Thinking of starting a business in Texas?

The Lone Star State has always been known as the land of opportunity with its favorable regulatory environment, low taxes, and diverse economy.

For years, Texas has consistently ranked among the best states for job creation and business growth. So, it’s definitely a good idea if you want to start a business there.

Yet, just because Texas is an excellent location to start a business doesn’t mean you’ll automatically achieve success as soon as you’ve started your business.

You’ll still need meticulous planning, commitment to hard work, and careful execution of your strategy.

This is where this guide comes in.

This guide will explore all you need to know about how to start a successful business in Texas, and we’ll cover:

• Overview of the Texas Business environment and benefits of starting a business in Texas
• Choosing an appropriate business structure
• Registering a business in Texas
• Developing a business plan
• How to finance your business
• Developing and executing a marketing strategy
• Running the day-to-day of your new business

The Texas Business Landscape: An Overview

As mentioned, Texas has consistently ranked among the top states for starting a business for years due to a combination of factors creating a conducive atmosphere for business growth.

They are:

Economic factors

• Strategic location

Texas is located in the heart of the US, with access to airports and ports, allowing efficient distribution networks. This makes Texas a great place to start a business targeting both national and international markets.

• Energy production

Texas is the leading energy producer not only in the nation, but is widely renowned as a global energy powerhouse. Texas is not only the leading producer of oil and natural gas, but has also positioned itself as the forefront of the nation’s renewable energy production.

• Diversified economy

Beyond the energy industry, Texas also boasts a robust and diversified economy across many different industries, including technology, healthcare, manufacturing, aerospace, and more. This diversity provides entrepreneurs with more options to explore but also fosters economic stability in the region.

• Growing population

Texas’s population is steadily growing, which translates into a large and diverse market for starting a business.

Cultural and demographic factors

• Cultural diversity

Texas boasts a diverse workforce, being a melting pot of cultures. This provides businesses with a wealth of talent, as varied as the industries available. This also fosters adaptability and creativity.

• Entrepreneurial Spirit

Texans are famous for their entrepreneurial spirit, risk-taking mentality, and can-do attitude. This mindset fosters a culture of innovation where businesses can flourish.

• Skilled workforce

Texas has a strong educational system, producing high-quality graduates who are prepared for the demands of today’s competitive business landscape. This provides businesses with access to a large and growing workforce.

Other factors

• Business-friendly policies

Texas has a long-standing reputation as a business-friendly state due to its pro-growth policies, business-friendly regulatory environment, and low taxes. Texas has no state sales tax, corporate income tax, or personal income tax. This condition has attracted companies from various industries over the years.

• Infrastructure

Texas has a well-developed transportation network, airports, and telecommunications infrastructure, providing an ideal environment for businesses to operate in.

In summary, Texas offers a promising landscape for starting a business of all sizes and industries with its diverse economy, growing population, and favorable policies. There are virtually limitless possibilities for you to start a business in Texas, whether in the blooming energy sector, tech, or other industries.

Starting a Business in Texas: Step-by-Step Guide

Step 1: Deciding on a Type of Business to Start

The first thing you should do is to decide what kind of business to start in Texas.

If you’ve already got and validated your business idea, you can skip this step.

If not, you’ll need to take into account various factors to ensure you are choosing the best possible type of business: your interests, skills/abilities/experience, market demand, etc.

Below are the basic steps you can use to make an informed decision:

• Self-assessment:

It’s best to take time for self-assessment and identify your interests, strengths, and areas of expertise.

It may help to start a business that aligns with your personal interest, which may contribute to your motivation and satisfaction in running the business.

However, it’s also critical to consider your skills, educational background, work experience, and expertise. Running a business that leverages your skills or experience will be more likely to succeed.

• Market research:

Delve into market research to identify market opportunities. Research the current market trends in Texas, consumer demands, and emerging technologies. Look for industries experiencing growth or gaps in the market that you can leverage.

Once you’ve identified a gap or opportunity, evaluate the competitive landscape in the industry and potential barriers to entry.

The idea is to find an industry with a balance of opportunity, demand, and challenge.

