Houston Small Business Bookkeeping: A Practical Guide for the Bayou City
Here is a number that might surprise you: the Greater Houston metro area is home to over 130,000 business establishments — and Texas law requires every single one of them to file a franchise tax report, even if they owe nothing. For small business owners juggling inventory, employees, and customers, that administrative reality is just one of many reasons why solid bookkeeping is not optional in Houston. It is survival.
Whether you run a food truck in the Heights, a consulting firm in the Galleria, or an HVAC company serving the suburbs, this guide walks you through the bookkeeping essentials every Houston business owner should understand.
The Houston Business Landscape
Houston is the fourth-largest city in the United States and the economic engine of the Gulf Coast. Its economy has historically been powered by the energy sector — oil and gas extraction, petrochemical refining, and energy services — but the city has diversified substantially. Aerospace (home to NASA's Johnson Space Center), healthcare (the Texas Medical Center is the largest medical complex in the world), logistics, manufacturing, and professional services all contribute significantly.
In 2025, the Greater Houston Partnership reported that Houston added jobs at a rate of 0.4%, slightly outpacing the national average of 0.3% — marking the eighth consecutive year the city outperformed the rest of the nation. Looking ahead, the Partnership forecasts approximately 30,900 new jobs in 2026, reflecting steady if measured growth.
For small businesses, this environment creates both opportunity and competition. New businesses are entering Houston at a healthy clip, which means that clean financial records — the kind that help you make smart hiring, pricing, and investment decisions quickly — are a genuine competitive advantage.
Understanding Texas and Houston Tax Obligations
One of the first things out-of-state entrepreneurs discover when they open a business in Texas is that the state has no personal income tax. That is great news. But it does not mean you have no tax obligations. Here is what you need to track from day one.
Texas Franchise Tax
Texas imposes a franchise tax on virtually every entity doing business in the state, whether it is an LLC, corporation, partnership, or sole proprietorship organized as a legal entity. This tax is due annually, and even if you owe zero dollars, you must still file a report.
For the 2025 tax year, the no-tax-due threshold was raised significantly — from $1.18 million to $2.47 million in total revenue. If your business earns below that threshold, you owe no franchise tax but still must file a No Tax Due report. If your revenue exceeds $2.47 million, the standard rate is 0.75% of taxable margin (or 0.375% for qualifying retailers and wholesalers). Businesses with $20 million or less in revenue may elect EZ Computation at 0.331%, though that election forecloses cost-of-goods-sold deductions and certain tax credits.
The practical implication for bookkeeping: you need an accurate running total of your gross revenue throughout the year, segmented by product or service category if your business qualifies for the COGS deduction.
Houston Sales Tax
The combined Houston sales tax rate is 8.25%, comprised of:
- Texas state rate: 6.25%
- City of Houston: 1.00%
- Metropolitan Transit Authority (MTA): 1.00%
If your business sells taxable goods or services, you are responsible for collecting this tax from customers and remitting it to the Texas Comptroller on a monthly, quarterly, or annual basis — depending on your sales volume. Businesses collecting $500 or more in sales tax per month file monthly; smaller businesses may qualify for quarterly or annual filing.
A common bookkeeping mistake: treating collected sales tax as revenue. It is not your money. It belongs to the state from the moment you collect it. Every accounting system you use should categorize sales tax collected as a liability, not income.
Business Personal Property Tax
Houston businesses are also subject to Harris County's business personal property (BPP) tax. You are required to file an annual rendition listing all business assets — furniture, fixtures, computers, machinery, vehicles, inventory, and equipment. The rendition window opens January 1st and closes April 15th each year. If the total value of your business assets is $500 or less, you are exempt from filing.
The property tax rate varies by taxing jurisdiction within Harris County but typically ranges from 2% to 2.5% of the assessed value of your business property. Unlike franchise tax, this is a local obligation and is often overlooked by new business owners.
Business Registration Requirements
Before worrying about taxes, Houston requires businesses to have four foundational things in place:
- A business license or DBA registration
- Applicable local permits (health permits, fire safety inspections, zoning approvals)
- A sales tax permit from the Texas Comptroller (if selling taxable goods/services)
- Any industry-specific licensing required by state or local agencies
The City of Houston's Office of Business Opportunities provides a solutions center that outlines these requirements by business type — a useful starting point for anyone launching a new venture.
Industry-Specific Bookkeeping Considerations
Houston's industry diversity means bookkeeping needs vary significantly depending on what your business does.
Energy and Oil Services
If your business serves the upstream energy sector — equipment rental, field services, engineering consulting — you face unique bookkeeping challenges. Revenue can be highly lumpy: large contract payments arrive irregularly, and projects may span multiple fiscal years. Proper revenue recognition matters here, and tracking job costs (labor, materials, subcontractors) per project is essential for understanding true profitability.
Also be aware: Houston's energy sector is cyclical. When oil prices drop, upstream spending contracts. Businesses that keep detailed records of their cost structure — fixed versus variable expenses — are better positioned to make rapid adjustments when the cycle turns.
Healthcare and Medical Practices
The Texas Medical Center anchors a massive ecosystem of private medical practices, outpatient facilities, and health services businesses. Healthcare bookkeeping has several layers of complexity: insurance reimbursements often arrive 30–90 days after service, collections rates vary by payer, and you need to track accounts receivable aging carefully. Many healthcare providers also deal with both taxable and non-taxable revenue streams, requiring careful categorization.
