Starting a small business can be an exciting, but daunting, endeavor. Once you’ve gotten over the thrill of deciding to become a small business owner, it’s time to get to work actually setting up your business.
Establishing a new business requires careful research and planning to make sure your venture is successful. Every state has its own guidelines and regulations for starting a business, and Texas is no exception. To help you get started, we break down the 10 steps for starting a small business in Texas.
- There is more to starting a business than simply choosing a business idea, so be prepared to set up the legal and financial aspects too.
- Starting a small business in Texas involves registering your business, getting a tax permit, and applying for an Employer Identification Number (EIN).
- Small business owners also need to look into developing a business plan, deciding on a business structure, securing funding, building their team, setting up accounting and bookkeeping, and strategizing their marketing.
How to start a business in Texas
The Lone Star State is ranked as the ninth largest economy worldwide. It’s also home to more than 100 of the largest companies in the United States, including tech giants such as Tesla and Dell.
With the Texas economy continuing to expand every year, it’s no surprise that starting a business in Texas is a lucrative option. If you’re wondering how to get started, here are ten steps to follow.
1. Decide on a business idea
Decide which type of business you plan to establish. It’s important to do market research to make sure that the area you’d like to build in needs the type of business you want to start. Texas has a large population (over 29.5 million people), so many types of businesses are in demand.
Manufacturing, corporate services, and information technology are among the top industries in Texas and are viable sectors for starting a small business. With Texas’s thriving tourism, hospitality, and food industries, these sectors are also worth considering. If you need something to get your creative juices flowing, check out these ideas on how to make money.
2. Develop a business plan
A business plan is essential to ensure your business is set up for success. It can be informal or formal, depending on the type of business you plan to establish. If you need to seek funding from investors or lenders, you will want to develop a formal business plan.
Essentially, a business plan documents the purpose of your business, the business structure, a marketing strategy, financial projections, market research, and your competitive edge, among other factors.
3. Decide on a business structure
A business structure determines the legal status of your business, how much control you have over it, how easy it is to transfer ownership, and what taxes you will pay. The main types of business entities are the following:
- Sole proprietorship: The simplest of all business structures – a single person owns and manages the business
- Partnership: Two or more persons share ownership of a single business
- Corporation: A legal entity owned by shareholders that can be taxed, sued, and held liable
- Limited Liability Company (LLC): Combines characteristics of both a corporation and partnership with limited liability for its owners
- Nonprofit: A corporation formed to serve a public purpose and is exempt from paying income tax
4. Register your business name
Your business name will be used to register your business with the state, local government agencies, and other organizations. You can search the Texas Comptroller of Public Accounts database to check whether a similar business name exists.
Filing forms and fees
To register your business in Texas, submit the appropriate business or nonprofit forms to the state. You can either submit your forms online via the Texas Secretary of State SOSUpload or go to the local courthouse in your county.
Depending on your business structure, you will have to fill out different forms.
- Sole proprietorship: In Texas, you can legally operate your sole proprietor business under your name without having to file state papers. However, if your business name is not under your legal name, you will need to file a Form 503 Assumed Name Certificate for “Doing Business As” (DBA), which costs $25.
- General partnership: Similar to sole proprietorships, you can use the surnames of the individual partners as your business name. If you’d like to name your business differently, you will have to submit a Form 503 Assumed Name Certificate. The filing fee is $25.
- Corporation: You will need to file for a Certificate of Formation for a Professional Corporation (Form 203), which costs $300.You must also have a registered agent in the state.
- Limited Liability Company (LLC): To form an LLC in Texas, you must file the Certificate of Formation — Limited Liability Company (Form 205), which costs $300. A registered agent is also required.
- Nonprofit: For nonprofit corporations, you must file the Certificate of Formation — Nonprofit Corporation (Form 202), which costs $25. As with corporations and LLCs, a registered agent is also needed for registering a non-profit.
Corporations, LLCs, and partnerships are all subject to the Texas franchise tax.
You may also be required to pay additional filing fees, depending on your individual circumstance, such as being a foreign entity.
5. Get licenses, permits, and insurance
To legally operate in Texas, you must have the necessary state and federal licenses and permits. Certain localities may require different business permits as well, such as signage permits.
The paperwork will depend on your business type, where your business is located, and the industry in which you belong. For example, if you are a restaurant, you must have a permit from your local health department.
The Texas government has a comprehensive Texas Business Licenses and Permits Guide to help you determine what’s right for your business. You can also visit the Texas Department of Licensing and Regulation for more information.
You should also consider what business insurance you might need. General liability insurance is an important type to consider for liability protection, as is business property insurance.
6. Register for taxes
Once you have successfully filed your Certificate of Formation or Assumed Name Certificate, you will need to obtain a federal tax Employer Identification Number (EIN) from the Internal Revenue Service (IRS).
An EIN is necessary for tax purposes and helps the government identify your business so they can keep track of your business taxes. It’s also helpful for opening business bank accounts, credit cards, and more.
Applying for an EIN
You can apply for an EIN online or submit your Form SS-4 by mail or fax. Other tax-related forms may be needed, depending on the type of business you’re engaged in. You can refer to the Texas Business Licenses and Permits Guide to check.
Apply for your EIN at least four to five weeks before you need it to make sure you have ample time for paperwork processing.
