We get it: your passion for food is probably bigger than the entire state of Texas.
But if you want to know how to open a restaurant in Texas, you’ll need a lot of help. It takes guts to feed Texan appetites, but it takes even more to put together a solid business plan, find your dream location, and secure all the permits and licenses you’ll need to operate legally in the state.
So that’s what we’ll cover in this article. Here’s where you’ll learn all about:
- The insurance you need to open a restaurant in Texas
- All sorts of information on taxes, registration, permits, and licenses
- The ins and outs of Texas restaurant health inspections work
- Making sure your restaurant is ADA and health code compliant
- How to choose a location for your restaurant in Texas
- Details on bylaws, zoning, and planning
- Ways to build your dream restaurant team
First, How to Open a Restaurant No Matter Where You Live
This article has tons of information on how to open a restaurant in Texas, but you should also read these general articles on opening a restaurant no matter where you live. Here’s a roundup of what you should read first:
- How Much Does it Cost to Open a Restaurant?
- Forecasting Restaurant Sales Before You Open
- Choosing the Best Restaurant Point of Sale System
- How to Begin Staffing Your Restaurant
- Menu Pricing: How to Calculate Food Cost Percentage
- Interior Restaurant Design & Exterior Restaurant Design
- Guide to Buying Restaurant Equipment
- Restaurant Inventory Management & Software
- How to be a Successful Restaurant Owner
Now, How to Open a Restaurant in Texas
If you want to learn how to open a restaurant in Texas, here’s what you’ll need to know.
- What kind of insurance you need to open a restaurant in Texas
- Information about taxes, registration, permits, and licenses
- How Texas restaurant health inspections work
- Tips to make sure your restaurant is ADA and health code compliant
- How to choose a location for your restaurant in Texas
- General information about bylaws, zoning, and planning
- Tips for building your expert restaurant team
Here’s how to open a restaurant in Texas!
The Insurance You Need to Open a Restaurant in Texas
All businesses in Texas need to have certain types of insurance. Restaurants need basic business insurance policies (general liability, property, workers’ compensation, etc.), but they also need very specific insurance policies (liquor liability and food contamination, for example).
Policy costs can vary widely on based on:
- Sales
- Location
- Square footage
- Building type/age
- Fire prevention and security systems
- Projected number of customers
- Inventory, equipment, and technology value
- Number of employees
You should have a handle on all of those figures to get a comprehensive sense of what your insurance costs will be. Here are the types of insurance you’ll need for your Texas restaurant and the ranges in policy costs.
General liability protects against any liability you have if someone is injured at your establishment, and can extend to lawsuits and other costs related to copyright infringement, damaged reputations, property damage, and foodborne illnesses.
How much?$500–$6,000per year
Property insurance covers your entire property, which can mean the building, equipment, furniture, and anything else you own. If you rent the space, the owner will usually have property insurance, but you’ll need to make sure that you’re covering your own contents inside the building. You’ll also need to know exactly what your policy covers (natural disasters like earthquakes and floods, accidents/damage due to human or mechanical errors, etc.).
How much? $1,000–$2,500per year
Liquor liability is not legally required in Texas, but you should really have it. Liquor liability insurance safeguards your business if an intoxicated patron commits a crime, injures someone, or damages property.
How much? $400–$3,000 per year
Workers’ compensation is a type of insurance that all businesses must have, by law. It protects your employees from expenses due to on-the-job injuries, illness, and related lost wages. Workers’ comp also often includes employer liability coverage, which would take care of your legal costs in case a workers’ compensation lawsuit is filed against your restaurant.
How much? The average cost is $0.75 per $100 of payroll
Business interruption insurance sets up a safety net for instances when you need to temporarily close your business due to damage from fire, windstorms, vandalism, or other sources. Check your policy closely for what sources of damage are and are not covered, and make sure the ones most likely to pose a threat in your part of Texas are covered.
How much?$750–$10,000 in premiums
Food contamination insurance will help you recover losses stemming from food spoilage or contamination in the wake of a power outage.
