It’s true — there are some states in which it’s better to start a small business than others. This is due to many factors, such as state income taxes, local regulations, growing cities, and the availability of skilled workers. For these reasons and others, Texas has been rated as one of the friendliest states for small businesses, whether you’re going in as a sole proprietor or plan to hire many employees.
Why is small business important in Texas?
The generally accepted definition of a small business is one with fewer than 500 employees. However, this varies by industry. The U.S. Small Business Administration (SBA) has a table which states how big a small business is, according to its industry. This ranges from less than 100 employees for many wholesaling operations up to 1,500 for telecommunications companies. The amount of annual revenue is a factor as well. However, over 85 percent of small businesses within the state of Texas are “nonemployers,” businesses with no paid employees.
Cost of Living
One of the most attractive characteristics of Texas is its low cost of living compared to other parts of the U.S. The median home value in the state is about $185,000, compared to the U.S. average of $216,200. This means rentals will be more affordable as well. Texas also ranks well below the national average in food costs, utilities, and transportation.
A low cost of living helps small businesses in many ways. For one thing, it frees up a business owner’s personal capital, so they have more to invest in their business. The cost of living also influences how attractive the region is to potential employees. If your business sells directly to consumers — such as a retail business or a restaurant — low cost of living also means your customers have more disposable income to spend.
Obviously, since nobody likes paying income tax, the fact that Texas has no state income tax makes it extremely attractive. This includes both individual income taxes and corporate income tax as well. It does, however, have a relatively high sales tax and employee tax, as well as franchise taxes which can affect LLCs and corporations.
Texas is considered a pro-business state for its simplified state regulations. The process of starting a small business in Texas is fairly simple — determine your business structure, register your business name, register your LLC or corporation if applicable. In addition to this, many types of businesses will need licenses, permits, certifications, registrations, or authorizations of some kind. There are also regulations that apply to employment law that must be addressed.
The benefit of doing business in Texas isn’t its low regulations, necessarily. In fact, Texas has been ranked as one of the most heavily regulated states. However, the state administration has been working over the last several years to streamline and simplify the process of meeting these regulations and obtaining all necessary permits. The Texas Economic Development agency describes it as a “predictable regulatory environment.” Moreover, they have provided extensive resources both online and in government offices to assist business owners every step of the way.
The latest U.S. Census data ranks Texas as one of the fastest-growing states in terms of population, particularly in several big cities. San Antonio is the city with the biggest population increase in the entire nation between 2016 and 2017, gaining over 24,000 new residents. Dallas, Fort Worth, Houston, Frisco, and Austin also saw a growth explosion during that period.
There are several reasons for this growth; international migration is a big factor, but surprisingly, the biggest factor has been a baby boom in the state. Experts speculate that this is due to younger people moving to the state, both internationally and domestically, which means more babies.
As you may expect, growth in one area typically means growth in another, and it becomes a cycle. An increase in new business startups leads to increased job availability, which in turn leads to population growth from workers seeking opportunities.
The nine fastest-growing industries in Texas, according to Investopedia, are:
- Trade, transportation, and utilities
- Professional and business services
- Education and health services
- Hospitality and leisure industries
- Financial activities, including retail banking
- Information and technology
The increase in the state’s technology sector is notable; Austin, Texas, has been referred to as “Silicon Hills” because of the large tech firms that are based in the city. These include 3M, Apple Inc., Hewlett Packard, Google, Facebook, AMD, Cisco Systems, eBay, PayPal, Blizzard, Intel, Oracle Corporation, and more.
In 2005, minority groups first outnumbered whites in Texas. It is now what is called a “majority-minority state,” meaning that the group with a population majority in the U.S. is now a minority there. Although this hasn’t completely broken down racial and ethnic barriers to success, it’s been improving. According to Forbes.com, of all the “majority-minority” states in the U.S. — which include Hawaii, California, and New Mexico as well as Texas — it is in the state of Texas that the country’s four largest racial or ethnic groups have found the most prosperity.
To further promote this success, several public and private agencies have popped up to support minority- and women-owned businesses in Texas, including entrepreneurial startups. These are particularly important in the technology sector, which has historically been the most resistant to diversity. DivInc, for example, is a nonprofit offering a 12-week program to help under-represented founders in the tech industry, assisting them with pitches to investors as well as offering other support and encouragement.
No matter what your ethnic background, your Texas small business or startup will find the support it needs. In addition to national programs such as the SBA and SCORE, the state offers regular conferences and workshops to assist entrepreneurs.
Business accelerators and incubators, which are services providing rental workspace, catering, and mentorship, are located in cities throughout the state.
The Texas Small Business Development Center has locations throughout the state and offers assistance with just about anything a small business could need: financing, business plan writing, improving sales and marketing, and mentorship.
There are many great reasons to launch a small business in the state of Texas, and it’s easy to see why it’s one of the fastest-growing states with an economic boom to match. Be sure to do research in your industry before jumping in; you’ll find plentiful resources to assist you.