• Target audience analysis:

Who is the ideal target audience for your business idea?

Collect insights regarding the demographics of Texas’s local population. Consider factors such as income levels, age, cultural preferences, etc. This way, you can tailor your business to the needs of the local community.

Also, stay updated with Texas’s economic indicators, such as employment rates, income levels, etc., so you can tailor the business according to the purchasing power of potential customers in Texas.

• Evaluate regulatory environment:

Research the regulations and policies that will affect the industry you’re trying to get into in Texas.

Some industries may have specific licensing requirements or compliance standards you’ll need to consider before you can start a business in the industry. We’ll discuss more about this in the next sections.

• Assess resource availability

Evaluate the required capital for starting a business. Consider both upfront investment and ongoing expense requirements.

Also, consider the availability of talents. Will you need to hire a lot of people? Will you need partners before you can start this business?

• Lifestyle considerations

Some businesses may need more time and effort investments than others, which may affect your work-life balance as a business owner.

Before starting a business, it’s best to first consider what kind of lifestyle you’d like to have.

• Seek guidance and feedback

Seek advice and feedback from industry experts, experienced business owners, or mentors. They may be able to provide valuable insights and perspectives and help you make informed decisions in refining your business idea.

You can also attend local networking opportunities (i.e., business events, trade shows, etc.) to connect with other entrepreneurs. This may help you gain insights into the Texas business community.

• Test your idea

Before investing heavily into the business, consider testing your business idea first.

You can use various approaches like conducting surveys, creating a minimum viable product (MVP) or prototype, market testing, etc. Try to gauge interest and collect feedback from potential customers before making a significant financial investment.

Step 2: Choosing a Business Structure

Once you’ve decided on and tested a business idea, the next step is to choose the right business structure.

There are a few structure options available, each with its own set of advantages and disadvantages. Let’s explore each of them:

1. Sole proprietorship

A sole proprietorship is the simplest business structure and is also the most common since it involves no formal registration with minimal paperwork.

In this structure, the business and the sole owner are one entity, leading to the following pros and cons.

Advantages of sole proprietorships:

• • Simple and easy: It is very simple to start, with minimal formalities and paperwork

• Full control: The sole owner retains complete control of the business’s day-to-day operations and decision-making

• Tax benefits: Income is taxed at the individual level, which may result in tax advantages.

Disadvantages of sole proprietorships:

• Liability: The sole owner assumes unlimited liability and will be personally responsible for all business debts and liabilities

• Limited capital: Raising capital (i.e., bank loans, outside investors) tends to be more difficult compared to other structures
• Ownership transfer: Transferring a sole proprietorship’s ownership may be challenging when the need arises

2. Partnership

A type of business structure where two or more individuals share ownership (and thus, profits) of a business. There are several different types of partnerships available:

1. General Partnerships: Two or more partners share equal responsibility and liability.
2. Limited Partnership (LP): In this type, one or more general partners (with full liability) combine with one or more limited partners who have reduced liability.
3. Limited Liability Partnership (LLP): All parties in this type of partnership have limited liability.

If you are choosing a partnership business structure together with one or more other parties, it’s important to consider some key factors:

• Contributions and ownerships: define each partner’s percentage of ownership, financial contributions, withdrawals, and exit strategies.

• Roles and responsibilities: Define the partnership’s structure and responsibilities of each partner.

• Decision-making: Clearly define the decision-making process, voting rights, and dispute resolution mechanism.

• Profit and loss distribution: Clearly specify how profit, losses, and debts will be distributed among partners.

Advantages of partnerships:

• Ease of formation: It is not as simple as sole proprietorship, but partnerships are relatively easy and affordable to form. No formal registration or filing requirements.

• Tax benefits: In partnerships, profits and losses pass through to individual partners so you can avoid double taxation.

• Shared decision-making: Partnership facilitates the pooling of skills, resources, and allows for shared decision-making.

Disadvantages of partnerships:

• Unlimited liability: General partners have unlimited liability for the business’s obligations and debts.

• Limited access to capital: Raising external funding might be relatively challenging compared to LLCs and corporations.

