5 Steps to Establish Your Business in Texas

Steve Sweeney

3 years ago

Have you always wanted to be your own boss? Do you have a great business idea and the drive to make it happen? How do you know if the time is right to establish your business?

There are many personal factors to consider before making the jump into entrepreneurship. For example, do you possess the right temperament for the role of an entrepreneur? What is your current family and job situation? What is your risk tolerance? What human, social, and financial capital will your business require to be successful? What capital do you bring, and how will you address any gaps? Finally, what are your motivations for wanting to start a business?

The hardest part [of starting a business] is making something people want: most startups that die, die because they didn’t do that.
Paul Graham

How do you determine if your startup idea is providing something people want? These prerequisites will help you determine whether (or not) you should start your business:

Evaluate & Validate:
- Market Research
- Product-Market Fit?
- Feasibility Analysis
Plan & Pitch:
- Business Planning
- Financial Planning
- Go/No-Go Decision

After you have achieved product-market fit, assessed feasibility, and performed business & financial planning, the steps outlined below will help you build the structural framework for your business operations. Remember that as you launch your business operations, it is also your responsibility to nurture and build business credit.

Select and Register Your Business Name

Name Availability & Selection

One of the first things you will need to do to establish your business is choose a name. Whether starting from nothing or rebranding an existing business, choosing the right name is essential for success. It is crucial to consider your target market, what you want your brand to represent, and how easy it will be to remember. There are also specific legal considerations to keep in mind when selecting a business name.

Are you having trouble narrowing down your options? Consider using naming tools like namelix, BustAName or NameCh_k. They can help you brainstorm suggestions based on your preferences, find available domain names, and even identify available social media accounts. So do not wait any longer – start brainstorming today and see which name is right for your business!

Choose Your Business Structure

Once you settle on your business name, it is time to consider business structures, so you’ll know how and where to register your business.

There are two types of business structures:

The first type is where your personal and business identities are the same, resulting in 100% personal liability. Examples include sole proprietorships and partnerships.
Examples of the second type of business structure include limited liability companies (LLCs) and corporations. These legal entities separate your personal and business identities, offering protections that can limit your exposure to business liability.

For anyone in the Business-to-Consumer (B2C) space that wants to open a physical location and invite potential customers to visit their store (including and especially food businesses) — we strongly encourage you consider a structure that limits your liability.

In addition to liability concerns, you should consider the structure’s ongoing administrative burden, flexibility to accommodate changing needs, tax implications, and your potential investment needs.

Register Your Business

After you have chosen your business name and structure, you will need to register your business name.

Texas requires LLCs and corporations to register with the Secretary of State’s office. In addition, sole proprietorships and general partnerships must register with the County Clerk where they will be conducting business.

Register with Your Taxing Authorities

The next step to establish your business is to register with your taxing authorities.

Federal (IRS): Employer Identification Number (EIN)

Now that you have a registered business in Texas, it is time to apply for your Employer Identification Number (EIN). Whether or not you hire employees, your EIN will serve as your business’s unique identifier (like an individual’s social security number). It will serve as your federal tax ID, and you will need it to pay your federal taxes, hire employees, open a bank account, and apply for business licenses and permits. You must fill out a form on the IRS website to apply for your EIN. The process is free and only takes minutes.

State (Texas Comptroller): State Sales Tax Permit

You must complete a State Sales Tax application if you:

Are engaged in business in Texas; and
Sell, lease, or rent things that can be felt, touched, and physically relocated; or
Sell taxable services

Apply for Licenses and Permits, if necessary

To operate legally, your business may need a combination of licenses and permits mandated by federal, state, and local requirements.

The U.S. Small Business Administration’s site contains information about federal license and permit requirements.
The Texas Business Licenses & Permits Guide lists more than 300 specific business categories and the state licenses, permits, certifications, registrations and authorizations required to legally operate them.
For local requirements, check with your county clerk’s office (county) and municipality (city).

A failure to comply with business licensing requirements can result in fines, penalties, arrest, and even the closure of your business by tax and licensing authorities.
Wolters Kluwer, Global legal and compliance firm

You should also verify with your attorney and accountant that all legal requirements have been met in this crucial step to legally establish your business. Be aware that some licenses and permits expire after a period of time and will need to be renewed to stay compliant.

Open Your Business Bank Account

The next step to establish your business is to open a business bank account.