How much?About $1,800 per year, but in a high volume restaurant, it could save you tens of thousands of dollars.
Automobile liability insurance is necessary if your restaurant does any delivery or catering using vehicles it owns. It covers accident-related damages including repairs and any associated medical or legal costs.
How much? Premiums range from $1,200– $2,500 in premiums
Every restaurant business is unique, so you need to work with a licensed small business insurance broker. Here are three Texas associations that can help you find one:
Further down, you’ll see that we cover how to build your own personal expert Austin, Texas restaurant team (including insurance brokers).
FURTHER READING ON RESTAURANT INSURANCE
What Kind of Insurance Does a Restaurant Need
Small Business Guide to Commercial Insurance
Texas Taxes (Say That 10 Times Fast…)
As a restaurant owner, you’ll need to pay several types of taxes. Here are some of the taxes you’ll need to get to know before you open a restaurant in Texas.
Income tax
You’re required to pay income taxes as a restaurant owner. These are broken down into state and federal income taxes.
In Texas, the state income tax on businesses is also called the “franchise tax” and is generally 0.75% of the business’s taxable margin.
Businesses making $20 million or less in total revenue can use the “E-Z Computation” tool for a rate of 0.331%. Your restaurant’s taxable margin is the least of the following:
- 70% of total restaurant revenue
- 100% of total revenue minus cost of goods sold (CoGS)
- 100% of total revenue minus compensation
- Total revenue minus $1 million
Whether you register your restaurant as a C corporation, S corporation, LLC, or partnership, you will likely have to pay franchise tax on it, with some exceptions detailed in this helpful breakdown guide.
The only instance in which you would not pay state income tax for your business is if it is a sole proprietorship, and the money just goes directly to you. In the case of a sole proprietorship, you would only pay federal income taxes on behalf of the business.
Federal income tax rules vary for corporations, LLCs, sole proprietorships, and partnerships.
Sole proprietors get taxed on the adjusted gross income (AGI), which combines the restaurant’s income and any other personal income, and subtracts deductible business expenses and personal adjustments. If you choose this tax structure, the most important thing you can do is keep your personal and business accounts separate. This will make your life much easier when it comes time to file taxes and (in a worst-case scenario) should you ever be audited.
Partnerships and LLCs don’t have to file a federal return, but do have to fill out an “information tax return” (Form 1065), which shows what payments were made by the business to each of its partners. The individual partners or stakeholders each complete a 1099-K, which is then added to the forms they use to declare/calculate personal taxes.
Corporations have different procedures depending on whether they’re a C or an S corporation. C corporation shareholders/owners pay taxes in two ways: business income is taxed at the corporate level, while dividends are added to personal returns. For an S corporation, the income is passed to shareholders at the personal level.
Payroll taxes
Payroll taxes fund government programs such as Social Security, health care, unemployment insurance, and workers’ compensation.
Texas doesn’t have state income taxes for individuals, so you don’t need to worry about withholding taxes on the state level. But you do need to register with the Texas Workforce Commission for a State Unemployment Tax Account (SUTA).
You’ll then need to file a Form C-3 every quarter and pay the fees online. SUTA fees start at 2.7% of each employee’s gross income when a business is new, and can fluctuate depending on the number of unemployment claims filed – but the income on which SUTA is calculated is limited to $9,000. You’ll also need to set up a new hire reporting account so that you can report all new employees to the Attorney General’s office.
Federal payroll taxes are more involved, with requirements toward three programs: Social Security, Medicare, and Federal Unemployment (FUTA). Here’s how it breaks down by percentages:
- Social Security: 12.4% of your staff wages up to a maximum of $118,500. Half of it is withheld from employees, the other half is paid by you.
- Medicare: 2.9% of staff wages. Half is your responsibility, and half is withheld from employees’ pay.
- Federal Unemployment (FUTA) Tax: 6% of the first $7,000 you paid to each employee for the year.
