A step-by-step guide to the whole process, from deciding you’re ready to the day the escrow releases. Written by an M&A attorney who has bought and sold over $250 million in businesses.

Most owners sell one business in their lifetime. The buyer across the table has done this ten times. He has a lawyer who does nothing else, an accountant who knows where the bodies are buried, and a checklist built from every deal he’s already done.

That’s the fight. Not price. Experience.

This guide is what I’d tell you across my desk. It follows the real order of events, because the mistakes that cost the most are the ones made early, when nothing feels like it matters yet.

1. Before Anything: Is It Actually Sellable?

There’s a question nobody asks until it’s too late, and it isn’t “what’s my business worth.” It’s this:

If you disappeared for 90 days, would there still be a business when you got back?

If the answer is no, you don’t own a business. You own a job that you can’t quit and can’t sell. A buyer isn’t purchasing your company. He’s purchasing your habits, your relationships, and your judgment, and none of that transfers.

I’ve watched good owners walk in at 62 with real revenue and real profit and discover that nobody will pay a premium, because the company is them.

Here’s what that costs. Two owners, same industry, same city. One works 60 hours a week, makes $150,000, and sells at maybe 2x cash flow. The other works 20 hours, makes $400,000, and sells at 10x. On a business throwing off $500,000 a year, that gap is four million dollars.

Four million. Decided years before either of them called a broker.

So before you read another word about valuation, be honest about this one. If your business can’t run without you, fix that first. Everything downstream gets easier and more valuable. I’ve written about how to do it here.

2. What’s It Worth?

Value is a multiple of earnings. The argument is always about which earnings and which multiple.

SDE or EBITDA

Smaller businesses, roughly under $1M of earnings, usually trade on Seller’s Discretionary Earnings. That’s your net profit plus your salary, your benefits, and the personal expenses running through the company. It answers the buyer’s real question: how much money does this thing put in one owner-operator’s pocket?

Larger businesses trade on EBITDA: earnings before interest, taxes, depreciation and amortization, with a market-rate manager’s salary subtracted. A buyer who’s going to hire someone to run it needs to know what’s left after paying that person.

The switch matters. The same company can look very different depending on which number you’re using, and buyers will use whichever one is lower.

The other two methods you’ll hear about

Somebody will mention discounted cash flow. It projects what the business will earn over the next several years and discounts it back to today’s dollars. It’s used on larger companies with predictable earnings, and it is only as honest as its assumptions. Change the growth rate by two points and the answer moves by millions. When a buyer hands you a DCF, the argument is about the assumptions, not the arithmetic.

Asset-based valuation adds up what you own and subtracts what you owe. It matters for asset-heavy businesses and for companies that aren’t making money, where it sets a floor. For a profitable operating business it usually produces a number well below what the earnings would support, which is why a buyer may raise it and you shouldn’t accept it.

Most owner-operated businesses trade on a multiple of earnings. The other two methods show up as arguments, not as answers.

Add-backs

Add-backs are the expenses you argue aren’t really business expenses. Your truck. Your spouse on payroll. The family phone plan. The trip you called a sales conference.

Some survive. Some don’t. Every dollar you fail to defend gets multiplied by 4 or 6 or 8 and comes straight out of your price. A $40,000 add-back the buyer rejects, at a 5x multiple, is a $200,000 haircut.

Document them before anyone asks. An add-back you can prove is worth many times one you merely assert.

What moves the multiple

Two businesses with identical earnings can trade two turns apart. What separates them:

• Owner dependency. The single biggest factor. Covered above and it deserves the top slot.
• Customer concentration. One customer at 40% of revenue isn’t a valuation problem, it’s a structure problem. That deal comes back with an earnout attached.
• Recurring revenue. Contracts and subscriptions beat one-time sales, every time.
• Clean books. If a buyer’s accountant can’t tie your financials to your tax returns, he assumes the worst and prices it.
• Management depth. Somebody besides you who can quote a job and hold a customer.
• Growth. Flat sells. Growing sells for more.
• Industry. You don’t control it. Know it anyway.

Three buyers, three numbers

A strategic buyer already operates in your space. He’s paying for what your company does for his company: your customer list, your territory, your license, one less competitor. He can usually pay the most because the thing is worth more in his hands than in yours.

A private-equity-backed buyer is buying cash flow and a platform. He pays well but he underwrites hard, he needs management to stay, and he’ll often want you to roll some equity forward.

An individual buyer pays what a bank will lend him against your earnings, plus whatever he has in savings. Usually the lowest number and the highest risk of the deal falling apart at financing.