Registering for Texas state taxes
Once you have obtained an EIN, the next step is registering your business with the Texas Comptroller’s Office. This will allow you to collect and remit applicable sales taxes.
You can register online or by mail using Form AP-201, Application for Texas Sales and Use Tax Permit.
To apply, you will need the following:
- Employer Identification Number (EIN)
- Social Security Number of a sole owner or for each officer/director of a corporation
- Texas corporation's file number (obtained from the Texas Secretary of State)
- North American Industrial Classification System (NAICS) code (required for all businesses). This can be obtained from the Census Bureau website.
Once you have completed and submitted Form AP-201, you should receive your permit in two to three weeks.
7. Open a business bank account
Opening a business bank account is highly recommended to keep your personal and business finances separate. This is important for filing taxes, tracking expenses, and protecting you from liability claims.
Setting up accounting and bookkeeping
It is important to have a system for accounting and bookkeeping to help you monitor profits, losses, and expenses incurred by the company. Additionally, it will make filing tax returns easier at the end of each year.
You can opt for online accounting software such as Xero or QuickBooks. You can manage the system yourself or hire an accountant to manage your books.
Alternatively, you may hire an in-house professional accountant to manage your company’s finances. This is a good option if your business finances are complex.
8. Secure funding
Depending on your business needs and goals, you may need to apply for loans or seek investments from potential investors. You must provide information about your business plan and financial records to secure funding.
There are different ways to secure funding.
- Self-funding: This is the most common option for startup businesses. It involves using your own money or credit to fund the business. Business credit cards could be helpful when you’re self-funding.
- Small business loans: These can be obtained from banks, credit unions, and online lenders. The U.S. Small Business Administration (SBA) guarantees some loans offered through private lenders.
- Grants: The government or private organizations may award grants to businesses that meet specific criteria or are engaged in a particular type of activity. Texas offers several financial and capital services for small businesses.
- Crowdfunding: This involves raising funds from the public by using crowdfunding platforms such as Kickstarter or GoFundMe.
- Investors: These are individuals who typically offer capital in exchange for an equity stake in the company.
9. Build your team
Hiring employees or subcontractors is a crucial step in running a successful business.
You can either hire in-house employees or outsource tasks and services to independent contractors. Before recruiting, ensure you have job descriptions clearly outlining what roles and responsibilities are expected from the employee. You can recruit through online hiring platforms like Indeed, LinkedIn, or local job portals.
Compensation and benefits
Before hiring, you will need to develop a compensation and benefits plan. Research the market rate of similar positions in your area and create an attractive package for your employees.
You should also be aware of Texas workers' compensation guidelines. Texas does not require all private employers to provide workers' compensation insurance, but you could be liable for injuries and illnesses that occur in the workplace.
It may be prudent to purchase workers' compensation insurance to protect yourself in the event of an accident. This can be obtained through authorized and licensed insurance companies by the Texas Department of Insurance. You can also opt for self-insurance, which requires certification from the Texas Certified Self-Insurance Guaranty Association (TCSIGA).
Setting up payroll
In order to pay your employees, you will need to set up a payroll system. This involves processing salaries, deducting taxes and other items, and issuing periodic pay stubs.
You can either set up payroll manually or use an automated payroll system such as Paychex or Gusto.
It’s also important to familiarize yourself with the Texas minimum wage law, employee rights and laws, and Texas payday laws to ensure compliance and adherence to state regulations. The Texas Workforce Commission is the home of these and many other resources for employers.
10. Start marketing your business
Marketing your business is crucial to attracting customers and growing your business. You will need to create a marketing plan featuring different channels like social media, email marketing, search engine optimization (SEO), content marketing, and traditional advertising.
If people don’t know about your new business, they can’t buy from you! So be sure to start by developing a logo and short “elevator pitch” so you can showcase your business online and in print and begin marketing through word of mouth.
How much does it cost to start a small business in Texas?
The fees range from $25 to $300 for registering a business in Texas. You also need to factor in the expense for rent, insurance, equipment, and employees, which will vary depending on the type of business you are starting.
Can I start a business in my home in Texas?
Yes, you can start a business in your home in Texas as a sole proprietorship. If you’re an online retail business operating from your home, you must have a Texas Sales and Use Tax Permit, which you can obtain online without any fees.
What is the purpose of a business plan?
A business plan outlines a business's goals, serves as a roadmap to success, and helps entrepreneurs identify potential risks or opportunities. Additionally, a business plan is important for seeking funding from investors and lenders.
Before you start a small business in Texas, do your research to make sure you comply with all state and federal laws. It’s a good idea to become familiar with how to start a business while you are deciding on your business idea and developing a business plan.
You’ll then have to legally establish your business by deciding on a business structure, registering your business name, and getting the necessary licenses, permits, and insurance. Financial steps for opening a business include registering for taxes, opening a business bank account, and securing funding. The best business credit cards can be helpful for funding your business. Finally, you’ll want to build your team and begin marketing your business.
More from FinanceBuzz:
Up to 5% Cash Back
Earn $750 bonus cash back after you spend $6,000 on purchases in the first 3 months from account opening
5% cash back on the first $25,000 spent in combined purchases at office supply stores and on internet, cable and phone services each account anniversary year; 2% cash back on the first $25,000 spent in combined purchases at gas stations and restaurants each account anniversary year; and 1% cash back on all other purchases