Whether you’re a sole proprietor, partnership, or corporation, you’ll need to file the following forms to report on your employees’ income:
- Form 941 (Employer’s Quarterly Federal Tax Return)
- Form 940 (Employer’s Annual Federal Unemployment (FUTA) Tax Return)
- W-2 (Wage and Tax Statement). A W2 is required for each employee.
Sales taxes
Austin has a sales tax of 8.25%, which combines the Texas state tax (6.25%), Austin city tax (1%), and an additional 1% special tax. As a restaurant owner, there are many items and services for which you will not need to pay sales taxes. You can read about that here.
And remember: there is no federal sales tax in the United States.
Taxes on tips
Tipped employees are those who make more than $30 per month from tips. They’re required to declare and pay federal taxes on their tips. They’re also required to track their tips and report them to the restaurant owner, who must then report and pay into the Federal Insurance Contributions Act (FICA) on their behalf.
One of the most important things to remember is that the law allows tipped employees to be paid less than the hourly minimum wage, but only if they make enough in tips to fill in the difference. The amount that the employer isn’t required to pay is called a “tip credit”.
Texas’s state minimum wage is $7.25 — the same as the federal minimum wage. As a result, tipped employees must be paid at least $2.13 per hour. Be aware that if an employee doesn’t earn enough tips to reach the minimum wage, the restaurant owner (employer) has to make up the difference.
FURTHER READING ON RESTAURANT TAXES
Understanding Restaurant Taxes
Texas Business Registration, Permits, and Licenses for Restaurants
Opening a restaurant in Texas will require a number of licenses and permits.
Registering your restaurant
Texas doesn’t require a general business license, and your permit is handled at the local level in different ways depending on the type of business you have.
You don’t need to be licensed as a restaurant owner, operator, or chef, but you do need to file an Online Tax Registration Application with the Comptroller of Public Accounts. You also need to apply for a Certificate of Authority (registering your business structure), which you can do using the SOSDirectservice.
Restaurant permit
Your restaurant will need a Retail Food Establishment Permit, the cost of which can range from $258 to $773 depending on your annual food sales volume. You can do this via the Online Licensing Services, or download, complete, and mail the Retail Food Operation Permit Application.
Austin food enterprise permit
Austin requires its own Food Enterprise Permit from the Austin-Travis County Health and Human Services Department (ATCHHS). Submit this application at least one month before your prospective opening date.
Permit fees are based on the number of staff you have and range from $310 if you have between one and nine employees, and $990 if you have more than 100. Once you obtain the permit, you must post it prominently in the front window of your restaurant, within five feet of the door, per Austin City Code 10-3-62.
There may also be additional permits required if you operate a food truck or sample at farmers’ markets. All permit details, fees, and downloadable applications can be found in this document.
Sales tax permit
All Texas restaurants must have a sales tax permit, because they sell taxable goods and services. You should apply at least three weeks before you plan to open, as it can take two to three weeks for the permit to arrive. You can apply online and see a list of all the information you’ll need in order to complete the application.
Facilities permit
If your establishment doesn’t fall directly under the ATCHHS’s jurisdiction, you will need to get a Texas Department of State Health Services (DSHS) permit.
Certified food manager certificate
If your restaurant is under DSHS regulation, you’ll also need a Certified Food Manager on staff, who must complete classes and take a test in order to receive that certification.
Alcohol permit
If you serve alcohol at your restaurant, you must obtain an alcoholic beverage permit from the City of Austin. You can download your pre-qualification forms from the Texas Alcoholic Beverage Commission website or call (512) 451-0231 to obtain them.
Outdoor seating permit
If your restaurant has a sidewalk cafe (outdoor seating occupying a public sidewalk) or street patio (outdoor seating that takes up former parking spaces), you will need a temporary sidewalk cafe permit. The permit is valid for up to five years, and the application fee is $100, with subsequent annual fees of $200 for sidewalk cafes and $2,000 per parking spot for street patios.
Per the city of Austin, in order to be deemed “temporary”, these “must include removable barriers that are affixed to the sidewalk with no more than one bolt in each corner of the café space, with a four bolt maximum.”
