- Make sure books are prepared for review by potential owner
- Understand how type of sell determines tax consequences
- Consider making contractual arrangements regarding teams to protect employees
8 Steps To Selling a Company in Texas
There are 8 steps that entrepreneurs can take to sell their businesses in Texas that include the following.
1. Are you really ready to sell?
2. Get the books in line
It’s important for business owners to have their books prepared for the potential owner to review. When selling a company in Texas, a business owner should have their documentation current for new owners to review.
Business owners can work with their accountants to make sure that they have their property tax information and all of their financial statements for the past 5 years. Business owners who have a family-owned business should make sure that they do not have their personal expenses documented in the business finances. In the state of Texas, it will be good to have the required permits documented and current so that new owners have access to this information.
3. Think about your tax consequences (full payment or installments)
Business owners must consider how they will sell their businesses. It’s a good idea for business owners to consider how they will handle the taxes from the sale of the business. If a business has operated for at least one year and is an LLC or sole proprietorship, capital gains taxes are paid to the IRS. When a business owner sells a business that has been operating for less than a year, then ordinary income taxation occurs on the proceeds.
Some businesses take payments in installments from the sale of a business. There are drawbacks to this, which may include not having the money for other businesses that the owner may want to start. If the owner has another business or investment opportunity to fund with the proceeds from the sale, they can take the payment in a lump sum during the closing and pay the taxes.
4. Seek potential buyers
Business owners can look for potential buyers for their companies when they are ready to sell their businesses. A broker can be used to assist business owners to help them sell their businesses or they can sell their companies themselves. It’s not required for a business owner to use a broker so they can seek buyers online.
It’s a good thing to have a good relationship with a potential buyer. Business owners can establish a relationship online and that steps to connect with a buyer offline so that the business owner can connect with a potential buyer on a personal level. A personal connection can help buyers during the negotiation process.
Business owners can have an attorney available to help with the sale of a business. An attorney can answer the questions that a business owner has so that a business owner can have clarity regarding the sales process.
5. Negotiate your deal
6. Sign sales agreement
When a business owner is comfortable with the buyer they selected, they can sign the sales agreement. The sales agreement should have all the details regarding the sale and identify the seller, buyer, and business information. The agreement should document any adjustments and fees associated with the sale. The sale agreement should include all assets and liabilities to avoid problems with the sale.
It may be necessary for considerations to occur such as the following.
• Noncompete agreement
• Confidentiality agreement
• Environmental compliance
8. File paperwork with IRS (IRS form 8594) with tax returns
The seller and buyer of a business need to complete IRS Form 8594 under certain conditions. According to the IRS, they file the form in the following situations.
• Goodwill or the business will remain in business
• The buyer’s assets are determined by the purchase amount
Business owners in Texas can decide that they can sell their businesses in a regret-free manner. It’s necessary for business owners to evaluate why they want to sell their companies to decide if the timing is appropriate for everyone in their organizations. By working with an attorney, business owners can sell their businesses and include the required documentation that accountants confirmed. It’s important to have an awareness of the tax consequences to determine which sales strategy is most appropriate for the owner and buyer to move forward.