The headline price is not your money. Here is where the rest of it goes, and which parts you can still change.

An owner told me he sold for five million dollars.

He didn’t. He signed for five million. What reached him was considerably less, and a meaningful piece of the difference was decided by a one-page schedule attached to the purchase agreement that nobody argued about.

Here’s the uncomfortable truth. Owners spend months negotiating price and about forty minutes on the terms that determine what survives the wire.

Gross to net

Before tax, the headline number gets reduced by things you agreed to along the way.

• Debt payoff. Your loans generally come off the top. Prepayment penalties are real and they surprise people.
• Escrow or holdback. Commonly 5 to 15 percent of price, sitting untouched for 12 to 24 months.
• Working capital adjustment. If you deliver less than the agreed target, you write a check at settlement.
• Broker or banker fee. A percentage, paid at closing.
• Legal and accounting. Yours, and sometimes a share of the buyer’s if you agreed to that in the letter of intent.

On a lot of deals, cash at closing lands somewhere between 70 and 85 percent of the headline number before a dollar of tax.

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

Then the allocation decides the rest

In an asset sale, the purchase price gets divided across categories of assets, and both sides report the same division. Every category is taxed differently.

Bucket	How it’s generally taxed to you	What the buyer gets
Goodwill	Capital gain	Amortized over fifteen years
Equipment	Ordinary rates on the depreciation you already took back, capital treatment above that	Depreciation, often faster
Inventory	Ordinary income	Cost of goods sold
Non-compete	Ordinary income	Amortized over fifteen years
Consulting or transition pay	Ordinary income, and it may carry self-employment tax	Deducted currently

Goodwill is where you want the money. Ordinary income is where you don’t.

The part nobody shows you

Here’s a five million dollar asset sale, allocated two ways. Same price. Same business. Same buyer.

Version B moves $700,000 out of capital gain treatment and into ordinary income. The buyer is generally indifferent or mildly better off, because he amortizes the non-compete and deducts the consulting pay currently instead of waiting.

You are not indifferent. That $700,000 is now taxed at the higher of the two rate structures, and the consulting piece may pick up self-employment tax on top. What the swing costs you depends on your bracket and your other income, which is a question for your CPA and a real number worth running before you sign.

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

Asset sale or stock sale

The allocation conversation only happens in an asset sale.

In a stock sale you’re selling your ownership interest, and the gain is generally capital in character across the board. Cleaner for you, and usually better on tax.

In an asset sale the buyer purchases the assets, takes a stepped-up basis he can depreciate, and leaves your unknown liabilities behind. Better for him on both counts, which is why he wants it.

Sellers want stock. Buyers want assets. Where you land moves more money than almost anything else in the deal, and sometimes the structure gets decided by something other than preference, like contracts that can’t be assigned or a license that won’t transfer. The full process guide covers when you don’t get to choose.

Texas

Texas has no state income tax. Your gain is taxed federally and that’s the end of it, which is real money next to selling the same company 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 and by nothing else.

Getting paid over time

If part of your price arrives in later years through a seller note or an earnout, an installment sale may let you recognize the gain as you receive it rather than all at closing. It doesn’t fit every deal, it interacts with how the transaction is structured, and it does not apply to every category in the allocation.

Raise it with your CPA and your lawyer together, early, because the structure has to support it. Discovering the idea after the purchase agreement is drafted usually means discovering it too late.

Four things that cost owners money quietly

1. Signing an allocation you never read. It arrives late, it looks administrative, and it moves six figures.
2. Letting the buyer assign value to a non-compete. It costs him almost nothing and costs you at ordinary rates.
3. Taking transition pay as consulting fees without asking what it does to your tax. There may be a better way to characterize the same dollars.
4. Bringing the CPA in after the letter of intent. By then the structure is set and most of the good options are gone.

Frequently Asked Questions

How much of the sale price do I actually take home?

After debt payoff, escrow, the working capital adjustment and fees, cash at closing on many deals runs 70 to 85 percent of the headline number, before tax. Ask for a sources-and-uses breakdown before you agree to a price.

What is purchase price allocation?

The division of the purchase price across categories of assets in an asset sale. Both sides report the same division, and each category is taxed differently, so where the dollars land changes what you keep.

Is a stock sale better for me than an asset sale?

Usually, on tax. A stock sale generally produces capital treatment across the board. Buyers resist it because they lose the stepped-up basis and inherit the history, and they price that resistance.

Why does the buyer care about the non-compete number?

Because he amortizes it, and it costs him nothing to push value there. It costs you, because that money is ordinary income instead of capital gain.

Does Texas tax my gain when I sell my business?

Texas has no state income tax on that gain. Your exposure is federal, which makes the allocation schedule the thing that decides your outcome.

Can I spread the tax over several years?

Sometimes, through an installment sale, if the deal is structured to support it. Raise it with your CPA and your lawyer before the definitive agreement is drafted.

When should I bring in my CPA?

Before the letter of intent. The structure gets decided there, and the structure decides most of your tax outcome.

One Hour. One Price.

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

Bring your offer, or bring the deal you think is coming, and I’ll tell you where the money leaks out before it reaches you.

It costs $1,000.

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

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