Same business. Three different prices. Which is why “what’s my business worth” has no single answer until you know who’s asking.

3. Getting Your House In Order

Everything a buyer finds that you didn’t disclose becomes a discount, an escrow, or a dead deal. Everything you clean up in advance is money.

Financials

Three years of clean statements that reconcile to your tax returns. If your bookkeeping is a shoebox and a QuickBooks file nobody’s reconciled since 2022, fix that before you talk to anyone. Buyers don’t punish messy books by asking questions. They punish them by lowering the price.

Contracts in writing

Your biggest customer relationship is a handshake and eleven years of trust. That’s worth a great deal to you and nothing to a buyer, because he can’t buy a handshake. Get the important relationships papered before you go to market. Do it as ordinary business, not as sale preparation.

Corporate housekeeping

Minute books, stock ledgers, assumed name filings, franchise tax standing, registered agent. Boring, cheap to fix now, and a diligence red flag if it’s a mess. A buyer who finds your entity isn’t in good standing starts wondering what else you’ve let slide.

The stuff that becomes escrow

Pending litigation. A lien nobody cleared. A misclassified contractor. An expired lease running month to month. A permit in the wrong entity’s name. Each one becomes a holdback, an indemnity, or a reason to retrade the price at the last minute.

Deal with them while you have leverage. You have none once you’re under exclusivity.

4. Finding a Buyer

Broker, investment banker, or yourself

A business broker markets smaller businesses, usually with a listing agreement and a success fee. An investment banker runs a controlled process for larger deals and typically gets a retainer plus a fee. Either can be worth it, because a competitive process is the best price-raising tool that exists.

Understand the incentive though. Both are paid when a deal closes. That’s a good incentive for closing and a poor one for telling you don’t sell yet or walk away from this one.

I wrote a full comparison of what a business broker does versus what an M&A attorney does, including where the two jobs overlap and where owners get hurt in the gap.

And plenty of good deals start with no broker at all, because a competitor or a customer or an employee comes to you. If that happens, you still need the documents done properly. That’s where the money is, and it’s the part nobody markets to you.

Confidentiality

If your employees find out you’re selling, some of them start looking. If your customers find out, your competitors find out. Confidentiality isn’t paranoia, it’s asset protection.

Get a signed NDA before anything meaningful changes hands. Release information in stages: a blind teaser first, more detail after the NDA, the sensitive material only when a buyer has proven he’s real. Never hand over your full customer list to somebody who hasn’t signed an LOI.

Qualify the buyer

Before you spend three months in diligence with somebody, find out whether he can actually close. Where’s the money coming from? Has he bought a business before? If it’s bank financing, has he talked to a lender? Tire-kickers are expensive, and the expense is measured in months of your life.

5. The Letter of Intent

If you read one section of this guide, read this one.

There is a fuller treatment of the document itself, including an eleven-point review you can run yourself, in Letter of Intent: Selling a Business.

The LOI is where most of your leverage goes to die, and most owners sign it before they call a lawyer.

It’s usually described as non-binding, and mostly that’s true about price. But two things in it typically are binding: exclusivity and confidentiality. Exclusivity means you agree to stop talking to other buyers for 60 or 90 days. The moment you sign it, your competitive process is over and your negotiating position is as weak as it will ever be.

And everything the LOI describes in general terms becomes the starting position for the definitive agreement. Every point you didn’t address is a point the buyer’s lawyer gets to draft first.

That list looks like a lot to negotiate up front. It is. Do it anyway. Each of those items is easy to negotiate while the buyer still has competition, and nearly impossible after he doesn’t.

Working capital deserves a special mention because it surprises people. Buyers expect the business to come with enough cash and receivables to keep running. If you drain the account before closing, you’ll be handed a bill at settlement. Agree on the target early, in writing, with a formula.

6. Due Diligence

Sixty to ninety days of a stranger’s accountants and lawyers going through everything you’ve built, looking for reasons to pay less.

That sounds hostile. It mostly isn’t. It’s their job. But you should understand what it is: a search for discrepancies, and every discrepancy is a negotiating lever.

What they’ll want

• Financial statements and tax returns, three to five years
• Monthly detail, aging reports, bank statements
• Customer and vendor lists with revenue by account
• Every contract: customers, vendors, leases, loans, equipment
• Employee roster, comp, agreements, benefits, contractor classifications
• Corporate records, cap table, ownership history
• Insurance policies and claims history
• Litigation, threatened claims, regulatory issues
• Licenses, permits, certifications
• IP: trademarks, domains, software licenses

Quality of earnings

On a deal of any size the buyer will run a QofE analysis. It’s an independent test of whether your reported earnings are real and repeatable. Add-backs get challenged here, and one-time revenue gets stripped out. Expect it. Prepare for it. If the QofE comes back materially below your number, you are going to renegotiate.