Understand Your Banking Needs

Choosing the right bank for your needs is important when you are a small business owner. You want a bank that will: offer competitive rates & fees, be responsive to your needs, and provide the services you need to grow your business. But, with banks seemingly on every corner, how do you find the right one for your small business?

Here are tips on choosing the right bank for your small business:

First, you need to consider the size of your business and your specific banking needs. If you have a small business, you may not need all the bells and whistles that come with a larger bank. Do you need a loan? How often will you make deposits? Do you need merchant services? Do you need specific features like online banking or mobile deposit? Make sure the bank you choose offers the services you need so that you can take care of your business banking needs in one place.
Second, you need to consider the location of the bank. For example, if you have a brick-and-mortar store, you may want to choose a bank that has branches near you.
Finally, you need to consider the rates and fees associated with different banks. Rates will vary, and some banks charge higher fees than others, so be sure to compare before making your decision.

Commercial banking is unlike personal banking. You won’t get a toaster for opening a business account, and most services are not free.
Steve Sweeney

Shop for a Bank

Now that you have considered your needs, it is time to shop for a bank. The first step is to research your options. You can start by asking other small businesses in Texas which banks they use and why they like them. Once you have narrowed down your options, you can visit the websites of different banks and compare their products and services. Finally, once you have selected the banks that meet your needs, visit a branch near you and speak with them.

Now that you have selected a bank, you will need your business registration and EIN to open your business bank account. Keeping your personal and business finances separate for record-keeping and tax purposes is vital. A business bank account will also give you access to specific features and services that can help your small business grow.

Acquire Commercial Insurance

The last step necessary to establish your business is to acquire commercial insurance.

Understand your Business Risks

You may wonder, “what is the worst that could happen?” The reality of running your own business is often more complex than we anticipate, but we can prepare for potential pitfalls before they become an issue. We can think about significant events that could damage our business, such as theft, natural disaster, or lawsuits. However, the future is uncertain, and it is impossible to plan for every possibility. Commercial insurance companies specialize in knowing the risks associated with your business and helping you mitigate business risks in the face of uncertainty.

There are between 83 and 96 million lawsuits in U.S. trial courts each year (2012-2019)
courtstatistics.org

Shop for Insurance

As a business owner, protecting your business with the proper insurance coverages can provide you peace of mind and allow you to focus on running your business. Here are tips on how to get the most out of your insurance coverage.

Shop around. Prices and benefits can vary significantly. Therefore, you should compare rates, terms, and benefits for insurance offers from different companies.
Re-assess every year. As your business grows, so do your assets and liabilities. If you have purchased or replaced equipment or expanded operations, you should contact your insurance agent to discuss changes in your business and how they affect your coverage.
Consider adding an umbrella policy. An umbrella policy is an extra layer of protection that can provide coverage beyond what your basic policy covers. This can be a wise investment if your business is growing quickly, or if your business structure doesn’t provide any liability protection.
Bundling policies can save you money. Insurers offer discounts if you bundle multiple policies, so it is worth shopping around to see what is available.

Median costs for common business lawsuits: $54K for liability; $88K for employment; and $91,000 for a contract dispute
Estimating the Cost of Civil Litigation, Court Statistics Project, January 2013

There’s no one-size-fits-all approach to insurance, but by regularly shopping around and re-assessing your needs, you can ensure you have the right coverage in place for your business.

Summary

So, you’ve evaluated and validated your business idea, and it has passed with flying colors! The next step is to start putting the pieces in place to establish your business. While the exact steps to start your business will vary depending on the type of company you want to create, our article covered:

Selecting an appropriate name and business structure
Register your business name
Register with your taxing authorities
Research and apply for any necessary licenses or permits
Open your business bank account
Obtain commercial insurance

We hope this article has helped to illuminate your path so that you can take the next step to establish your business.

Small business owners have a lot on their plate, and knowing where to look for advice during startup can be challenging. So feel free to dive deeper by exploring the resources linked below, and don’t hesitate to contact us for questions, further information, or help with each step along the way.

Note: This post is intended to provide general information only and is not tax or legal advice.

Sources

Whether this is a problem you are currently facing or just something that has been weighing on your mind, feel free to contact me via phone or email so we can discuss your situation, goals, and solutions.

I built my first career in management consulting and have spent the last 20+ years using my passion and skills in community and economic development. For the past nine years, I have advised hundreds of start-ups and small businesses.

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