Corporate · M&A 12 min read

Selling your business in Texas: the owner's roadmap from decision to close.

A business sale isn't a transaction — it's a 6-to-18-month process with decision points that permanently affect how much you walk away with. Here's what every phase looks like, what most sellers get wrong, and where the real money is made and lost.

Practice areas this article routes to

Corporate Real Estate Employment Intellectual Property Tax Structuring

If you read nothing else

A business sale touches five practice areas simultaneously — corporate, real estate, employment, IP, and tax. The sellers who net the most are the ones who started preparing 12–18 months before they needed to. The three decisions that cost sellers the most: wrong deal structure (asset vs. stock), accepting an earnout without adequate protections, and discovering IP problems in due diligence instead of before it. All three are preventable.

The process has six phases. Each one has decision points that cannot be revisited once you've moved past them.

Call Chuck Kraus: (682) 529-7177

I've been on both sides of this table. As general counsel, I've managed the sale of a company from the inside — building the data room, managing the due diligence process, negotiating the purchase agreement while the CEO stayed focused on running the business. As outside counsel, I've been the first call from the business owner who just received an unsolicited letter of intent and didn't know whether to be flattered or suspicious.

A business sale is the largest financial event in most owners' lives. And it's also the one they're least prepared for, because they've never done it before. Buyers — whether strategic acquirers or private equity — do this constantly. They know the process, the leverage points, and the places where unprepared sellers give up value. Your job is to close that information gap before negotiations begin.

This article walks through every phase of a Texas business sale: what happens, what the key decisions are, and where most sellers lose money. The goal is to give you a clear picture of the road ahead — so that when you do engage professionals, you're having an informed conversation, not learning on the buyer's clock.

The six phases of a Texas business sale

Phase 1 · 12–18 months before close
Decision, valuation, and preparation
This is the phase most sellers skip — and it's where the most value is created or destroyed. Before you talk to a single buyer or broker, you need three things. First, a realistic valuation. Not what you think the business is worth, but what a buyer will pay — which is based on your earnings, your growth trajectory, your customer concentration, and a dozen other factors a qualified appraiser will analyze. Second, a readiness assessment. Due diligence will expose everything: tax issues, employment liabilities, IP ownership gaps, lease assignability problems, litigation history, and accounting irregularities. Find these problems now, not in a buyer's data room. Third, a preparation plan. Whatever the readiness assessment uncovers — fix it. Clean up your cap table. Ensure the business's IP is properly owned by the company, not by you personally or by contractors who never signed an assignment. Formalize key employee relationships. Organize three years of clean financial records. Sellers who prepare for 12–18 months typically achieve better multiples and lose less in the due diligence discount than those who sell reactively.
Phase 2 · 6–12 months before close
Positioning and process selection
This phase answers two questions: who are the right buyers, and how do you reach them? Targeted outreach (approaching specific strategic buyers directly) is appropriate for businesses where there are obvious acquirers and the seller wants a controlled, confidential process. A broker-run process — running a structured auction with multiple bidders — typically produces better prices for businesses in the $5M–$50M range because it creates competitive tension. A controlled auction with a small number of pre-selected buyers offers a middle path: some competition, greater confidentiality. The choice affects price, timeline, and the seller's negotiating position throughout. It also has legal implications: the process you run affects what representations you can make about the business, what your confidentiality obligations are, and what happens if the process fails. Deciding on process before engaging buyers — not after — is essential.
Phase 3 · 3–6 months before close
Letter of intent and due diligence
The LOI is signed. The exclusivity clock is running. This is the most intense phase of the process — and the one where deals most frequently die or get repriced. The data room needs to be complete, organized, and accurate. Every document you provide is being analyzed for risk. Gaps are interpreted as problems. Inconsistencies between what the buyer was told in the process and what appears in due diligence become leverage for price reductions. Quality of earnings — a third-party analysis of whether your reported earnings are real, recurring, and clean — has become standard. If you haven't done this yourself before the process, the buyer's QoE analysis will find issues on their schedule, not yours. Key employee risk is evaluated here. If one or two people are essential to the business's continued performance, the buyer will want assurances about retention — and those conversations start now. Due diligence is the phase where the LOI price becomes an opening bid, not a contract price.
Phase 4 · 30–60 days before close
Definitive agreement and final negotiation
The purchase agreement — whether an asset purchase agreement, a stock purchase agreement, or a membership interest purchase agreement — is the legal document that controls every dollar you receive and every obligation you retain. It is drafted by the buyer's lawyers and, by default, favors the buyer. Key negotiated terms: purchase price adjustments (working capital targets, net debt adjustments), representations and warranties (scope, knowledge qualifiers, materiality thresholds, survival periods), indemnification obligations (caps, baskets, escrow holdbacks), restrictive covenants (what you can and cannot do after closing), and any earnout provisions. This is the phase where representation and warranty insurance — which transfers risk from the seller's escrow to an insurance policy — is evaluated. In larger deals, it's often worth the premium. The final purchase agreement reflects the relative leverage of the parties at the moment of signing. Everything before this phase was negotiating toward this document.
Phase 5 · Closing day
Transfer, sign, and wire
Closing day is largely logistical — but that doesn't mean it's simple. In a stock sale, the primary deliverable is the transfer of ownership interests, a bring-down of representations, and any ancillary agreements (employment agreements, transition services agreements, consulting arrangements). In an asset sale, closing involves the transfer of each individual asset: equipment, inventory, accounts receivable, contracts (each of which may require third-party consent to assign), intellectual property, leases, and real estate. The closing statement reconciles the final purchase price after working capital adjustments, debt payoffs, and prorations. The wire transfer of proceeds typically happens same-day or next-day. Post-closing, a portion of the price — typically 10–15% — goes into escrow to cover potential indemnification claims. That escrow is released (usually) after 12–18 months, subject to any open claims.
Phase 6 · 30–180 days post-closing
Transition, earnout, and the year after the sale
The closing isn't the end of the deal. If you've agreed to a transition period — whether as an employee, consultant, or seller in a training role — your obligations under that agreement are real and legally enforceable. Earnout periods require careful attention: the buyer now controls the business, and you need to monitor whether the earnout metrics are being tracked accurately and whether the buyer is making decisions that affect them. Non-compete and non-solicitation obligations typically begin at closing and run for two to five years. In Texas, these are enforceable if they meet the requirements of the Covenants Not to Compete Act — reasonable scope, geography, and duration, ancillary to an otherwise enforceable agreement. Tax planning isn't over at closing: installment sale elections, QSBS exclusions, and reinvestment strategies can significantly affect your after-tax outcome and should be addressed with your tax advisor immediately after close.