Where deals die

Financials that don’t tie to tax returns. Customer concentration nobody disclosed. An employment or classification problem. Environmental issues on real property. Contracts that can’t be assigned. And the most common one of all: the surprise.

Not the problem itself. The surprise. A disclosed problem is a negotiation. An undisclosed problem discovered in week eight is a trust collapse, and buyers who stop trusting you either walk or reprice hard.

Disclose early. It’s the cheapest thing you’ll ever do.

7. Asset Sale or Stock Sale

This one decision moves more money than almost anything else in the deal.

Asset sale

The buyer purchases the assets and assumes only the liabilities he agrees to. Your entity survives, holding the sale proceeds and whatever he didn’t take. The buyer gets a stepped-up basis in the assets, which he can depreciate. He also leaves your unknown liabilities behind.

Buyers want this. It’s better for their tax position and much safer for their risk position.

Stock sale

The buyer purchases your ownership interest. The entity continues with everything it owns and everything it owes. Cleaner for you, generally better on tax, and a buyer takes on the history along with the company.

Sellers usually want this. Buyers resist it, and price it.

When you don’t get to choose

Sometimes the structure is dictated by something other than preference:

• Contracts that can’t be assigned. If your revenue lives in agreements with anti-assignment clauses, an asset sale requires consent from every counterparty. A stock sale may avoid that, unless there’s a change-of-control clause, in which case you’re consenting anyway.
• Licenses and permits. Many don’t transfer. Some can only be held by a qualified individual. This alone can force the structure.
• Government contracts. Federal contracts don’t simply transfer. Moving them requires government consent through a novation process, and that requirement, not tax preference, often decides the structure. An owner following the generic “asset sales are better for sellers” advice can kill his own transaction.
• Regulated industries. Healthcare, liquor, insurance, professional practices. The regulator’s rules come first.

Figure this out before the LOI, not after. Changing structure midstream reopens the price.

8. The Purchase Agreement

Sixty to a hundred pages. Most of it is not about price. Most of it is about what happens if something turns out not to be true.

Representations and warranties

Statements of fact you make about the business: the financials are accurate, you own what you’re selling, you’ve paid your taxes, you’re not being sued, you comply with the law. Dozens of them.

These are not formalities. They’re the basis on which the buyer can come back at you later. Read every one. If a rep isn’t true, disclose it on the schedules. A disclosed exception is free. An undisclosed one is a claim.

The disclosure schedules

The most under-appreciated document in the whole deal. You list the exceptions to your representations here, and every exception you list is a claim the buyer can’t bring later. Owners rush these because they’re tedious. They’re the cheapest insurance in the transaction.

Indemnification

What you owe if a rep turns out to be wrong. The terms that matter:

• Survival period. How long the buyer can bring a claim. Often 12 to 24 months for general reps, longer for tax and ownership.
• Cap. The ceiling on your total exposure, usually a percentage of price. Without a cap you are exposed for the whole purchase price.
• Basket or deductible. A minimum threshold before claims count, so you’re not fighting over small change.
• Escrow or holdback. Money set aside to satisfy claims. Typically 5 to 15 percent for 12 to 24 months.

Cap, basket and survival get negotiated in an afternoon and they determine whether the number on page one is a number you keep.

Covenants

Promises about behavior. Before closing: run the business normally, don’t take unusual distributions, don’t sign long-term commitments. After closing: your non-compete, non-solicit, confidentiality, and cooperation on transition.

9. How You Actually Get Paid

The headline price and the money that lands in your account are two different numbers.

Cash at closing

What you actually get on the day. After escrow, after any working capital adjustment, after paying off debt, after fees. On many deals this is 70 to 85 percent of the headline number, and owners are routinely surprised.

Ask for a sources-and-uses breakdown early. Know your net before you agree to the gross.

Seller notes

You finance part of the price. Common with individual buyers, and often the only way a deal gets done. If you do it: get it secured, get a personal guarantee, and understand you’re now a lender to a person running the business you used to run.

Earnouts

Part of your price depends on how the business performs after you’re no longer in control of it. Tied to revenue, it’s a fight. Tied to EBITDA, it’s a bigger fight, because the buyer controls the expense line and can invest, allocate overhead, or hire his way past your target while acting entirely in good faith.