• Potential for disputes: Disputes between partners can arise, and transferring ownership can be challenging.

3. Limited Liability Company (LLC)

An LLC, or Limited Liability Company, is a hybrid business structure that features the limited liability of a corporation (more on corporations below) and the pass-through taxation benefits of a partnership/sole proprietorship.

LLCs are popular among small businesses due to some unique advantages, as we will discuss below:

Advantages of LLCs:

• Limited liability: In an LLC, the members and their personal assets are protected from liabilities and debts.

• Flexibility: LLCs offer versatility in management structure. It can be member-managed or manager-managed (i.e., hiring a CEO).

• Pass-through taxation: You can avoid double taxation at the corporate and individual levels.

Disadvantages of LLCs:

• Complexity: Depending on the state, LLCs may have additional administrative, including tax filing requirements, than sole proprietorship or partnership.

• Limited life: In some locations, the life of an LLC may be limited, so it may be less suitable for long-term projects.

4. Corporation

A corporation is a completely separate legal entity from its owners. This allows the owners (shareholders) to be completely protected from liabilities. However, corporations are subject to double taxation: both the corporation and each owner pay taxes on profits generated by the corporation.

Advantages of corporations:

• Limited liability: In a corporation, all owners are completely protected from personal liability for the company’s responsibilities and debts.

• Access to capital: Easier access to outside funding than other structures, for example, through the sale of stocks and bonds.

• Perpetual existence: The corporation will continue to exist even when there’s a change in ownership.

Disadvantages of corporations:

• Complexity: Corporations are the most complex business structure to form, requiring more paperwork, regulatory compliance, and formalities.

• Double taxation: The owners or stakeholders of corporations are subject to double taxation.

• Expensive: It’s more expensive to form and maintain a corporation than the other structures.

Choosing the right business structure is a critical decision when starting a business, so you can find the right balance between control, protection of your personal assets, and tax implications. It’s important to carefully assess your business’s liability concerns, financial structure, and overall goals when choosing a business structure.

Step 3: Registering Your Business

Once you’ve chosen a business structure, then the next step is to legally register your business in Texas, which will involve several key steps.

Registering business name

In Texas, registering your business name is required if your business name is different from your personal name, with the following requirements:

• The business name must not be already in use by another registered business name in Texas
• Business names must not be deceptive or misleading
• Business names must not comply with Texas naming regulations and must not include restricted words or prohibited phrases without appropriate authorization.

To register your business name, you can follow these steps:

• Visit the Texas Secretary of State’s website (https://www.sos.state.tx.us/)
• Click on “Business Services” and then select “Assumed Name/DBA“
• Enter your business name and check its availability
• Provide your personal information, including your name, address, and contact details
• Pay the required filing fee
• Review and submit your application
• Upon approval, you will receive an Assumed Name Certificate

Obtaining an Employer Identification Number (EIN)

An EIN (Employer Identification Number), or also known as Federal Tax Identification Number, is a nine-digit number assigned by the IRS to identify businesses. You’ll need an EIN to open a business bank account, hire employees, and file federal and state taxes.

To apply for an EIN:

1. Visit the IRS website (https://irs.gov/)
2. Click on “Business & Self-Employed” and then select “Apply for an Employer Identification Number (EIN)”
3. Choose the appropriate application type for your business structure
4. Provide your business name, address, and contact details
5. Answer questions about your business activities and employees
6. Review and submit your application
7. You will receive your EIN immediately or within a few days via mail

Filing Business Formation Documents with the Texas Secretary of State

Depending on the business structure of your choice, you may need to file specific documents with the Texas Secretary of State.

Below are the required documents and fees to prepare:

• Sole proprietorship

• No formal registration is required
• If you want to operate other than the registered legal name (i.e., you want to use your personal name or a more recognizable name), then you may choose to file an Assumed Name Certificate (also known as DBA/Doing Business As or fictitious business name statement.) The filing fee in Texas is $25.