The five decisions that determine your net proceeds

Most sellers focus on the purchase price. Sophisticated sellers focus on the five decisions that affect what they actually deposit.

1. Asset sale or stock sale

This is the single highest-stakes structural decision in any business sale. Buyers almost always prefer asset sales because they get a stepped-up tax basis, they leave the seller's historical liabilities behind, and they can be selective about which assets and employees they acquire. Sellers often prefer stock sales because the entire gain is typically taxed at capital gains rates rather than a mix of ordinary income and capital gains, and there's no need to individually assign every contract and license.

The difference in after-tax proceeds can be significant. On a $5 million deal, the structural choice alone can shift your net proceeds by $300,000 to $600,000 or more. This decision needs to be modeled with your tax counsel early — not negotiated for the first time after you've accepted a term sheet.

2. The valuation methodology and earnings base

The purchase price is almost always a multiple of earnings. But "earnings" is a negotiated number. Add-backs — owner compensation in excess of market rate, one-time expenses, personal expenses run through the business, normalized working capital — can meaningfully increase the earnings base the multiple is applied to. A difference of $200,000 in the EBITDA base at a 5x multiple is a $1 million difference in purchase price.

The seller who has done their own quality-of-earnings work before the process — who can defend every add-back with documentation — is in a fundamentally stronger position than the seller relying on buyer's QoE analysis to determine the earnings base.

3. The due diligence discount

In theory, the LOI price is the purchase price. In practice, buyers use due diligence findings to negotiate price reductions. The pattern is predictable: buyer finds an issue, buyer argues the issue represents a risk that the LOI price didn't account for, buyer requests a reduction. Some reductions are legitimate. Many are leverage tactics.

Sellers who have done thorough pre-sale diligence — who know what a buyer will find and have either fixed it or prepared a defensible explanation — lose significantly less in the due diligence phase than those who are surprised by the findings alongside the buyer.

4. Representations, warranties, and the escrow

The reps and warranties in a purchase agreement are not boilerplate. They are the seller's contractual statement about the condition of the business. If a rep turns out to be wrong — and something material was omitted — the buyer has an indemnification claim against the seller. The escrow holdback exists to fund those claims.

The scope of reps, the qualification of reps with knowledge qualifiers and materiality thresholds, and the survival period (how long after closing the buyer can bring a claim) are all heavily negotiated. Getting these terms right is worth more than most sellers realize — because an overly broad rep with a long survival period is a contingent liability that sits on your balance sheet for years after closing.

