Do you want to invest or start a business in Texas as a foreigner? If YES, here is a detailed guide on how to start a profitable business in Texas with no money.
Texas is the second largest state in the United States in terms of area mass and population. Geographically, Texas is located in the South – Central region of the United States. Texas shares borders with the U.S. states of Louisiana to the east, Arkansas to the northeast, Oklahoma to the north, New Mexico to the west, and the Mexican states of Chihuahua, Coahuila, Nuevo León, and Tamaulipas to the southwest, while the Gulf of Mexico is to the southeast.
Interestingly, Texas happens to be the second-largest U.S. state, after Alaska, with an area of 268,820 square miles (696,200 km2). Texas ranks only 27th worldwide amongst country subdivisions by size. Texas is 10 percent larger than France and almost twice as large as Germany or Japan. If it were an independent country, Texas would be the 40th largest behind Chile and Zambia.
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Why Start a Business in Texas?
It only but normal for entrepreneurs who intend starting a business to look for locations that can support the growth of their business hence the need to conduct thorough feasibility studies and other researches. There are loads of reasons why you should consider starting your business in Texas.
In case you are wondering why, then going through the increasing number of small and medium scale businesses in Texas and also the number of Fortune 500 companies that are domiciled in Texas should give you the assurance that Texas is indeed a business – friendly state.
- Texas is the Number One Business Friendly State in the United States
Research conducted by Site Selection Magazine in 2010 ranked Texas as the most business-friendly state in the whole of the United States of America. One of the main reasons for achieving this feat is of course the state’s three-billion-dollar Texas Enterprise Fund. Little wonder Texas has the joint-highest number of Fortune 500 company headquarters in the United States, along with California.
- Robust Economy of Scale
Another very important reason why you must choose Texas as a place to start your business is because Texas’s affluence inspires a strong commercial sector consisting of retail, wholesale, banking and insurance, and construction industries. The Dallas–Fort Worth area is home to the second largest shopping mall in the United States and can boast of having the highest number of shopping malls per capita of any American metropolitan area.
- Shares Border with Mexico
The fact that Texas shares both land and sea border with Mexico is no doubt another reason why you should choose to start a business in Texas. As a matter of fact, Mexico happens to be Texas largest trading partner. In case you don’t know, Mexico imports a third of all Texas exports because of the North American Free Trade Agreement (NAFTA). NAFTA has encouraged the formation of the controversial maquiladoras on the Texas–Mexico border.
- Top Rated Economy and Infrastructure
If you are looking for a reason to start your business in Texas, then you need not look further because Texas can boast of having a top – rated economy and infrastructure. A recent annual Top States for Business ranking released by CNBC shows that Texas is the number one destination for starting business especially as it relates to economy and infrastructure. The truth is that with pretty good economy and top – class infrastructure, it is easier for a business to thrive in such environment.
- Home to Top Companies
Another good reason why you should choose Texas as a destination to start your business is because Texas is home to top companies. It might interest you to know that Texas is home to world – class companies like Toyota, Boeing, Charles Schwab, Merck, Kubota and loads of others.
The fact that Texas for can boast of having pro-business tax climate, world-class infrastructure, skilled workforce and central North American location is just some of the reasons why world – class companies will continue to choose to make Texas their home.
- No Corporate or Individual Income Tax
The fact that there is no corporate or individual tax in Texas is another good reason why an entrepreneur or investor who is looking to start a business in the United States of America should consider Texas. Come to think of it, with no corporate income or individual income taxes and no state property tax in the Lone Star State, Texas, business owners in Texas enjoy the benefits of saving more.
- Healthy Environment for Business Growth
One of the important factors that investors look out for before investing in any city or state is to know whether the location is healthy for their business growth. The fact that Texas can boast of having healthy environment for business growth makes it a top destination to starting a business.
Statistics show that small business startups experience fast growth in Texas when compared to other states in the United States of America.
Statistics shows that Texas’ small business owners, especially those in the Houston, Austin and Dallas-Fort Worth areas, reported healthy growth in terms of population and business startups, and the state’s GDP grew by 5.2 percent from 2013 to 2014 alone, according to the U.S. Bureau of Economic Analysis (BEA).
- Availability of Workforce
Another reason why you should consider starting a business in Texas is because Texas can boast of having workforce. Although you might not have access to pools of high – skilled workforce in Texas like you would do in New York and California, but when it comes to unskilled workforce, Texas ranks among the top destinations. So, if your business needs more of unskilled workforce than skilled workforce, then you should head straight to Texas to start the business.