• Partnership

1. 1. • Partnership Agreement (optional but recommended)
      • Assumed Name Certificate if needed, $25

• Limited Liability Company (LLC)

1. 1. • Articles of Organization ($300)
      • Assumed Name Certificate if needed, $25

• Corporation

1. • Articles of Organization ($300)
   • Assumed Name Certificate if needed, $25

Obtaining required licenses and permits

Depending on the industry you’re in and the nature of your business, you may need to obtain specific permits and licenses before you can start legally running the business.

Several different types of licenses may apply:

• General business license (required for most businesses)
• Occupational licenses (specific to certain industries, such as restaurant, cosmetology, or construction)
• Zoning permits (for businesses with specific physical locations)
• Environmental permits (for businesses handling hazardous materials or impacting the environment)

The application procedures, requirements, and fees for each type of license and permit may vary but will typically require you to contact the appropriate local, state, or federal licensing agencies.

Also, business licensing and permit requirements are subject to change. Before applying for anything, it’s best to check for the relevant government agencies to get the most up-to-date information.

Step 4: Preparing a Digital Infrastructure

Regardless of the type of business you are starting, you’ll need to establish a strong online presence to achieve success in this digital age.

With a strong digital infrastructure, you can amplify your business’s reach, credibility, and visibility, leading to increased overall success.

Below are the essential components of a strong digital infrastructure in Texas

Professional website

A professional-looking, functional, and user-friendly website is a very important foundation of any business’s digital infrastructure.

Your website is often the first impression potential customers have of your business: where they first learn about your company, explore your products or services, find your contact information, etc. So, if your website looks good and is reliable, potential customers may perceive your business as credible, and vice versa.

Fortunately, nowadays, building a professional design is much easier and more affordable, thanks to platforms like Wix, Squarespace, and even WordPress. Make sure your website is mobile-friendly and optimized for local search engine results to attract as many Texas-based customers as possible.

Custom email address

A branded email address (using your business domain name) can be very effective in adding professionalism and credibility to your email communication.

Avoid using generic, free Gmail addresses and get a professional, branded email address for your employees. Also, implement robust email marketing campaigns so you can effectively push promotions and information to your target audience, maximizing customer retention in the process.

Social media presence

A strong presence in relevant social media networks can effectively enhance brand visibility and engagement. You can also leverage your social media presence as an effective platform for marketing efforts.

Here are some pointers:

• Platform selection: Choose social media platforms that your target audience is active in. This way, you can focus your efforts and resources.

• Consistent branding: Maintain consistent information and branding across all different social networks:
• Paid advertising: To maximize your reach, consider investing in paid advertising options offered by each social network.

Online appointment scheduling

If you are starting a service business that relies on client appointments, having reliable online booking software is simply a must.

More and more customers are now looking for convenience in the ability to book their services anytime, on any device, even outside working hours. If you don’t offer 24/7 accessibility, they simply will move to your competitors.

Bookeo is an online appointment scheduling tool that can help you enable a reliable and fully functional 24/7 online booking function on your website.

E-commerce platform

If you plan to sell your products or services online, you’d want to integrate a secure and reliable ecommerce platform like Shopify to help customers easily browse, buy, and make payments securely without leaving your website.

Make sure to choose an e-commerce platform that is mobile-friendly and has a robust set of security features.

Accounting software

Efficient and accurate financial management is crucial for any business, regardless of size and industry.

Fortunately, there are now various affordable and easy-to-use accounting software available to help you track your finances, generate professional invoices, and gain actionable insights into your business’s financial performance. QuickBooks, Zoho Books, and Xero are just some of the examples.

Team collaboration platform

Even if you plan to start the business with only yourself, along the way, you’ll need to hire employees as your business grows. By then, you’ll want an effective way to facilitate communication and collaboration among your employees and stakeholders.

Platforms like Slack can be invaluable with their real-time messaging, file sharing, and project collaboration capabilities, which can help you enhance teamwork and streamline your day-to-day workflows.

Customer Relationship Management (CRM)

As you grow your customer base, you’ll want a CRM system to help you keep track of sales pipelines, manage customer interactions, and gain valuable insights from your customer data.

There are a lot of affordable and reliable CRM systems available in the market, like Salesforce or HubSpot.