5. The earnout — or the absence of one

Earnouts are the most misunderstood component of a business sale. A well-structured earnout — with clear metrics, strong buyer conduct obligations, an independent auditor, and a fast dispute resolution process — can bridge a gap between buyer and seller on price. A poorly structured earnout is a price reduction that creates the illusion of being something else.

The best earnout is the one you didn't need to accept. The second-best is the one with ironclad buyer conduct provisions.

What no one tells you about due diligence

Business owners often think of due diligence as a formality — the buyer confirming what they already know. That's not how buyers think about it. Due diligence is the buyer's systematic attempt to find reasons to reduce the price, restructure the deal, or walk away. Every request is a probe. Every gap is a signal.

The areas that most frequently cause deal issues in my experience: intellectual property that isn't cleanly owned by the entity (contracts with software developers that lack work-for-hire provisions; trademarks registered in the owner's personal name); employment practices that expose the company to wage-and-hour or discrimination claims; real estate leases with anti-assignment clauses that require landlord consent; related-party transactions that weren't properly disclosed or authorized; and accounting that hasn't been prepared on a consistent basis across the periods being reviewed.

None of these are fatal if you find them before the process. All of them are expensive if the buyer finds them during it.

The role of each professional on your team

A business sale requires a team. The roles are distinct, and conflating them — or skimping on any of them — is expensive.

Your M&A attorney negotiates and drafts the purchase agreement, advises on deal structure, and coordinates the legal due diligence response. This is not your general business attorney unless that person has specific M&A experience — the purchase agreement is a specialized document that requires specialized counsel.

Your CPA and tax advisor models the tax implications of the deal structure, advises on the asset vs. stock decision, manages the quality-of-earnings process, and handles post-closing tax planning including installment sale elections and reinvestment strategies.

Your investment banker or business broker (if you use one) manages the process, identifies buyers, prepares the confidential information memorandum, and runs the competitive bidding. Their value is in creating the market — the competitive tension that supports the price. On smaller deals, a broker is often skipped; on larger ones, their fee is typically worth the price premium they generate.

Your fractional GC or corporate attorney — in my case, that's me — manages the corporate and governance side: cleaning up the cap table, ensuring proper board authorization, handling the intellectual property assignments, reviewing and advising on employment matters, and coordinating across the team. In transactions that touch real estate, employment, or IP in meaningful ways, those specialists are brought in from Scale's practice groups.

How I help

One firm coordinates the entire transaction.

I handle the corporate and transactional framework — deal structure, purchase agreement negotiation, cap table cleanup, governance, and coordination of the legal due diligence response. This is my wheelhouse. I've closed deals and I've killed deals that should have been killed, and I know the difference.

But a business sale touches more than corporate law. Depending on the deal, I bring in Scale specialists for real estate transfers and lease assignments, employment transitions and WARN Act compliance, intellectual property assignments and IP audits, and securities and tax structuring. You don't manage five different law firms — one call to me starts the entire process, and one firm coordinates it through closing.

Either way, you'll talk to me directly. No intake form, no associate handoff. Just a 15-minute conversation about where you are in the process and what you actually need.

Schedule a Call

Going deeper

Questions I hear from business owners thinking about a sale.

This is the most consequential structural decision in any business sale, and the answer usually depends on who has more leverage. Buyers strongly prefer asset sales because they get a stepped-up tax basis, leave the seller's historical liabilities behind, and can choose which contracts and employees they acquire. Sellers often prefer stock sales because the entire gain is typically taxed at capital gains rates — rather than a mix of ordinary income on some assets and capital gains on others — and there's no need to individually assign every contract, license, and lease. In practice, asset sales are more common for smaller transactions, and stock sales (or their LLC equivalent, membership interest sales) become more common as deal size increases. The tax difference can be significant — sometimes 10–15 percentage points of net proceeds — so this decision needs to be made with your tax attorney and accountant early, not at the closing table.

Most private business sales use an earnings-based valuation — typically a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization) or SDE (seller's discretionary earnings, which adds back owner compensation and personal expenses). The multiple depends on industry, growth trajectory, customer concentration, recurring revenue, and perceived risk. A stable service business might trade at 3–5x EBITDA; a software company with strong recurring revenue might trade at 8–12x. Asset-heavy businesses often use asset-based approaches. The critical point: buyers and sellers almost always disagree on the right multiple and what belongs in the earnings base. Getting an independent quality-of-earnings analysis before going to market gives you a defensible number and surfaces issues you'd rather find before a buyer does.

