Most of the time when you start a business you aren’t thinking about a possible exit plan. It is new and exciting so you have big dreams.
However, things change all of the time and maybe the time has come to move on. If this is the case and you are a Texas Business owner then keep reading.
We have done some research and laid out the steps to selling a business in Texas. This will help you tremendously as you navigate selling.
There are many things that you need to do and think about when selling a business in Texas. One thing you might want to decide before you get started is whether or not you need an attorney.
It may also be wise to hire a broker that can help you sell a business in Texas. There are many brokerage firms that can be found. We aren’t going to talk about those here but it is something to think about.
Asset or Entity?
The first thing that you are going to want to do when selling a business in Texas is determine what you want to sell.
This may make you scratch your head. You want to sell your business right?
There are actually two ways you can sell a business in Texas. When you are deciding how to sell a small business in Texas you need to decide if it will be an asset or an entity.
There is a difference in how it will sell and the price you can get for it.
If you choose to sell your business as an asset you will only be selling parts that make up the business. Not the business.
For example, you have decided to sell assets, or things that make up the business but not the legal entity of the business. So you sell equipment, supplies, the building (if you own it), the client list, etc.
But you still own the business and all of the legalities. You still own the debt and other things that are in your name.
This is typically a good thing for buyers but you need to proceed with caution as the seller. This could set you up for a big fall.
If you choose to sell a business in Texas as an entity then you are selling everything. Not only are you selling the name, client list, and all of the assets but you are selling the debt as well.
If you are planning an exit strategy then you need to evaluate what kind of debt you have. A buyer will not mind picking up some debt.
But the business has to be profitable enough to make it worth it.
You also sell your liabilities. An entity sale is the best option for the seller but a buyer has a higher risk.
Find Out What Your Business is Worth
Knowing how to sell a business in Texas includes knowing how much your business is actually worth.
It may be tempting to just list a price and hope that it works out. It also may be tempting to look at other businesses that are similar and see what they have sold for.
However, there is a better way to find out what your business is worth.
The best way to do this is to find a professional business valuation expert. These people come in and look at all of your paperwork.
They will want you tax returns, profit/loss reports, expenses, payroll, everything.
After looking at all of the documentation that you have they will give a valuation that will be pretty accurate.
There is no guarantee that your business will sell for that but you will have a good starting point.
If you don’t have a fairly accurate idea of what your business is really worth then you will get low balled.
There will be all kinds of people that want to buy your business for nothing. If you don’t have a valuation then you might sell for less than you could.
Have Your Paperwork in Order
When you are wanting to sell a business in Texas you need to have all of your paperwork in order.
Since most small businesses are corporations they must be licensed. The truth is that there are many small businesses that don’t worry about any paperwork after they begin.
This could be a problem when you go to sell. In order to stay in good standing legally, you have to file an annual report with the Texas Secretary of State.
Many business owners forget to file that report. Thus they are no longer a legally operating business in the state of Texas.
This is not the only paperwork that needs to be in order to sell a business in Texas.
You will also need to have all of your profit/loss paperwork, payroll information, expenses, and income.
Those interested in a business will want to know all of these things. They will also want to make predictions about future prospects.
Know if Your Lease can Transfer
If you have a business that doesn’t own the building you operate out of then you have to think about the lease.
When selling a business if the building is part of it then the price will be higher. However, renting makes things slightly more complicated.
Before deciding to sell a business in Texas you need to talk to your landlord. Depending on your lease terms you may not be able to finalize a sale until a new lease can be made.
There are some landlords that will allow the transfer of a lease with the same terms. This is something that should be figured out before you do anything to sell a business in Texas.
If your lease can not be transferred but it is close to being up then you may write terms in the sales agreement for a date the new owner to take over.
This would have to be agreed upon by everyone involved.
Anytime you sell a business there will always be taxes involved. There is no way around it.
You could have very large amounts of taxes taken out. However, if you talk to a tax professional or your personal CPA they could find ways to make the amount smaller.
This is something that you need to look into before the sale is finalized. If you aren’t prepared or don’t have the facts then you will likely lose a large amount of your profit.
If you are going to sell a business in Texas, make sure you understand Texas tax law and the possible consequences of the sale.
Make Your Business Look Good
In order to attract buyers and make them realize they need to purchase your business, the business needs to look good.