FURTHER READING ON RESTAURANT REGISTRATION, PERMITS, AND LICENSES
How to Register Your Restaurant Business
Required Permits & Licenses for Restaurants
Passing Your Restaurant Health Inspection in Texas
Food establishments must be inspected twice per year to ensure sanitation and safety standards are met when it comes to food handling, temperature, pest control, and personal hygiene.
Inspectors show up unannounced and rate restaurants on a 100 scale, with points lost for every infraction. Restaurants that get a score below 70 must be re-assessed, and compliance actions will be taken.
When it comes to health inspections, don’t leave it up to chance. A low score could lead to closure of your restaurant, leading to thousands in lost sales.
Texas Food Establishment Rules/Code
The Texas Food Establishment Rules (TFER) governs health and safety protocols for restaurants in Texas. The extensive document outlines procedures for how to safely store, heat, cool, and otherwise handle food to prevent illness, as well as standards for dishware and equipment.
FURTHER READING ON PASSING YOUR RESTAURANT HEALTH INSPECTION
Building Codes, Accessibility, & Inspections
Making Your Restaurant ADA Compliant in Texas
The American with Disabilities Act (ADA) is a federal civil rights law prohibiting the exclusion of people with disabilities from everyday activities (such as dining in restaurants). All small businesses must comply with the ADA or become vulnerable to potential lawsuits. ADA tax credits are available to help soften the financial impact on businesses making ADA-compliant changes.
Here’s what you need to do to make your restaurant ADA compliant:
Accessible parking: This includes both an accessible parking space (usually as close as possible to the entrance), along with additional space on either side of the designated parking spot to serve as an “access aisle” for wheelchairs, electric scooters, and other mobility devices, from the vehicle and to the door of the restaurant.
Accessible entrances: This requires that you provide physical access to your restaurant from public sidewalks, transportation, or parking. For example, if your entrance is on an incline from the access point, a ramp will make it accessible to those with low mobility, whereas even a single step could hinder someone using a wheelchair, walker, or cane.
Maneuvering space: There must be enough space between diners, chairs, tables, counters, and other interior items for those with lower mobility to be able to maneuver around and reach other parts of the establishment.
Restrooms: Bathrooms and bathroom stalls can pose a challenge to people with disabilities, especially if they aren’t large enough for a wheelchair, or if the toilet and sink heights are not conducive to use by someone with low mobility or height. It’s important to make your restrooms accessible for your patrons with disabilities.
Architectural barriers: You’ll want to remove architectural barriers, such as awnings, that may limit people with disabilities.
If you have specific questions about guidelines, you can call the ADA Information Line at 1-800-514-0301.
Choosing a Location for Your Texas Restaurant
You’ll want to consider a few things before choosing a location for your restaurant in Austin.
First, think about your market: what kind of customers do you want to attract, and where are they already getting what you’ll offer?
You can assess the most strategic location for your business using a tool like Esri, which gives you a free location assessment based on ZIP code.
Here are some questions to ask yourself before choosing a restaurant location:
- Who are my ideal customers?
- Is there enough foot traffic where I want to set up shop?
- How much money do people make in the area?
- How much do people pay in rent in the area?
The Best Neighborhoods for a Restaurant Location in Austin
If you don’t want to open your restaurant in the heart of downtown Austin due to its high rents, there are still many options for you. Here are a few suggestions to help you out:
Let’s take a closer look at each of these neighborhoods and what they offer for people looking to open a restaurant in Austin, Texas.
- Mueller
Snapshot:A walkable planned community, with all new or recent constructions.
Located east of I-35, Mueller is known to for attracting young and affluent families. It’s positioned just three miles from downtown Austin and two miles from the University of Texas at Austin, making it easily drivable from bigger communities. On top of its bustling restaurant scene, you’ll find the famous Mueller Trailer Eats food court, a collection of food trucks with unique and delicious selections of food.
The average one-bedroom apartment is around $1,700 per month.