A letter of intent (LOI) establishes the basic commercial terms before the parties invest in full due diligence and legal drafting. It covers purchase price, deal structure, payment terms, exclusivity period, key conditions, and a target closing timeline. Most LOIs are non-binding on price and structure — the idea is to agree on terms before spending money on lawyers. However, certain provisions are typically binding: exclusivity (preventing the seller from shopping the deal during due diligence), confidentiality, and sometimes a break-up fee. The distinction matters. I've seen sellers treat a signed LOI as a done deal — and then be shocked when the buyer retrades the price after due diligence. An LOI is the beginning of a negotiation, not the end of one.

Due diligence covers financial records (3 years of tax returns, financial statements, accounts receivable aging, bank statements), legal documents (corporate records, operating agreements, ownership history, litigation, regulatory compliance), contracts (customer agreements, vendor contracts, leases, loan agreements, employment contracts), intellectual property (trademark registrations, patent filings, software ownership, trade secret documentation), employees (headcount, compensation, benefit plans, any employment claims), real estate (owned property title, lease terms and assignability), and taxes (federal and state filings, open audits). The process typically takes 30–60 days. A data room that's clean and complete signals a well-run business. One that's chaotic signals risk — and buyers price risk into the offer.

Representations and warranties are factual statements the seller makes in the purchase agreement — about the accuracy of financials, the ownership of IP, the absence of undisclosed liabilities, the status of litigation, the enforceability of contracts, and dozens of other matters. If a rep turns out to be materially wrong, the buyer has an indemnification claim. Sellers want reps that are narrow, heavily qualified with knowledge qualifiers and materiality thresholds, and subject to short survival periods. Buyers want the opposite. The negotiation determines who bears the risk of things that are unknown at closing. Representation and warranty insurance has become common in larger deals as a way to shift this risk to an insurer — but it requires clean due diligence and adds cost.

An earnout makes a portion of the purchase price contingent on the business achieving specific financial targets after closing — typically over one to three years. Buyers love earnouts because they shift risk to the seller. Sellers should approach them with significant caution. In my experience, earnouts frequently go unpaid — not because the business underperforms, but because the buyer (now in control) makes decisions that affect the earnout metrics in ways the seller didn't anticipate. If you accept an earnout, you need ironclad provisions governing how the business is operated during the earnout period, what the buyer cannot do that would affect the metric, and what dispute resolution process applies. An earnout on terms that don't address these issues is, in practice, a price reduction.

Most sellers don't disclose the sale to employees until late in the process — often not until shortly before closing — to avoid disruption and talent loss. In asset sales, employees are technically terminated and rehired by the buyer, which has implications for benefits, vesting, and WARN Act obligations for larger workforces. Key employee retention often needs to be negotiated as part of the deal terms. Employment agreements, non-competes, and confidentiality agreements with key employees need to be reviewed for assignability. The buyer will want key people to stay; the seller needs to understand what commitments the buyer is making to them. Employment counsel should be involved in any sale with more than a handful of employees.

In a stock sale, IP stays in the entity. In an asset sale, it must be expressly transferred. But in either case, due diligence will scrutinize IP ownership carefully. The most common issues I see: trademarks registered in the owner's personal name rather than the company's; software developed by contractors under agreements without work-for-hire provisions, meaning the contractor may own the copyright; trade secrets never documented or protected by confidentiality agreements; and patents that are pending, lapsed, or of uncertain scope. If your business value is substantially in its IP, get an IP audit before going to market. Discovering a title problem in due diligence is far more expensive than fixing it before the buyer's attorneys find it.

The gap between the headline price and what you deposit can be significant. Reductions include: transaction costs (legal fees, broker fees, accounting fees — typically 3–7% of deal size), taxes on the gain (federal capital gains on most proceeds in a stock sale; potentially a mix of ordinary income and capital gains in an asset sale — Texas has no state income tax, which is a meaningful advantage), escrow holdbacks (typically 10–15% held for 12–18 months to cover indemnification claims), working capital adjustments (if the business has less working capital at close than the agreed target, the price is reduced dollar-for-dollar), and debt payoff (existing business debt is typically paid from proceeds). The tax structure alone can shift your net proceeds by hundreds of thousands of dollars on a $5M deal. Model this before you accept an offer.

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The sellers who net the most
start the earliest.

One call to Chuck starts the process — and tells you exactly where you are on the timeline and what to do next.

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This article provides general information about business sales under Texas law and is not legal advice for your specific situation. Every business sale involves unique facts, deal structure, governing documents, and circumstances. If you are considering selling your business, consult an attorney licensed in your jurisdiction before taking action. Chuck Kraus is licensed in Texas, Minnesota, Washington State, and Canada.