This could look like a few different things. If your building or outside area of your business needs to be fixed up or renovated now is the time.
A prospective buyer will likely not want a business that does not look appealing. No curb appeal is sometimes a deal-breaker.
This could also mean that you rebrand. Rebranding is something that is done to update a business.
Giving a fresh face to the marketing and graphics side of your business can also make it more appealing to potential buyers.
While this may sound questionable but it is just another way to let prospective buyers see the potential.
Recasting your numbers means that you look at your discretionary spending and recast those numbers as profit.
It is simply showing the prospective buyers that profit doesn’t have to be spent the way you spend it. It opens the door for them to think of all of the possibilities.
Find a Buyer Pool
After all of the leg work of preparing the business is done you will decide if you really want to sell.
If you are sure that exiting your business is what you want to do now is the time to find buyers.
It is wise to find several buyers to put in your buyer pool. This way you will not have limited options.
There are a few ways to do this.
If you want to get the most for your business, using the services of a business broker may be the way to go.
Business brokers work with your not only to get a solid valuation of your business but then they have contact with larger pool of buyers.
This makes it easier to sell a business because the business broker does the leg work for you to help find the perfect buyer.
Word of Mouth
If you live in a small area where your business is well known then this option might be fruitful for you.
If people that you know such as people that frequent your business, friends, or family are aware that you are selling they may be interested.
They might also know someone that might be interested. Word of mouth can be a powerful thing.
You may not want to rely on that alone.
This is a very common way of getting the word out to potential buyers. So many things are digital now selling a business is digital as well.
Online sales sites are not just for website businesses. There are many brick and mortar businesses that are sold on these sites as well.
However, you have to find the right one for you. If you choose the wrong site you may find the wrong buyer.
A more traditional way to get a pool of buyers is to run an ad in the newspaper or classified ads. This seems to be a less popular way to do this now.
It will bring the sale to the attention of a more local pool of buyers. There is nothing wrong with this but you will need to have a screening process in place.
This could look something like requiring all buyers to be prequalified before they can get information on the business.
This is not something that you will do as the seller. This is the duty of the buyer.
It is important that they know fully what they are getting into when they purchase your business.
Your responsibility, as the seller, is to allow the buyer to complete the due diligence.
What happens during due diligence when selling a business in Texas is that the buyer goes through all of the records, business plans, financials, and may even talk to clients and employees.
This is basically a thorough inspection process. The best thing to do is to allow it to happen and be as supportive and transparent as possible.
If your buyer does not want to perform due diligence it would be unusual. However, they might have their reasons.
Negotiate the Best Sale for Both Parties
Knowing how to sell a business in Texas means knowing how to negotiate. This is one of the final steps to selling your business.
This is also the step where things can fall apart. Negotiating is the part of the sale that ensures both parties get mostly what they want.
If you want to employ an attorney this may be the time to do that. During the negotiations, you will need to know if you are selling assets or the entity.
If you are selling the entity you can choose to keep some assets. That will be discussed and decided in the negotiation part of the sales process.
During negotiations, the terms of payment will also be decided. Most of the time this is done with a down payment followed by payments.
Once both parties, and attorney if present, have agreed to the terms of the contract the process moves onto the next step.
Know What to Put in the Final Agreement
Knowing what to put in the final agreement is what is decided during the negotiation process.
After all of the negotiations are final the terms will be written up into a purchase agreement. This is the final document that is signed to move forward to the final part.
Completing a sale without going through the negotiation process and making a thorough purchase agreement is not the way to sell a business in Texas.
This will be signed and considered a legal contract. While it is possible to back out of the sale before the closing it is difficult.
One of the last steps that need to be taken when selling a business in Texas is to hold the closing.
This is very similar to closing the sale of a house. Both parties will sign the final legal documents to transfer the business.
This will include transferring keys, codes, employee lists, and money for the sale. As soon as the closing is done, if sold as an entity, you will no longer be the owner.
After the closing documents are signed the sale is final and the terms can’t be changed.
Notify the IRS
There is one final detail that can not be overlooked when you sell a business in Texas. You have to notify the IRS.
There are, of course, penalties for failing to do this.
In order to properly notify the IRS the buyer and seller have to fill out a form jointly. This is the form 8594.