Starting a Business in Texas

A new business in Texas is not out of reach. Have you been wondering: how do I start a new business in Texas? And more importantly, can I do so no matter what the economic conditions are? Can I start a new business in Texas during a recession?

New Business in Texas: Pros and Cons

Business Insider ranks Texas as the fourth best state in the country to start a new business. The huge energy industry is one driver of this score. Like California and also Massachusetts, it is one of few states with many clusters of major economic centers rather than one or two.

Texas has a strong startup activity score. The state ties for the fourth highest rate of new business owners. It also has the fourth highest density of startup businesses. In addition, the cost of living is decent.

Recent Improvements

In 2019, Dollar Sprout’s methodology (keep in mind, it’s not identical to Business Insider’s) vaulted Texas to the number one spot! The two main drivers were a low unemployment rate and high growth. Another factor was favorably tax rate calculations (apparently only Maryland does the same). With these calculations, a business is charged proportionately, based on gross annual revenue. Hence a business in Texas doesn’t pay a flat rate.

Start a New Business in Texas – Texas Top Industries

Per a 2014 report from the Texas government, the biggest companies in Texas are mainly in the field of energy. Except for AT & T and Sysco (for food service), all of the top ten companies are within the energy industry.

Digging deeper into the top 50, some other industries show up, such as airlines, and paper products. Top industries in Texas are also computer hardware and software, and construction, among others. In addition, as in most states, the health care and social assistance fields are also large employers.

Start a New Business in Texas – Texas Business Ideas

Smart business owners can find new opportunities. Work with bigger industries in the state. Offer goods or services such as developing and distributing safety equipment for refineries. Other ideas are chemistry and sciences support for the energy industry. There is also trucking for any industry. Then there is computer support in areas such as data or programming.

Here is how to start a new business in Texas.

Start a New Business in Texas – Texas New Business Secretary of State Requirements

Register a Business Name

Filing for a fictitious name allows the creation of a business name which is then separate from a business owner’s legal name. This is called “Doing Business As”, or a DBA.

In Texas, if the business will operate as a sole proprietorship or a general partnership, then an Assumed Name Certificate or DBA for each name the business will use must be on file with the county clerk. And this is for each county where a business location will be maintained. All limited partnerships, registered limited liability partnerships, limited liability companies, corporations, professional corporations, nonprofit corporations, and also professional associations must register with the Secretary of State.

Corporations

In Texas, a corporation must have a unique name. Search online records and also other records to make sure that a name is not in use already.

Corporate Name Reservations

You do not need a corporate name reservation to incorporate a small business in Texas. But if a business owner wants to reserve a name for a corporation they can submit a name reservation application to the office of the Texas Secretary of State.

The name reservation application form can be downloaded at Reserve a Texas Corporation Name at the Texas Secretary of State website. The name on the reservation application will then be reserved for a period of 120 days. The filing fee for a name reservation application is $40.00.

Business Permits and Licenses

Be sure to check at the Texas Department of Licensing and Regulation.

Local Permits and Licenses

A list of county clerks is on the Secretary of State website.

Start a New Business in Texas – Business Registration

Registration documents are through the Office of the Texas Secretary of State.

Tax Registration

The Texas Comptroller of Public Accounts is the place for general information about taxes. It also allows you to register online.

Start a New Business in Texas – Virtual Offices

Alliance offers Texas virtual business office space in the following cities.

Start a New Business in Texas: Northern and East Texas

Alliance has North Texas offices in Amarillo. They have East Texas office space in Allen, Dallas, Fort Worth, and Frisco. They also have space in Grapevine, Houston, Irving, McKinney, and Plano.

Start a New Business in Texas: Central and West Texas

Alliance has Central Texas offices in Austin, Georgetown, Round Rock, and San Antonio. Their only West Texas office is in El Paso.

Go to Regus for Laredo virtual office space.

DaVinci has East Texas virtual offices in Addison, Carollton, and also Farmers Branch. They also have space in Katy, Richardson, and Richmond. DaVinci also has space in Sugar Land, and also The Woodlands.  They have Southern Texas offices in Harlingen.

