding the purpose of your business, the types of customers or clients your business will serve, the market needs you will address and provide solutions for, and your profit potential.
A strong business idea should be born from the things you’re passionate about, your skills, and your strengths. But in order for it to bloom into a successful business, it should also be functional, profitable, and stable. Consider these questions when solidifying your business idea:
- Is there a true demand for this type of business in the market?
- How will my business idea stand out above competitors in the same space?
- Will there be room for growth in my business?
- Will my business idea be flexible and adaptable to changing market trends?
- Will I be able to turn a profit from this type of business?
- Will my business be costly or require a lot of overhead?
You’ll also want to register a unique business name with the state and conduct thorough searches to ensure your chosen name is not being used by another business.
Reflect on these questions and your business idea will be all the stronger for it, so when you leap, you’ve got a plan. You’ll also want to consider the type of business you start—if you don’t have a lot of startup capital to work with, you might want to look into starting an online business with fewer opening expenses.
Step 2: Conduct market research.
Market research is how you’ll learn everything you need to know about the industry you’re stepping into. You need these insights to understand the viability, profitability, and growth potential of your business. It will also show you where your potential customers are most active and how you can reach them most effectively.
Staying on trend isn’t just for consumers. Knowing market trends, the digital landscape, and your local community preferences will help your business appeal to your target audience. Consult secondary data like economic reports, census data, and industry studies. Take advantage of reports from the Bureau of Labour Statistics or think tanks like the Pew Research Centre to better understand the landscape in your industry and region.
Primary data comes in the form of surveys, focus groups, and interviews. This gives you feedback from real people in real time, which provides you with a closer perspective on your clientele’s needs and problems. That way, you can easily show them why your business is the solution. Using Surveymonkey or other free feedback tools are a great way to seek more specific information.
When you’re researching your target audience and trying to determine where your customers are, free tools like Google Analytics and Google Trends can reveal useful information about potential customers and clients.
Step 3: Develop a business plan.
Once your idea is locked in, you’ll need to draft up a business plan. A business plan is a detailed document that provides a comprehensive roadmap for your business, including what your business does, how it serves the market, and your overall operational and financial strategy.
A business plan helps you stay on track as a small business owner, both in the short and long term. Business plans are not one-size-fits-all, but they typically include these sections:
- mission statement
- business description
- list of products and services
- market analysis
- financial plan
- areas of opportunity
Not only does your business plan provide you with a clear foundation, you can present it to investors and partners as evidence of your potential.
Step 4: Create a financial roadmap.
A financial plan is critical to starting your small business. Open a business bank account to separate personal and business finances for tax filing, expense tracking, and protection from liability claims.
Without one, you might end up biting off more than you can chew, which can lead to unnecessary debt, inability to pay vendors or partners, and other financial frenzies. Here are a few steps to take to hash out your financial plan.
- Establish a detailed, well-thought-out budget that is realistic and maintainable.
- Lay out your financial goals and objectives both short term and long term.
- Create a step-by-step timeline with milestones for achieving those objectives.
- Determine how you will finance your business—whether through personal funds, small business loans, lines of credit, crowdfunding, or other creative solutions.
- Project your financial statements for the next five years, including profits and losses, income and expenses, tax responsibilities, and other important financial info.
A well-laid-out financial plan is the key to ensuring your business moves beyond staying afloat and sails smoothly into a bright future.
Choosing a business structure in Texas.
After taking those first four steps towards small business ownership, the next course of action would be to choose a business structure for your organization. Keep in mind that in Texas, most businesses are subject to a franchise tax, but businesses that make under $2,470,000—known as the no-tax-due threshold—in 2024 and 2025 pay no franchise tax at all.
Your choice of business structure should take into account different taxation laws, liability, and other regulations. Here are the primary options:
- Sole proprietorship: A sole proprietor is an individual who owns an unincorporated business on their own. In Texas, sole proprietors are not charged franchise tax.
- Limited liability company (LLC): This business structure has different regulations on a state-by-state basis, but members could include individuals, corporations, and other LLCs. Learning how to start a LLC business in Texas can be useful, because like all personal income in Texas, any gained through the LLC is not taxed.
- Partnerships: A partnership includes two or more people that contribute property, labor, or money to a business and share in the profits and losses. Most partnerships in Texas are subject to the franchise tax.
- Corporations: A corporation is considered a separate tax paying entity apart from you as an owner and can take special deductions on tax returns.
- S Corporations: An S Corp functions like a corporation, but the flow-through of income and losses is sent through to shareholders to help you avoid double taxation on corporate income. This is especially attractive in Texas, where businesses under the no-tax-due threshold are effectively not taxed at all.
It’s always a good idea to consult a business attorney or accountant when deciding how to incorporate in Texas. Your consultant will help you abide by regulations surrounding tax, liability, management, and transferability of ownership. A registered agent is also crucial for receiving important legal documents on behalf of your business.
You’ll also want to conduct a Texas business entity search to determine if another business with the same legal entity name already exists. If not, you can then register your business entity and name with the Texas Secretary of State to ensure legal protection and public transparency.
Business registration and licensing requirements.
Knowing how to get a business license in Texas involves understanding all the licensing and permit requirements for the state of Texas. That way, your business can remain compliant and legal. Different types of business licenses and permits are necessary depending on the industry, location, and business structure.
There is an extensive list of state agencies in Texas that require licenses, permits, certifications, registrations, and other authorizations to operate a business, which can vary based on your specific business and industry. The legal requirements for running an agriculture business are far different than those of advertising businesses, so make sure you find your business category in the state agencies list.
How Homebase can help you start a small business in Texas.
Learning how to start a business in Texas can be a whirlwind of excitement, but you don’t want to be swept off your feet. Having access to the right tools is critical to being successful both in the startup phase and as your business flourishes.
That’s why Homebase created an all-in-one work management app to support your business as you begin hiring and onboarding your employees. Scheduling and time tracking your team will be a breeze and when it’s time to run payroll, let us take the paperwork off your mind with automated connections to your timesheets. You can even stay connected to your team easily with built-in messaging and communication tools.
Let Homebase take some of the stress off your shoulders and allow you to focus on building your business. Give Homebase a try for free today!
Remember: This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.