If you take an earnout, the definitions matter more than the number. Define the metric precisely. Cap what can be charged against it. Require reporting. Get access to the books. And ask what happens if he sells the company during the earnout period, because he might.

Rollover equity

A private equity buyer may ask you to keep a minority stake. The pitch is a second bite at the apple when they sell again in five years. Sometimes that’s real money. Understand you’ll be a minority owner with limited control, and read the governance terms as carefully as you read the price.

10. Taxes and Purchase Price Allocation

In an asset sale the purchase price is allocated across categories of assets, and the allocation is reported by both sides. Every category is taxed differently.

• Goodwill is generally capital gain. Where you want the money.
• Equipment can trigger depreciation recapture, taxed at ordinary rates on the recaptured portion.
• Inventory is ordinary income.
• A non-compete payment is ordinary income to you, and amortizable to the buyer. He may push value here. It costs him nothing and costs you real money.
• Consulting or transition payments are ordinary income, and may carry self-employment tax.

Move a few hundred thousand dollars across those lines and you’ve changed what you keep by six figures. The buyer often doesn’t care much which way it goes, because his interests differ from yours by less than you’d think.

If nobody at your table is fighting over the allocation schedule, nobody at your table is working for you.

Texas

Texas has no state income tax. Your gain is taxed federally and that’s it, which is real money compared to selling the same business in California or New York, and one reason out-of-state buyers like Texas deals.

It also means the allocation is the whole game. There’s no state layer blurring the line between capital gain and ordinary income. What you keep is decided by a schedule attached to your purchase agreement.

Installment sales

If you’re taking payments over time, an installment sale may let you spread the gain across the years you receive it rather than recognizing it all at closing. It doesn’t fit every deal and it interacts with how the deal is structured. Raise it with your CPA and your lawyer together, early, because the structure has to support it.

The full picture of gross to net, with a worked allocation example, is in What You Actually Keep.

11. Third-Party Consents

You may not be the only one who has to say yes.

• Landlord. Almost every commercial lease requires consent to assign. Landlords have been known to use that moment to renegotiate. Start early.
• Customers. Change-of-control clauses let a customer walk or renegotiate when you sell. Know which of your contracts have them before a buyer’s lawyer tells you.
• Lenders. Your loans probably have to be paid off or assumed. There may be UCC filings to release. Prepayment penalties are real.
• Licenses and permits. Some transfer, some don’t, some take months.
• Franchisors. If you’re a franchisee, the franchisor almost certainly has approval rights and possibly a right of first refusal.
• Government agencies. Federal contracts require consent to novate. Build the time in.
• Your co-owners. Check your operating or shareholder agreement. Rights of first refusal, tag-along and drag-along rights, and spousal consent issues all live there.

Consents kill more timelines than lawyers do. Inventory them the week you decide to sell.

12. Your Employees

What happens to your people depends on structure.

In a stock sale, employment usually continues uninterrupted because the employer entity doesn’t change.

In an asset sale, the buyer typically hires whom he wants. Technically your employees are terminated and re-hired. That has consequences for accrued PTO, benefits continuation, and any severance you’ve promised. If you’ve made commitments to people, those commitments don’t automatically travel. Put them in the agreement.

On timing: telling people too early risks losing them mid-deal. Telling them at the last minute feels like a betrayal to people who built this with you. There’s no clean answer. Most owners tell a small inner circle early because they need their help in diligence, and tell everyone else at signing or closing.

Whatever you choose, decide it deliberately rather than letting it leak.

13. Closing

Usually anticlimactic, which is the goal.

Signature pages get collected, often electronically. Funds move by wire. Bills of sale, assignments, vehicle titles, and deeds get delivered. Payoff letters go to lenders and liens get released. The working capital adjustment gets trued up, sometimes at closing and sometimes 60 to 90 days after against actual numbers. Escrow gets funded. Keys, passwords, bank signatories and domain registrations change hands.

Then you go to lunch and try to feel something.

14. After Closing

The money moved. You are not done.

Your non-compete

You will sign one. A non-compete given as part of selling a business is treated very differently from one signed by an employee, because it’s tied to the goodwill you sold. Courts enforce business-sale covenants far more readily, including longer terms than would ever survive in an employment context.

Which cuts both ways. It protects the value you sold. It also means the scope you agree to is very likely the scope you live with. Negotiate the geography and the definition of the restricted business as carefully as you negotiate price, because “the industry” is a much bigger box than “this line of work in these counties.”