For Brownsville, Lubbock and also Waco, and other parts of the Lone Star State, try local business owners. Also ask computer user groups for help in this area. Other options may be virtual business office space in nearby states. These are Arkansas, Louisiana, New Mexico, and also Oklahoma.

Start a New Business in Texas –  Establish Business Credit

Company credit is credit in a business’s name. It doesn’t attach to a business owner’s consumer credit, not even when the owner is a sole proprietor and the only employee of the business.

Consequently, a business owner’s business and personal credit scores can be very different.

The Benefits

Because business credit is distinct from personal, it helps to safeguard a small business owner’s personal assets, in the event of litigation or business bankruptcy.

Also, with two separate credit scores, a small business owner can get two separate cards from the same merchant. This effectively doubles buying power.

Another benefit is that even startups can do this. Heading to a bank for a business loan can be a recipe for disappointment. But building company credit, when done the right way, is a plan for success.

Personal credit scores rely on payments but also various other factors like credit utilization percentages.

But for business credit, the scores really merely depend on whether a small business pays its invoices timely.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

The Process

Growing business credit is a process, and it does not occur without effort. A company has to actively work to build company credit.

That being said, it can be done easily and quickly, and it is much faster than building individual credit scores.

Merchants are a big aspect of this process.

Carrying out the steps out of order will result in repetitive rejections. No one can start at the top with company credit. For instance, you can’t start with retail or cash credit from your bank. If you do, you’ll get a denial 100% of the time.

Start a New Business in Texas – Small Business Fundability

A business needs to be fundable to loan providers and merchants.

For that reason, a company will need a professional-looking web site and email address. And it needs to have site hosting from a company like GoDaddy.

And, company phone and fax numbers must have a listing on ListYourself.net.

Also, the business telephone number should be toll-free (800 exchange or the like).

A small business will also need a bank account dedicated strictly to it, and it must have every one of the licenses essential for running.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

Working with the IRS

Visit the Internal Revenue Service web site and get an EIN for the company. They’re free of charge. Choose a business entity such as corporation, LLC, etc.

A small business can start off as a sole proprietor. But they will more than likely want to switch to a sort of corporation or an LLC.

This is in order to decrease risk. And it will maximize tax benefits.

A business entity will matter when it comes to taxes and liability in case of a lawsuit. A sole proprietorship means the entrepreneur is it when it comes to liability and taxes. No one else is responsible.

Sole Proprietors Take Note

If you run a small business as a sole proprietor, then at least be sure to file for a DBA. This is ‘doing business as’ status.

If you do not, then your personal name is the same as the business name. Because of this, you can wind up being directly accountable for all company financial obligations.

In addition, according to the IRS, using this structure there is a 1 in 7 chance of an IRS audit. There is a 1 in 50 possibility for corporations! Prevent confusion and drastically lower the chances of an IRS audit simultaneously.

Starting Off the Business Credit Reporting Process

Begin at the D&B web site and get a cost-free D-U-N-S number. A D-U-N-S number is how D&B gets a small business into their system, to generate a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.

Once in D&B’s system, search Equifax and Experian’s websites for the business. You can do this at fastcs.wpengine.com/reports. If there is a record with them, check it for correctness and completeness. If there are no records with them, go to the next step in the process.

By doing so, Experian and Equifax will have activity to report on.

Vendor Credit Tier

First you ought to establish trade lines that report. This is also referred to as the vendor credit tier. Then you’ll have an established credit profile, and you’ll get a business credit score.

And with an established business credit profile and score you can begin to get credit in the retail and cash credit tiers.

These kinds of accounts have the tendency to be for the things bought all the time, like marketing materials, shipping boxes, outdoor work wear, ink and toner, and office furniture.

But first of all, what is trade credit? These trade lines are credit issuers who will give you starter credit when you have none now. Terms are in most cases Net 30, instead of revolving.

So, if you get an approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, such as within 30 days on a Net 30 account.

Details

Net 30 accounts have to be paid in full within 30 days. 60 accounts must be paid in full within 60 days. Compared to with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you used.

To begin your business credit profile properly, you need to get approval for vendor accounts that report to the business credit reporting bureaus. Once that’s done, you can then make use of the credit.