- Simplified State Regulations
The bottleneck and bureaucracy involved in starting and running a business in some states or cities are some of the factors discouraging businesses from setting up in some cities. As a matter of fact, one of the chief reasons why you should choose to start your business in Texas is because of the state’s simplified state regulations.
It is known fact that Texas’ regulatory environment is highly conducive to start and grow a business. The truth is that if you interview 10 entrepreneurs on why they choose to start their business in Texas, 9 of them will rate the state simplified state regulations as their top 3 reasons for choosing Texas.
- Growing Metropolitan Areas
Lastly, another important reason why you should choose to start your business in Texas is because Texas can boast of having fast growing metropolitan areas. The major metropolitan areas in Texas — Dallas-Fort Worth, Austin, Houston and San Antonio — are experiencing strong growth, which leads to more economic activity. It is only but natural for businesses to experience high demand of their goods or services when there are increased number of residents in the cities where their business is domiciled.
According to the state’s Data Center between 2010 and 2014, Austin’s population grew by an estimated 86,719. Dallas added 57,527 people over the same time period, while Fort Worth expanded by 57,176 people. San Antonio added 92,355 residents, bringing its total population to more than 1.4 million people.
Steps to Starting a Successful Business in Texas With No Money
The fact that Texas supports the growth of small business with their conducive business environment, low business licensing fees, its lack of red tape, and an abundance of relatively cheap real estate should convince you to start your business there. If you are interested in starting a business in Texas, then you might find this information useful;
Step 1: Choose a Business Structure
The first step to take if you want to start a business in Texas is to choose a business structure. It is important that you choose the type of legal, for-profit business entity you want your business to be, which depends on a few factors. This includes, what kind of business you’re starting, whether you’ll have employees and your comfort with liability. Some structures are free to register, others have a low fee and are subject to the state franchise tax.
The options available to you in Texas are:
- Sole Proprietorship:
Sole proprietorship is the most common and simplest form of business structure, a sole proprietorship is perfect for one person who owns all the business assets. This person is 100% liable for the business. Their sole proprietorship assumes their name, unless they want to create a “DBA certificate” to give it another name, to be filed in all counties where business is conducted. These structures are not subject to the state franchise tax.
- General Partnership:
General partnership is another option that is almost same with the sole proprietorship, but it’s for two or more individuals. It’s a separate business entity from those people, but creditors can still hit up the partners’ personal assets to satisfy debts and liabilities. They are not subject to state franchise tax.
- Limited liability company:
An LLC is created by filing a certificate of formation with the Texas secretary of state. It’s an unincorporated business entity with more flexibility, providing owners with limited liability and pass-through tax advantages. LLCs are subject to state franchise tax, and the certification of formation for an LLC is $300. This should not be confused with a limited liability partnership, which is a general partnership registered with the secretary of state and, in Texas, costs $200 for the certificate of formation per general partner.
- For-Profit Corporation:
Corporations are people with limited liability, centralized management, perpetual duration, and ease of ownership transferability. Owners of corporations are shareholders, and managers of the business are directors. For-profit corporations must register with the Texas secretary of state, must pay a filing fee for the certificate of formation of $300, and are subject to a state franchise tax.
Please note that if your business was formed in a state or entity other than Texas but you want to “transact business” in the state, you need to file an application for registration with the Texas secretary of state as a foreign entity.
Step 2: You Should Choose a Business Name
The next step that is expected of you after you must have chosen a business structure to build your business is to choose a business name for the business. Please note that when it comes to choosing a name for a business, it is expected that you should be creative because whatever name you choose for your business will go a long way to create a perception of what the business represents.
Some tips you should follow is to ensure that you;
- Carry out a Google Search
- Do a Trademark Search
- Check Texas’s Business Name Database
Step 3: Apply for an Employee Identification Number
The step you are expected to take is to apply for an Employee Identification Number. An EIN, or business tax identification number, is the business equivalent of a social security number and it is used to track your business dealings. It’s useful for establishing business credit, opening business checking accounts, and, if you have employees, filing their tax withholdings.
An Employee Identification Number (EIN) is free to obtain; you can also contract a third-party like LegalZoom to ensure you are 100 percent compliant with the law, including getting your EIN for you.
Step 4: Apply and Obtain Business Licenses and Permits
The next step to take is to apply and obtain business licenses and permits. Interestingly, Texas doesn’t require companies to buy a “general business” license. But depending on the type of business you open, you might need a specific license or permit.
