Demographics, regional economics, access to commercial capital resources, and a host of additional factors influence small business success. Finding the right mix can be the difference between prolonged profits and an early exit, particularly for startup ventures relying on projections, rather than actual performance. Understanding the Texas business climate can help you navigate key concerns, increasing the likelihood you’ll find commercial success in the Lone Star State.
Strong Economic Climate Sparks Texas Commercial Capital Investment
It has been more than a decade since the financial crisis of 2008, but the ability to rebound following the catastrophic economic downturn is still used as a metric, measuring the health of commercial enterprise. In particular, regional economic health is often linked to the 2008 milestone. By this important measure, the State of Texas has fared well since the global economic meltdown, exhibiting a stronger-than-average recovery, compared to other states.
Texas’ strong economic recovery following the financial crisis is only one point of reference illustrating the strength of the state’s business climate. Texas Economic Development boasts a fair, transparent tax and regulatory requirement within the state, helping attract small business investment in diverse Texas industries. The Texas Enterprise Fund and a recent $4 billion tax relief package for small businesses further enhance the region’s economic vitality.
In addition to its strong startup potential, Texas already has a formidable commercial presence. The state hosts nearly 50 Fortune 500 companies. Its diverse, skilled workforce is more than 14 million strong, including a robust small business sector, employing nearly five million workers. Texas is home to 2.7 million small business operations. The state’s small business ventures employ more than 45% of the entire Texas private sector labor force, highlighting an appealing, business-friendly environment for entrepreneurs and commercial investors. Other economic indicators demonstrating the state’s economic upside include:
- Texas has the second largest state economy in the US
- Annual State of Texas Gross Domestic Product (GDP) exceeds $1.75 trillion
- Texas’ 3.4 percent unemployment rate is lower than the national average
- Texas registered 3.2 percent economic growth in 2018, outperforming the national average
What’s in Store for Lone Star Entrepreneurs?
Analysts agree doing business in Texas presents advantages for startups, as well as providing a consistent climate for existing businesses. Business News Daily recently reached out to top Texas entrepreneurs, exploring some of the issues and advantages facing owner-operators in the state.
Access to Commercial Funding – Access to capital is an obstacle shared by many businesses, particularly startups, requiring substantial sums to get off the ground. Whether for a launch, expansion, or working capital needs, traditional bank lending has grown more conservative than it was, leading up to the 2008 finance crisis. Although conditions in Texas reflect national bank loan trends, alternative Texas lending resources are available, gathering the slack left by conservative conventional lenders.
Trey Bowles, Founder and CEO of the Dallas Entrepreneur Center is convinced a strong argument could be made, ranking Texas in the number-one slot for both new and existing ventures, compared to business climates in other US states. However, Bowles also believes Texas would benefit from further investment. According to Bowles, too little funding is making it in to the hands of early stage entrepreneurs. Though regional resources are available, courting wealthy investors and major corporations could improve outcomes for ground-level enterprises.
Labor Market Challenges – An “employee’s” market occurs when there isn’t enough talent available to fill positions in a particular region. The phenomenon results in heavier-than-average competition for labor resources, as well as increased labor costs, which may tax small businesses more than major employers. Though Texas has experienced labor challenges similar to those seen in other booming economic regions, some entrepreneurs view the problem as a positive sign of continued expansion.
Texas entrepreneurs familiar with conditions before and after recent labor crunches confirm that costs have risen and filling jobs is harder than it once was. The trend isn’t reserved to particular Texas industries, instead affecting diverse commercial sectors. In response, forward-looking planners are addressing quality of life issues, in order to make job hubs more workable and livable for young professionals. Public education is also under scrutiny, ensuring Texas does everything possible to provide for the state’s future skilled workforce needs.
Favorable Tax Code – One popular affordability test applied to taxation, “tax freedom day” represents the day on which an individual has earned enough money to pay the year’s taxes. In the State of Texas, the average resident reaches tax freedom on April 5th, ranking fifth earliest of all US states.
Texas’ pro-business tax code includes no corporate or individual income tax, making the state attractive to commercial investors and small business owner-operators. Residents also benefit from the state’s no property tax policy, allowing businesses and individuals to retain a greater share of profits than some other states’ tax codes permit.
The state’s low tax burden favors small business owners, but governments must generate revenue somehow. According to information maintained by the Texas Comptroller’s Office, sales and franchise taxes are primary sources of income for the state. Texas state sales tax stands at 6.5 percent, with additional taxes imposed by localities. Local sales and use tax is as high as 2 percent, resulting in an average state and local sales tax burden of 7.6 percent. The Tax Foundation indicates Texas ranks as the fifth most expensive US state for these types of taxes.
Metropolitan Expansion – Growing metropolitan areas support Texas commercial expansion, providing emerging markets for small business investors. Austin, Houston, San Antonio, and Dallas-Fort Worth are experiencing growth, driving a commercial boom in Texas. It is estimated Houston added more than 100,000 residents between 2010-2014, sparking increased economic activity and startup investment.
Straightforward Regulatory Environment – Texas’ pro-business approach includes an even-handed regulatory presence. Entrepreneurs confirm less red tape in Texas than other states, helping to facilitate rather than hinder commercial development. In an effort to stimulate growth and economic expansion, Texas legislative bodies reportedly stay out of the way, affording straightforward compliance that isn’t cost-prohibitive for Texas small business ventures.
Texas owner-operators face widespread small business challenges, but the state is rich with resources enabling commercial success. Whether Texas is on your short list for a business startup or you’re considering expansion within the state; understanding the commercial climate and making the most of Texas’ pro-business stance provide key ingredients for success.