Then repay what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.

Vendor Credit Tier – It Makes Sense

Not every vendor can help in the same way true starter credit can. These are vendors that will grant an approval with marginal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.

You want 5 to 8 of these to move onto the next step, which is the retail credit tier. But you may have to apply more than one time to these vendors. So, this is to confirm you are reliable and will pay in a timely manner.

Retail Credit Tier

Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then progress to the retail credit tier. These are service providers like Office Depot and Staples.

Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use the small business’s EIN on these credit applications.

One example is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a D-U-N-S and a PAYDEX score of 78 or better.

Fleet Credit Tier

Are there 8 to 10 accounts reporting? Then move to the fleet credit tier. These are businesses like BP and Conoco. Use this credit to buy fuel, and to repair, and take care of vehicles. Just use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, make certain to apply using the company’s EIN.

One such example is Shell. They report to D&B and Business Experian. They need to see a PAYDEX Score of 78 or higher and a 411 small business phone listing.

Shell may say they want a certain amount of time in business or revenue. But if you already have adequate vendor accounts, that won’t be necessary. And you can still get approval.

Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN.

Cash Credit Tier

Have you been responsibly handling the credit you’ve up to this point? Then move to the cash credit tier. These are service providers like Visa and MasterCard. Only use your Social Security Number and date of birth on these applications for verification purposes. For credit checks and guarantees, use your EIN instead.

One example is the Fuelman MasterCard. They report to D&B and Equifax Business. They want to see a PAYDEX Score of 78 or higher. And they also want you to have 10 trade lines reporting on your D&B report.

Plus, they want to see a $10,000 high credit limit reporting on your D&B report (other account reporting).

In addition, they want you to have an established company.

These are businesses like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are usually MasterCard credit cards. If you have 14 trade accounts reporting, then these are feasible.

Monitor Your Business Credit

Know what is happening with your credit. Make certain it is being reported and take care of any inaccuracies ASAP. Get in the practice of checking credit reports and digging into the particulars, and not just the scores.

We can help you monitor business credit at Experian and D&B for 90% less than it would cost you at the CRAs. See: fastcs.wpengine.com/monitoring.

Update Your Data

Update the data if there are mistakes or the relevant information is incomplete.

Fix Your Business Credit

So, what’s all this monitoring for? It’s to contest any errors in your records. Errors in your credit report(s) can be taken care of. But the CRAs typically want you to dispute in a particular way.

Disputes

Disputing credit report inaccuracies typically means you mail a paper letter with copies of any evidence of payment with it. These are documents like receipts and cancelled checks. Never send the original copies. Always send copies and keep the original copies.

Fixing credit report errors also means you specifically spell out any charges you dispute. Make your dispute letter as crystal clear as possible. Be specific about the concerns with your report. Use certified mail so that you will have proof that you mailed in your dispute.

A Word about Building Business Credit

Always use credit sensibly! Never borrow more than what you can pay back. Track balances and deadlines for payments. Paying punctually and completely will do more to boost business credit scores than just about anything else.

Building small business credit pays. Great business credit scores help a small business get loans. Your loan provider knows the small business can pay its debts. They know the small business is authentic.

The small business’s EIN links to high scores. And loan providers won’t feel the need to call for a personal guarantee.

Business credit is an asset which can help your small business in years to come.

Learn more here and get started toward opening a new business in Texas.

Want to start a new business someplace else in America? Then check out our handy guide to starting a business in any state in the country.

Texas’s Response to COVID-19 

Here’s what Texas is doing about COVID-19. On March 13, Governor Greg Abbott declared a state of emergency. Certain trucking regulations are being suspended to allow for the easier delivery of supplies. 

The Governor has requested eligibility for emergency disaster loans for small businesses from the SBA. 

See: texastribune.org/2020/03/13/texas-coronavirus-cases-state-emergency-greg-abbott. 

And see: gov.texas.gov/news/post/governor-abbott-provides-update-on-coronavirus-texas-testing-capabilities-in-san-antonio-press-conference.

See also: gov.texas.gov/news/post/governor-abbott-requests-emergency-designation-for-small-business-disaster-loans-from-u.s-small-business-administration