Check out the Texas Department of Licensing and Regulation to see if your specific profession qualifies. If you’re unsure of what you need, contact your local county or city government to double check any additional requirements. Please note that a variety of small fees are associated with obtaining various business filings and trademarks, such as a change of registered agent or a limited partnership periodic report.
Step 5: Check on Your Business Employer Requirements
The next step that you are expected to take is to make sure that you check on your business employer requirements. This is specific to the type of business you are starting in Texas, including whether you have employees, but there are various labor, safety, and tax obligations to satisfy too, such as federal and state mandates like the Americans with Disabilities Act, Equal Employment, and safety, wage, and labor requirements. You might want to hire a tax or business attorney to make sure you’re following the law here.
Step 6: Sign Up for Business Banking
The last step that you are expected to take if you have fulfilled the above stated steps is to sign up for business banking. Please note that as a new business owner, it’s a very good idea to separate your personal and business banking accounts. You can visit your bank to get further clarifications on how to go about signing up for business banking if you are new to it.
Please note that applying and obtaining a business credit card is also a great way to start building business credit and provide a safety net if you need a bit of extra capital. If you qualify, a 0 percent introductory rate can act as an interest-free loan.
Challenges of Starting a Business in Texas
In as much as there are loads of benefits when starting your business in Texas, there are a few challenges you will have to surmount for you to be successful in Texas and here are some of the challenges;
- Lack of Access to Business Capital
If you don’t have your startup capital saved up somewhere and you are looking towards starting a business in Texas, you would definitely need to dig deep because you will not find easy access to business capital in Texas. The policy of the state of Texas does not support easy issuance of loans to startups or even small business owners.
- Declining Skilled Labor Force
According to the U.S. Bureau of Labor Statistics, in spite of the strong population growth which added 1.8 million people from 2010 to 2014, the Texas labor force shed more than 175,000 people from January to September 2015. Amongst this loss of workforce are skilled workers.
In essence, if you are looking to start a business in Texas that would require that you hire skilled workforce, then you may have a bit of problem finding them. If you have the money and facility to attract skilled labor force from within and outside the state, then you don’t have a problem starting your business in Texas.
A Brief Demographic Analysis of Texas
On July 1, 2018, The United States Census Bureau estimates the population of Texas to be 28,701,845, having a 14.14 percent increase since the 2010 United States Census. Texas is ranked second in the whole of the United States of America and as of 2004, the state had 3.5 million foreign-born residents (15.6 percent of the state population).
Texas’s population density is 90.5 people per square mile (34.9/km2) which is slightly higher than the average population density of the U.S. as a whole, at 80.6 people per square mile (31.1/km2). While Texas and France are similarly sized geographically, the European country has a population density of 301.8 people per square mile (116.5/km2).
It might interest you to know that two-thirds of all people in Texas live in a major metropolitan area such as Houston. The Dallas-Fort Worth Metropolitan Area is the largest in Texas. While Houston is the largest city in Texas and the fourth largest city in the United States, the Dallas-Fort Worth metropolitan area is larger than Houston.
Of course, Houston happens to be the most populous city in Texas and the fourth largest in the U.S., while San Antonio is the second-most populous in the state and seventh largest in the U.S. Dallas–Fort Worth and Greater Houston are the fourth and fifth largest metropolitan statistical areas in the country, respectively. Other major cities include Austin, the second-most populous state capital in the U.S., and El Paso.
The large size of Texas and its location at the intersection of multiple climate zones gives the state highly variable weather. The Panhandle of the state has colder winters than North Texas, while the Gulf Coast has mild winters. Texas has wide variations in precipitation patterns. El Paso, on the western end of the state, averages 8.7 inches (220 mm) of annual rainfall, while parts of southeast Texas average as much as 64 inches (1,600 mm) per year. Dallas in the North Central region averages a more moderate 37 inches (940 mm) per year.
A Brief Economic Analysis of Texas
Texas’s economy is the fourth-largest of any country subdivision globally, just behind England (as part of the UK), California, and Japan’s Kantō region. Texas per capita personal income in 2009 was $36,484, ranking 29th in the nation. Median household income is $56,473 (26th).
A report published in 2017, shows that Texas had a gross state product (GSP) of $1.696 trillion, the second highest in the U.S. As a matter of fact, the gross state product (GSP) of Texas is greater than the gross state products – GDPs of Canada, South Korea, Russia and Australia, which are the world’s 10th-, 11th-, 12th- and 13th-largest economies, respectively.