Cybersecurity solutions

Protect your business and customer information from cyber-attacks and data breaches. Consider:

• Implement robust antivirus and firewall solution
• Perform regular backups of your data to prevent downtime and data losses
• Conduct regular security audits to identify and address security vulnerabilities

Also, make sure that your business completely adheres to applicable data protection regulations and laws in Texas.

Step 5: Marketing Your Business

Starting a functional business is one thing, but you won’t be able to generate revenue and profit if you can’t attract enough customers for your business. Effective marketing is simply critical to business success, and in this section, we will explore the key components of developing a robust marketing strategy for your Texas-based business.

Developing a marketing strategy

1. Defining your target audience

The first step in developing a marketing strategy is to define your target audience.

Consider the following:

• Demographic: age, gender, location, income, education, and other demographic information of your potential customers

• Psychographic: behaviors, interests, and values that may influence your potential audience’s decision-making process

• Competitive analysis: Who are your direct and indirect competitors? Who are their target audiences? Can you attract the same audience, or will it be better to look elsewhere?
• Customer base analysis: If you already have an existing customer base, you can conduct customer interviews or surveys (offline or online.) This can provide you with valuable insights into who your ideal audience is, their needs/wants, and priorities.

2. Crafting a Unique Value Proposition (UVP)

A unique value proposition, or UVP, is a clear and concise statement that explains what sets your business apart from your competitors and why your target customers should choose your business instead of others.

To craft a strong UVP, consider:

• Identify your unique offering: what sets your business apart from your competitors? What benefits do you offer that your competitors don’t?

• Address customer pain points: Why should customers care about what you offer? Understand the challenges your customers are facing, and position your product/service as a solution.

• Clear and concise messaging: Craft an easy-to-understand and compelling UVP statement that resonates with your audience.

For example, “We offer 24/7 customer support and a money-back guarantee” is a concise and effective UVP.

3. Choosing marketing channels

In marketing your business, you have the option to choose between a variety of online and offline marketing channels.

Some of the most popular online/digital channels are:

• Social media marketing
• Content marketing
• Search engine optimization (SEO)
• Pay-per-click (PPC) advertising
• Email marketing

While some popular offline/traditional channels are:

• Print advertising
• Direct mail marketing
• Television and radio advertising
• Networking events
• Public relations (PR)

Each has its own advantages and disadvantages in reaching different types of audiences, and the idea is to combine your efforts across different channels in a cohesive marketing strategy.

4. Building relationships with key partners and influencers

Networking is an important component of building a successful business.

In today’s highly competitive market, you need to build strong relationships and connections with relevant influencers and key partners in the industry, and here are some tips:

• Attend local industry association events or Chamber of Commerce. Doing this can help you meet other business leaders, investors, potential partners, and influencers.

• Join relevant professional organizations. For example, local chapters of Vistage or Entrepreneurs’ Organization (EO).

• Utilize online networking platforms. LinkedIn, for example, can help you connect with other professionals in your industry. Actively engage on relevant social media platforms by sharing valuable content and participating in relevant discussions. Don’t be afraid to connect with those who share your interests.
• Actively seek referrals from existing partners and clients. Satisfied clients or customers can be valuable in introducing you to potential partners and relevant influencers.
• Volunteer your time, resources, or expertise to nonprofits and community organizations. This builds goodwill and expands your connections.

Once you’ve established connections and built relationships with these influencers and partners, you can leverage these partnerships to perform marketing initiatives, such as:

• Cross-promotions: Cross-promote your products or services to gain exposure to new audiences and expand your reach.

• Joint sales campaigns: Offering bundled products or services to leverage each other’s customer bases.

• Influencer marketing: Collaborate with social media influencers or industry experts so they will help promote your brand and products to their followers.

• Co-hosting events: Partner with influencers or other organizations to host events (offline or online) to showcase your thought leadership and attract potential customers.

• Knowledge sharing and mentorship: Exchange knowledge with influencers or key partners to gain insights into industry trends and receive valuable information.

Step 6: Managing Your Business

Effective management is critical in running a successful business. You’ll need to conduct diligent bookkeeping while ensuring compliance with regulations, proper staff management, and ensure adequate insurance coverage.

