They say everything is bigger in Texas. Well, the number of small businesses in the state is no exception. The question is, why is the Lone Star State such a hotbed for small businesses? High-quality talent, financial benefits and tax breaks all factor in.
Here is a closer look at the reasons entrepreneurs are heading to Texas to launch their small businesses.
Why Texas is a good state for starting a business
Small businesses make up about 99% of businesses in the state of Texas, according to the U.S. Small Business Administration. The state took first place on WalletHub’s 2021 Best & Worst States to Start a Business report, which compared all 50 states to determine which ones are best for starting a business.
The methodology for the report examined conditions that make for ideal business creation, including capital access, available talent in the workforce and affordable office space. Texas narrowly edged out Georgia with a total score of 57.89 compared to 56.92.
Here are four reasons why Texas is so popular for new businesses.
1. Texas has an abundance of talent.
One of the keys to a successful startup is the company’s team. It takes a village of talented individuals to lead a startup to success, including HR, engineers, and more.
However, some startups make the mistake of hiring too quickly. Maybe the candidate isn’t exactly the right fit or lacks key skills necessary for the role. An emerging small business may decide to hire and onboard them anyway. After all, filling the position is a priority – and the business might have struggled to find interested, available candidates.
Texas is ranked No. 2 for workforce in CNBC’s 2022 America’s Top States for Business. The state also consistently ranks within the top five states for business and boasts a tremendous workforce resulting in business owners’ interest to open up shop here.
Finding the best financing options is an integral aspect of starting a business. Consider saving six months to a year to cover your initial expenses before your business starts to turn a profit.
2. Starting a business in Texas comes with significant tax benefits.
Not too long ago, there was a time when many entrepreneurs flocked primarily to Delaware and Nevada to do business. Delaware has a reputation for being the incorporation capital of the world because of its business-friendly corporate tax laws. These laws have allowed the state to become the legal home to more than one million business entities. Nevada also has a reputation as a tax haven, since the state does not collect corporate or personal income tax.
But beyond Delaware and Nevada, more states are passing tax laws that benefit small businesses, and Texas is one state to watch. The Tax Foundation’s 2023 State Business Tax Climate Index revealed that Texas is ranked among the top 15 states without an individual income tax or corporate income tax. A lack of income tax, along with a thriving economy, continues to make Texas an attractive location for a startup.
3. Texas is open to innovation.
Which states come to mind when you think of innovation? You’re likely to think of the East and West coasts – specifically Silicon Valley in California and Manhattan (or Brooklyn) in New York.
But consider events like South by Southwest (SXSW), held in Austin every year, that celebrate the changing landscape of tech and media.
More than 380 airports call Texas home, bringing in new faces every day to check out the sights and sounds (including a lively music scene) throughout the state. You might be surprised at some of the industries thriving in Texas:
- Advanced tech and manufacturing
- Aerospace, aviation and defense
- Biotechnology and life sciences
- Information and computer tech
- Petroleum refining
Innovation is taking place throughout Texas right now. Thanks to a large population, and one that works hard to serve minority entrepreneurs, Texas is able to put itself on the map with its diversified economy. That same economy, as the Texas Economic Development Corporation points out, allows Texas to pave the road forward in creating new jobs. Texas now leads the nation in job creation – and plans to continue the trend throughout the next decade and beyond.
4. Texas has a friendly climate for small businesses.
The United States Small Business Friendliness Survey examines how states and cities throughout the U.S. receive small businesses. From 2012 through 2021, the survey examined key components like overall friendliness, ease of hiring, regulations, tax code and training programs in each state.
How does Texas fare for overall state friendliness? Texas received a B in 2021, making it the first year to receive a grade below A. However, the state received an A grade for ease of starting a business; regulations; employment, labor and hiring; tax code; and licensing – most of these factors increased a grade in ranking from 2019.
There isn’t a guarantee of success for anyone who starts a business, in Texas or elsewhere. The best way to succeed is to plan and prepare — and that’s true for any business that wishes to get off the ground. [Read more about starting a business from home.]
About 43% of Texas businesses are owned by women, according to the U.S. Small Business Administration.
More great states for starting a business
These states may rank below Texas in the WalletHub report, but they still score highly in other categories. Here are a few competitive states that mirror Texas’s way of encouraging the survival of small businesses.
The Peach State ranked first in the lineup for its business environment in WalletHub’s study. Although it has a high tax rate, the state makes up for it with a low cost of living, making Georgia one of the top affordable states with helpful startup incentives.
According to the Georgia Department of Economic Development, expansion and new businesses in Georgia accounted for more than $21 billion in investments and created over 51,000 jobs in the last year.
If you’re thinking of opening a business, the Golden State provides a great location. California gives off sunshine and friendly vibes year-round, and there’s no question why entrepreneurs flock to the West Coast. The high cost of living is worth the high probability your business will thrive long-term.
Florida is a leading state when it comes to individual income tax, with no personal income tax assessed and a corporate tax no higher than about 5.5%. Keep in mind that natural disasters, specifically hurricanes, are one of the biggest downsides of starting a business in Florida.
Idaho saw the highest number for small business growth in 2021 due to its location and lower rates of natural disasters and impact from climate change. The corporate and individual tax rate is on the higher side, at almost 7%. However, consumer spending, survival rate and labor costs are among the positives of creating a startup in this state.
Utah ranked sixth in WalletHub’s study. While the tax climate and business survival rate are average, this state has the lowest unemployment rate in the country at about 2%.
Additional reporting by Deborah Sweeney.