Texas’s large population, abundance of natural resources, thriving cities and leading centers of higher education have contributed to a large and diverse economy. Since oil was discovered, the state’s economy has reflected the state of the petroleum industry. In recent times, urban centers of the state have increased in size, containing two-thirds of the population in 2005. The state’s economic growth has led to an urban sprawl and its associated symptoms.
It might interest you to know that in 2010, there were 346,000 millionaires in Texas, constituting the second-largest population of millionaires in the whole of the United States of America. As of April 2013, the unemployment rate in Texas is put at 6.4 percent.
When it comes to taxation, Texas has a “low taxes, low services” reputation. According to the Tax Foundation, Texans’ state and local tax burdens rank among the lowest in the nation, 7th lowest nationally; state and local taxes cost $3,580 per capita, or 8.4 percent of resident incomes. Texas is one of seven states that lack a state income tax.
Resources for Small Businesses in Texas
Another additional benefit why an entrepreneur should choose to start their business in Texas is that there are structures and establishments in place to help small businesses grow. Some of these organizations serve as incubators for startup businesses.
Here are some of the organizations you should visit if you need to start a business in Texas and most especially if you need business support;
- Texas Small Business Development Centers
Texas is home to dozens of small business development centers. Each is dedicated to supporting the development and retention of small business, and helps entrepreneurs with tasks like crafting business plans and navigating the state’s tax code.
- Texas Economic Development Corporation
Established by the state government, the Texas Economic Development Corporation is intended to promote economic development throughout the entire Lone Star State. The organization offers resources and information for small business owners looking to launch a startup or expand an existing business.
- The Dallas Entrepreneur Center
The Dallas Entrepreneur Center (DEC) is a 501(c)(3) nonprofit that serves entrepreneurs in the Dallas area, providing a location where they can receive training, education, mentorship, promotion and access to capital in order to encourage and equip the entrepreneurial community to start, build and grow their businesses.
Successful Fortune 500 Companies in Texas
The fact that there are a good number of Fortune 500 companies in Texas shows that it is a state that can support a good startup idea. Interestingly, Houston by far leads other cities in Texas when it comes to accommodating the highest number of Fortune 500 companies.
For Example, Dallas happens to be the home of two of the top Fortune 500 companies and here are the D-FW companies that made the list and their ranks:
- ExxonMobil list as number 2 Fortune 500 company
- AT&T listed as number 9 Fortuner 500 company
- Energy Transfer Equity listed as number 64 Fortune 500 company
- American Airlines Group listed as number 71 Fortune 500 company
- Southwest Airlines listed as number 142 Fortune 500 company
- Tenet Healthcare listed as number 147 Fortune 500 company
- Fluor listed as number 153 Fortune 500 company
- Kimberly-Clark listed as number 163 Fortune 500 company
- Texas Instruments listed as number 192 Fortune 500 company
- Holly Frontier listed as number 206 Fortune 500 company
- D.R. Horton listed as number 211 Fortune 500 company
- J.C. Penney listed as number 235 Fortune 500 company
- Jacobs Engineering Group listed as number 297 Fortune 500 company
- Game Stop listed as number 322 Fortune 500 company
- Dean Foods listed as number 362 Fortune 500 company
- Alliance Data Systems listed as number 365 Fortune 500 company
- Yum China Holdings listed as number 397 Fortune 500 company
- Builders First Source listed as number 400 Fortune 500 company
- Dr. Pepper Snapple Group listed as number 418 Fortune 500 company
- Celanese listed as number 455 Fortune 500 company
- Pioneer Natural Resources listed as number 497 Fortune 500 company
- Vistra Energy listed as number 499 Fortune 500 company
When it comes to the number of Fortune 500 companies that are located in Texas, here is a breakdown by city;
- Houston has 25 companies listed as Fortune 500 companies
- Dallas has 9 companies listed as Fortune 500 companies
- Irving has 6 companies listed as Fortune 500 companies
- San Antonio has 5 companies listed as Fortune 500 companies
- Plano has 3 companies listed as Fortune 500 companies
- Fort Worth has 2 companies as Fortune 500 companies
- The Woodlands has 1 company listed as Fortune 500 companies
- El Paso has 1 company listed as Fortune 500 companies
- Austin has 1 company listed as Fortune 500 companies
- Grapevine has 1 company listed as Fortune 500 companies
You can choose to start your business in any of the cities and towns in Texas and you will enjoy all the benefits that Texas has put in place for small and established businesses well. The fact that these cities accommodate Fortune 500 companies is a good testimony to this fact.
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