In this step, we’ll outline the best practices in each of these areas:

1. Setting up accounting and bookkeeping systems

Start by choosing an accounting tool to help you keep track of your expenses and streamline your financial processes. Consider the following tips:

• Consider business size and complexity: Choose accounting software that aligns with your business’s current size and complexity. You may want to choose a scalable product that can accommodate your business’s projected growth but doesn’t compromise your current needs.

• Assessing requirements: Assess your business’s unique requirements. Will you need more help in inventory management or payroll processing? Choose an accounting tool that offers the features/functionalities you require.

• Ease of use: Choose a user-friendly product with an intuitive interface. Also, check whether the software offers training resources and documentation to ensure seamless adoption.
• Integration: Choose accounting software that can integrate with your existing tools (i.e., your CRM).

2. Ensuring financial transparency

Maintaining transparent and accurate financial records is critical to inform both external and internal stakeholders.

Some key concerns:

• Implement regular policies and procedures to review financial statements, reconcile accounts, and conduct regular audits to prevent financial irregularities.
• Regularly generate and review financial reports to maintain data integrity and financial transparency.
• Make sure you have separate bank accounts for business and personal use.
• Establish budgeting and forecasting practices to plan your expenses and project your revenue generation.

3. Complying with tax regulations

Staying compliant with relevant tax regulations can be challenging, but is critical to avoid legal issues and penalties.

You’ll need to consider both Texas-specific and federal tax obligations:

Texas tax obligations:

• Sales and use tax: Applicable to businesses that lease or sell taxable products or services.

• Franchise tax: The state of Texas imposes franchise tax on businesses based on their gross receipts. Be aware of its thresholds and filing obligations.

• Property tax: Your business is liable for property taxes on your real estate holdings.

• Federal tax obligations:

• Income tax: Your business is subject to federal income tax on your taxable income.

• Employment tax: Understand your obligations related to employee taxes, including withholding and remitting payroll taxes, Social Security Medicare, and federal income tax.
• Excise taxes: Businesses selling specific goods or services may be subject to excise taxes.

4. Managing Employees and payroll

Effective employee management, as well as payroll processing, are very important to ensure a compliant and productive team.

Consider the following:

• Hiring and onboarding procedures: Develop clear and concise hiring policies from identifying candidates to conducting thorough background checks to ensuring a streamlined onboarding process.
• Payroll processing and compliance: Ensure accurate and efficient processing of payroll from calculating employee wages, tax withholding compliance, and managing employee benefits. Consider implementing an automated payroll system to ensure accuracy and efficiency.

5. Obtaining insurance coverage

In Texas, there are some insurance requirements you should pay attention to before starting a business:

• Professional liability insurance: Some professions are legally required to possess professional liability insurance in Texas, such as doctors, accountants, and lawyers. This insurance protects you from lawsuits alleging that you have performed malpractice or errors in the professional services provided.

• Workers’ compensation: If your business has equal or more than three employees, you are required to provide workers’ compensation insurance unless you have filed a self-insurance certificate with the Texas Department of Insurance.

• Commercial general liability insurance: Not legally required in Texas, but recommended since it protects you—the business owner—against claims of liability for property damage, slander, and bodily injury. Especially recommended if your businesses directly interact with the public.

• Property insurance: Not mandatory, but highly recommended for all businesses who own or rent a property. Protects your business property from damage, including damage caused by natural disasters.

• Business interruption insurance: Not legally required in Texas, but can help cover lost expenses and income if your business must close due to a covered event (i.e., fire.)

Conclusion

Starting a business in Texas can be challenging, but it can also be an exciting and rewarding opportunity to realize your dream. Meticulous research, thorough planning, and careful execution can help you navigate the Texas business landscape successfully and achieve success in running your business.

In this article, we have discussed the steps involved in starting a successful business in Texas. By following the steps we’ve shared, you can better position yourself for success in the dynamic Texas business landscape, setting the stage for a profitable business.

As you embark on your entrepreneurial journey, remember that not only planning and preparation will be necessary, but also resilience and adaptability along the way.