Restaurants and Food Service
Houston has a thriving restaurant scene and is known for its diverse culinary culture. Food service businesses deal with daily cash and card transactions, tip tracking, inventory spoilage, and the Texas Mixed Beverage Tax if they serve alcohol. The gross receipts tax on mixed beverages — separate from sales tax — is 6.7% and must be tracked and remitted separately.
Restaurant bookkeeping benefits enormously from point-of-sale integration with your accounting software, which automates the daily reconciliation that otherwise becomes a time-consuming manual task.
Construction and Trades
Houston's continued growth means construction and trades businesses (HVAC, electrical, plumbing, roofing) are perennially busy. These businesses need job costing — tracking revenue and expenses by individual project — to know which jobs are profitable and which are not. Texas construction contractors also need to understand sales tax rules for materials: in most cases, materials incorporated into real property are taxable when purchased by the contractor, not when billed to the customer.
Common Bookkeeping Mistakes Houston Business Owners Make
Not Separating Business and Personal Finances
This is the most universal mistake, but it is especially common among sole proprietors and single-member LLCs. Mixing personal and business expenses makes it nearly impossible to calculate accurate profit and loss, creates liability exposure, and complicates tax preparation. Open a dedicated business checking account from day one.
Treating Sales Tax as Revenue
As noted above, collected sales tax is a liability. Recording it as income inflates your revenue figures, overstates profit, and can lead to unexpected shortfalls when remittance is due.
Ignoring Franchise Tax Filing Requirements
Many small businesses below the no-tax-due threshold assume they do not need to file at all. Wrong. A failure to file — even a No Tax Due report — can result in penalties and eventually the forfeiture of your right to do business in Texas. The Texas Comptroller takes compliance seriously.
Not Tracking Mileage and Vehicle Use
Houston is a sprawling city with minimal public transit, and most business owners drive extensively. Mileage for business purposes is deductible at the IRS standard rate (67 cents per mile for 2024). Without a log, this deduction disappears.
Falling Behind on Reconciliation
Bank reconciliation — matching your accounting records to your bank statements — should happen at least monthly. Businesses that reconcile quarterly or annually tend to discover errors, fraud, and missing transactions too late to address them without significant disruption.
Setting Up Your Houston Business Books: Practical Steps
Getting your bookkeeping right from the start saves time, money, and stress. Here is a practical setup checklist.
Step 1: Choose an accounting method. Cash basis accounting records revenue when received and expenses when paid — simpler and suitable for most small businesses. Accrual accounting records revenue when earned and expenses when incurred — required for businesses with inventory or revenues over $25 million, and useful for any business that wants a more accurate picture of financial health.
Step 2: Open dedicated business accounts. A business checking account and a business credit card keep your records clean and create a clear audit trail.
Step 3: Set up accounting software. Modern cloud-based accounting tools sync with your bank accounts and credit cards, automating transaction import and reducing manual data entry. Set up a chart of accounts that reflects your specific business — a restaurant has different categories than a consulting firm.
Step 4: Register for the Texas Franchise Tax. Do this even if you expect to be below the no-tax-due threshold. The Texas Comptroller provides an online registration portal.
Step 5: Obtain a Sales Tax Permit. If you sell taxable goods or services, register with the Texas Comptroller before you make your first sale. There is no fee for the permit.
Step 6: Set up a payroll system if you have employees. Texas has no state income tax withholding, but you are still responsible for federal payroll taxes (FICA) and Texas unemployment insurance (TWC). Use a payroll service that handles these automatically.
Step 7: Create a monthly close routine. At the end of each month, reconcile your bank accounts, review your profit and loss statement, check your accounts receivable aging, and confirm that sales tax collected matches sales tax remitted.
When to Hire a Bookkeeper
Some business owners manage their own books successfully, especially in the early stages. But several situations signal that it is time to bring in professional help:
- Your business grosses more than $250,000 per year
- You have employees
- You carry significant inventory
- You spend more than four hours per month on bookkeeping
- You are unsure whether your records are accurate enough for tax filing
- You have missed a tax filing deadline
Houston has a large pool of bookkeeping professionals and accounting firms serving businesses at every scale. Look for someone with experience in your specific industry, as the nuances of energy services bookkeeping differ substantially from retail or healthcare.
Plain-Text Accounting: A Modern Option for Detail-Oriented Business Owners
If you are a developer, engineer, or technically oriented business owner who wants full transparency and control over your financial data, plain-text accounting is worth exploring. Tools like Beancount.io store your financial records as human-readable text files that can be version-controlled, scripted, and analyzed with any tool in your workflow.
Unlike proprietary accounting software, plain-text accounting gives you complete ownership of your data. There is no vendor lock-in, no subscription price increases, and no mystery about how your numbers are calculated. For Houston's growing tech and engineering community — or any business owner who values transparency and automation — it is a compelling alternative to traditional accounting software.
Conclusion
Houston is a city built on entrepreneurship. Its lack of a state income tax, diverse economy, and access to major markets make it an attractive place to run a business. But that opportunity comes with a set of tax and compliance obligations — franchise tax filing, sales tax collection and remittance, business personal property rendition, payroll taxes — that require organized, accurate bookkeeping throughout the year.
The businesses that thrive long-term in Houston are not just the ones with the best products or services. They are the ones that know their numbers. Start your bookkeeping system right, keep it current, and make financial review a monthly habit. Your future self — especially the version sitting across from a tax professional in April — will be grateful.