Transition

Most buyers want you around for three to twelve months. That’s reasonable. What isn’t reasonable is an open-ended commitment with no hours cap and no defined scope, which is how “just be available for questions” becomes an unpaid part-time job. Define hours, duration, scope, and pay.

Escrow release

Your holdback sits for the survival period. If no claims come, it’s released. Calendar the date. Money has been left in escrow accounts because nobody remembered to ask for it.

Indemnity claims

If a claim comes, it comes against the reps you made. Good disclosure schedules pay for themselves here, several times over.

15. How Long It Takes

From “I think I want to sell” to money in the bank, plan on a year, and closer to two if the business needs work first. Anyone promising 90 days is selling something.

Not sure you should be selling at all yet? When to Sell Your Business works through the three clocks that decide it.

16. Six Ways Sellers Get Hurt

1. Signing the LOI without counsel. Exclusivity starts, leverage ends, and the terms you didn’t negotiate become the buyer’s opening draft.
2. Hiding a problem. It gets found in week eight and costs many times what disclosure would have cost in week one.
3. Negotiating price and ignoring structure. The price is the headline. The structure is the money.
4. Accepting an earnout with vague definitions. You’ve bet a chunk of your retirement on someone else’s discretion.
5. Agreeing to uncapped indemnification. You can be liable for the entire purchase price after you’ve spent it.
6. Using the buyer’s lawyer, or no lawyer. The buyer’s lawyer represents the buyer. That’s not a criticism of him. It’s his job.

17. Frequently Asked Questions

Do I need a lawyer to sell my business in Texas?

You need someone drafting and reviewing the purchase agreement whose only duty is to you. A broker can’t draft it. A CPA won’t. And the buyer’s lawyer is working for the buyer.

How much does it cost?

Legal fees vary with deal size and complexity, and are a small fraction of what a single badly-drafted indemnity clause can cost. Ask for an estimate up front and ask what’s included.

How much is my business worth?

A multiple of cash flow, where the multiple depends mostly on how much the business depends on you, plus customer concentration, recurring revenue, and growth. The same company can be worth 2x or 10x depending on those answers.

Should I use a business broker?

Often yes, because a competitive process raises price. Understand the incentive: brokers get paid on closing, so “don’t sell yet” is a hard thing for them to say. And if a buyer already found you, you may not need one, though you still need the documents done right.

Broker or attorney: who you actually need.

Asset sale or stock sale?

Sellers usually prefer stock, buyers usually prefer assets. Sometimes contracts, licenses or government approvals make the decision for you. Settle it in the LOI.

Will I have to finance part of it?

Often, especially with individual buyers. If you do, get it secured and personally guaranteed.

What’s a normal escrow?

Commonly in the range of 5 to 15 percent of price, held 12 to 24 months. It varies with size and risk.

Can I sell if I have a partner who doesn’t want to?

Depends entirely on your operating or shareholder agreement. Some have buy-sell provisions, drag-along rights, or deadlock mechanisms. Many have none, which is a problem best solved years earlier.

Are non-competes enforceable in Texas when you sell a business?

A non-compete given as part of selling a business is treated much more favorably than an employment non-compete, because it’s tied to the goodwill you sold. Expect to sign one, and expect it to hold.

How do I keep it confidential?

NDAs before information changes hands, staged disclosure, and a blind profile that doesn’t identify the company until a buyer is qualified.

What if a buyer approaches me out of the blue?

It happens more than people think, and unsolicited offers are often below market because there’s no competition. Don’t sign anything, don’t hand over financials without an NDA, and find out whether you’re ready before you find out what he’ll pay.

Can I sell part of the business?

Yes. Minority recapitalizations, selling a division, or bringing in a partner are all real options, and they’re worth understanding before you assume all-or-nothing.

What if the business isn’t ready?

Then you have time, which is good news. Find the two or three things holding down your multiple and fix them. That’s exit planning, and it’s worth more per hour than anything you’ll do at the negotiating table.

One Hour. One Price.

Sixty minutes on the phone. Just you and me, talking about your business.

I’ll ask the questions nobody else asks. I’ll tell you what your business looks like through a buyer’s eyes, where you’re leaving money on the table, and what to fix first.

It costs $1,000.

Most business owners get one shot at their exit. One. The cheapest hour you’ll spend on it.

This guide is general information about how business sales work in Texas. It isn’t legal advice and reading it doesn’t make me your lawyer. Every deal is different, and the details are where the money is.