As a new entrepreneur, you’ll never be alone in the Lone Star State: Texas is home to more than 3 million small businesses and its economy is second only to California. It’s also one of the only states in America without corporate income tax, which is great news for business owners.
Does Texas sound like the ideal home for your next successful enterprise? Follow this step-by-step guide to start a business in Texas today.
How to start a business in Texas
- Create a Texas business plan
- Name your business in Texas
- Check Texas zoning requirements
- Choose a business structure
- Register your business in Texas
- Set up business bank accounts
- Find startup capital
- Research Texas licenses and permits
- Purchase Texas business insurance
- Invest in business software
- Research your Texas tax obligations
- Build your team
1. Create a Texas business plan
A business plan is a document that allows you to make a record of all of your best entrepreneurial ideas, then build a strategy around them that will help you reach your goals. Every successful business starts with a business plan, and so should yours.
A well-written business plan will help you:
- Explain your idea
- Calculate your startup costs
- Lay out short- and long-term business goals
- Assess your competition and understand your competitive advantages
- Create growth strategies
- Identify your ideal customer
- Develop a marketing plan
- Come up with additional revenue streams
- Find investors and funding sources
Developing your business plan is pretty straightforward, but it can be useful to have extra help, like the Business Plan FAQ video from Texas Economic Development and this free business plan template from the Small Business Administration (SBA).
2. Name your business in Texas
In Texas, you can use your legal name as your business name if you are registered as a sole proprietor. This is also true for general partnerships. All other business structures, such as LLCs or corporations, can choose unique names that conform to Texas entity naming requirements.
If you would like to operate under a different name than your registered business name, you can file an application for an assumed name, which is sometimes called a “doing business as” (DBA) name, trade name, or fictitious name in other states.
How to name a business in Texas
- Check if your chosen name is available using the Taxable Entity Search.
- If the name is available, you can claim it when you register your business.
How to reserve a business name in Texas
You can reserve an entity name in Texas for 120 days by filing Form 501 or through SOSDirect and paying a $40 filing fee. There is no limit to the number of times you can renew a reservation. This is a useful option if you’re not ready to make your business official just yet.
3. Check Texas zoning requirements
Like most states in the union, Texas zoning determines where certain types of business can be conducted in order to limit harmful or disruptive effects. However, in Texas, there is one major exception: Houston. While zoning in most areas is controlled by either county or municipal governments, Houston has no zoning at all, which can lead to some interesting neighborhoods.
If your business location won’t be in Houston, be sure to check in with your local government zoning office. The type of business you want to do and your official business address may be affected.
4. Choose a business structure
When registering your business in Texas, you must choose a business structure, which will impact how your business is formed, how it is organized, liability protection, and many other facets of your operation. Business structures in Texas are sometimes referred to as a “legal structure” or “legal entity.”
You can choose from the following business structures in Texas:
- Sole proprietorship
- General partnership
- Limited partnership
- Limited liability company (LLC)
- Limited liability partnership
Contract a CPA or business formation consultant to help you choose the best business structure type for your operation.
For more information on the specifics of business structures in Texas, check out Selecting a Business Structure from the Texas Secretary of State.our guide to
5. Register your business in Texas
The steps required to register a business in Texas will vary depending on the business structure you choose, whether you need an assumed name, and other startup factors. However, most small businesses can expect to encounter these tasks:
- Elect or hire a registered agent. This is an individual or corporation with a physical address in Texas that is responsible for receiving and distributing legal communications on behalf of your business. You can learn more about registered agents from the Texas Secretary of State.
- File forms. You will need to fill out and submit several business formation forms via SOSDirect.
- Set up a Federal Employer Identification Number (FEIN or EIN). This is a federal tax registration requirement and you can apply with the IRS. An EIN lets you pay taxes, set up business bank accounts, and hire employees.
Unless you know what you’re doing, registering a business in Texas can be tricky. Hire a CPA or business formation service to handle the process for you.
How much does it cost to register a business in Texas?
Registration fees in Texas vary depending on your selected business entity and additional form submissions such as assumed applications. For example, domestic corporations are charged $300 to submit articles of formation, while non-profit corporations pay just $25. All registration, naming, and other filing fees are available in Form 806 Fee Schedule.
6. Set up business bank accounts
Keeping your personal and professional finances separate is an important step in protecting yourself from business liabilities. Business bank accounts are also a good way to stay organized and save time during accounting activities and tax season.
You’ll need an EIN from the IRS to open business bank accounts. It works like a social security number for your business.
Open a checking account for daily transactions and a savings account to set aside profits or save money for paying your taxes. It’s also a good idea to apply for a business credit card that will allow you to build a positive credit rating for your operation.
Don’t hesitate to shop around when looking for a financial institution. Many offer promotional programs that could be advantageous to your business.
7. Find startup capital
You can start setting up your business right away if you happen to have the cash on hand to get it done. But many entrepreneurs need some funding to make their business dreams come true.