- Rollingwood
Snapshot: Another planned community, with many parks and other natural areas to which people flock.
About a ten-minute drive from downtown Austin, Rollingwood is home to many families that commute to work. It’s very close to one of Austin’s biggest public areas as well as the Austin City Limits Music Festival, Zilker Park. Even with the surge in redevelopment, it still retains its small town feel. While you won’t find many bars, the restaurants in and around Rollingwood are only a five-minute drive from the center of town.
The average one-bedroom apartment is around $1,800 per month.
- Allandale
Snapshot: A centrally located neighborhood that is characterized by a traditional family vibe and a tight-knit community.
Allandale is a popular residential neighborhood because of its proximity to downtown Austin, which is an eight-minute drive. The town itself is very community oriented — from parades to planting trees. It is home to a variety of popular restaurants, including the Alamo Drafthouse.
The average one-bedroom apartment is around $1,300 per month.
- Old West Austin
Snapshot: A highly desired neighborhood that recently made the American Planning Association’s list Great American Neighborhoods.
As the first residential neighborhood off of downtown Austin, Old West Austin is a highly desirable neighborhood for those working in downtown Austin. There are two main shopping and dining areas in this neighborhood. On West 6th Street you’ll find galleries, boutiques, and salons. There is also the West Lynn area that has a variety of restaurants.
The average one-bedroom apartment is around $1,800 per month.
Texas Restaurant Bylaws, Zoning, & Planning
Cities have zoning laws or ordinances, which govern the kinds of establishments (commercial or residential) that are allowed in a particular area. Zoning regulations also dictate the kinds of buildings that can exist in a certain spot, and modification of structures usually requires a zoning permit.
Due to the fact that Austin is so large, each location within it will be subject to its own unique bylaws, zoning, and planning ordinances, so you will need to contact your local municipality to learn more. You can also learn more here.
FURTHER READING ON CHOOSING A RESTAURANT LOCATION
How to Choose a Location for Your Restaurant
Building a Cream-of-the-Crop Texas Expert Restaurant Team
If you’ve gotten this far, you know that opening a restaurant is much more complex process than opening any other type of business. There are a lot of rules and regulations to know, so it’s important not to do this alone! Get connected to expert advisors who can help you make your vision a reality.
Here’s a list of the roles you’ll want filled on your expert team, a bit about what they do, and a few suggestions based on our own research within the Austin area.
Restaurant consultants
Restaurant consultants help with fleshing out your concept, marketing strategy, staff development, menus, and vendor relationships. Here are a few local Austin experts:
Restaurant insurance broker
Insurance brokers explain and help you get the best rates for all the insurance you’ll need for your Austin restaurant. The following three are just a few of the options you have to choose from:
Restaurant real estate broker
Finding the perfect location and building for your restaurant is key to its success, and a real estate broker is crucial to that endeavor. They’ll listen to your plans and needs, and help you find and negotiate a good offer on a purchase or rental. Here are a few in Austin:
Restaurant accountant
Your restaurant accountant will help you navigate and stay on top of all the necessary tax filings for your restaurant. They can also help you analyze, project, and manage your financials, and handle payroll. Here are some accounting pros in Austin:
Restaurant attorney
A restaurant attorney will work on your behalf when it comes the legal aspects of opening your restaurant. Make sure that the attorney you hire has restaurant-specific expertise, not just general business law knowledge. Some options in Austin are listed below:
Restaurant construction and remodeling
A restaurant construction and remodeling company can help you design and build your restaurant, and they can help you with carpentry, construction management, and sometimes property management. Here are a few of the firms that have created vibrant, beautiful restaurant spaces in and around Austin:
Further Reading on Building a Team of Restaurant Experts
Building A Team of Restaurant Experts
If you have any further detailed questions on how to open a restaurant in Texas and/or the permits and licenses you need, contact the Texas Retail Food Service Establishments Program at [email protected] or call (512) 834-6753 to speak to someone directly.
We wish you the best of luck on opening your new Texas restaurant!