Fortunately, there are small business funding options available to you:
- Equity partners
- Friend or family loan
- Small business bank loan
- Government grants
- SBA business loan or grant
- Angel investment
You can find more details on funding sources from Texas Economic Development, including information about state grants, incubators, community development funds, and more.
8. Research Texas licenses and permits
Whatever the type of service business you are starting, there is a good chance you’ll need licenses or permits at the federal, state, or local levels, or potentially all three.
To determine the licensing requirements that apply to your business, check these information sources:
- For federal regulation, check the SBA’s licenses and permits page.
- At the state level, read the Texas Business Licenses & Permits Guide for complete and detailed information all in one place.
- Licenses and permits could apply to your business at the county level, so don’t forget to check with the county clerk in your area for more information.
- At the local level, consult city hall or the local chamber of commerce to learn about and apply for business licenses and permits. For example, licenses and permits in Dallas are handled by the City of Dallas Small Business Center.
- Be aware that sales of certain products and services, such as alcohol, could require a license or permit.
9. Purchase Texas business insurance
All businesses should have insurance, even ones without premises to damage or products to steal. All kinds of liabilities could result from your operation, and you need to protect your professional and personal assets. Your business structure, such as an LLC, may afford you some liability protection, but insurance is the best way to be sure you’re as safe as possible.
The Texas Department of Insurance provides detailed information on business insurance for small business owners, and you can find additional information in our guide to business insurance.
Texas businesses typically need some or all of these business insurance types:
- Worker’s compensation coverage. Applicable when you hire employees.
- Property insurance. If you own the building where you do business, you probably need property insurance.
- Automobile insurance. Many service providers are mobile, so their commercial vehicles must be insured appropriately.
- Professional liability insurance. You may encounter claims of negligence, copyright infringement, personal injury, and other liabilities related to your services. Professional liability insurance can protect your assets from legal proceedings.
10. Invest in business software
As a small business owner, administrative tasks will take up a lot of your time. But you can limit how much of your day you lose to office work by automating some of your business processes with intuitive software tools.
Use software to streamline these business tasks:
- Invoicing. Automate your invoicing and accept credit card payments to save time and make sure you get paid promptly.
- Review management. Your positive reputation is something that needs to be built over time. Durable provides a review management tool to help you source great reviews and deal with customer issues before they can affect your good standing.
- Customer relation management. Knowing your customers is essential to providing great service. A customer relationship management (CRM) platform tracks every interaction you have with clients so that you can give them exactly what they need at just the right time. Durable’s CRM automates many of these types of interactions, helps you stay organized, and it’s free.
- Scheduling. Many service businesses have to book appointments with clients, which can be time-consuming and prone to human error. Make sure your calendar is airtight with an automated tool like Calendly or MeetFox.
There may be other processes that are specific to your business that can be automated too. Just take a quick look online to see what it available—chances are someone has already created the tool you need.
11. Research your Texas tax obligations
Managing business taxes can be tricky, especially for first-time business owners. We recommend that you work with a business accountant or CPA to understand the taxes that you are required to pay—federal taxes, state taxes, local and city taxes.
Here are some key business tax obligations in Texas:
- Sales tax. Texas levies a 6.25% sales tax on businesses operating in the state. The State Comptroller allows local governments to add up to 2% to that rate for a potential sales tax of 8.25% in some jurisdictions.
- Franchise tax. This is a small tax imposed on businesses for the privilege of operating in Texas. This tax only applies to companies that earn more than the threshold amount.
- Withholding tax. If you have employees, you will need to withhold income tax from them.
- Product tax. Some specific products require additional taxes, such as liquor, which is assessed a mixed beverage sales tax.
Complete tax information is available from the Texas Comptroller of Public Accounts.
12. Build your team
Your business might be just fine as a solo operation at first. But if you want to expand your success, you may need to find help. Many small businesses find that working with independent contractors is easier than hiring employees.
If you decide that you need full- or part-time employees, make sure your business is compliant with all state and federal employer requirements before you bring on your first hire.
Here are some key employer responsibilities to keep in mind:
- Obtain an EIN. You must have an EIN from the federal government to hire employees.
- Verify employee eligibility. Once you start meeting with potential employees, you’ll need to verify that they are eligible to work in the United States by having them fill out this form.
- Report new hires. You’ll need to report any new hires to the Attorney General.
- Unemployment tax registration. You must register your business to collect unemployment tax on behalf of your employees.
Ready to start a business in Texas?
From the waters of the Gulf of Mexico to the hills of the panhandle, Texas is a diverse state offering opportunities for millions of small business owners. With low taxes, a business-friendly environment, and plenty of startup funding on offer, Texas might be the ideal home on the range for your next business venture.
Follow the steps in this guide to learn how to start a business in Texas. And once your business is set up, stick around and give Durable a try. Durable is a free platform with everything you need to start and grow a service business. Build your business website in minutes, and make invoicing, customer management, and review management a breeze.
Try Durable today—it’s free!