Exit Planning for Texas Business Owners: Beyond the Basics
04/01/2025
As a Texas business owner, a clear-cut exit strategy is an essential component of a complete business plan. If you decide to sell your company in the future, an exit strategy will help preserve its value and protect your wishes in the process.
There are some common misconceptions that exit planning is only for large companies, or that smaller companies can handle it on their own. The reality is that exit planning can be a lengthy process, and it may require a team of professionals to complete the transition successfully.
Navigating those next steps for your Texas business can be a daunting task, so you might need to think beyond standard approaches to get the job done.
Each industry has its own set of valuation considerations. For example, Texas-based oil and gas businesses might be valued based on their production and reserves, while manufacturing is valued on recurring revenue and output.
Thanks to its lack of a state income tax and pro-business regulations, Texas is known as a business-friendly state. This beneficial business environment can make Texas-based businesses more attractive to potential buyers, further increasing their potential value.
Because Texas does not have a personal income tax, owners won’t have to pay income taxes on the sale of their business. However, if you’re a Texas-based business owner, you still may be liable for franchise taxes.
At a federal level, your liability might include capital gains taxes or net investment income taxes (NIIT,) depending on the structure of the sale.
There are some advanced strategies that business owners can use to maximize after-tax proceeds, including:
You might be looking to reinvest the profits in a new venture, real estate or other opportunity for growth. Or, if you are retired, you might be looking for ways to allocate those funds to your retirement savings strategy.
Whatever you choose, make sure you diversify assets in your post-exit portfolio. The closer you are to retirement, the more you’ll want to focus on investments, like bonds. But if you have a longer time horizon, you can invest in riskier, but potentially more rewarding, assets like stocks.
You can also incorporate the wealth from your sale into estate planning. By setting up trusts, charitable foundations or gifts for loved ones, you can create a long-term plan for your money while minimizing tax burdens.
It’s important to protect yourself from any post-sale liabilities. In Texas, these liabilities tend to relate to asset sales, where buyers are usually protected from seller liabilities. Try to structure any deals with clear representations and indemnification clauses to protect yourself from legal claims in the future.
Additionally, Texas law enforces non-compete agreements under certain conditions. Be sure to draft enforceable agreements that protect your business interests without violating state restrictions.
Take the steps you can now to create a clear, thoughtful exit plan that will support your goals and help you hand off your business with confidence.
This is provided for informational purposes only and not intended to provide investment, tax, or legal advice. We suggest that you speak with a tax or legal advisor about your individual situation prior to making any investment, tax, or legal decisions. Neither the information provided, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any strategy mentioned may not be suitable for everyone. All investing involves risk including possible loss of principal. Past performance is no guarantee of future results.
Steward Partners, its affiliates, and Steward Partners Wealth Managers do not provide tax or legal advice.
Diversification does not guarantee profit or protect against market losses. It is a method used to help manage investment risk.
Any examples presented are provided for illustrative purposes only. Any strategies mentioned or discussed in detail do not guarantee a profit or protect against loss, and may not be suitable for all investors. Each person's specific situation, goals, and results will differ.
There are some common misconceptions that exit planning is only for large companies, or that smaller companies can handle it on their own. The reality is that exit planning can be a lengthy process, and it may require a team of professionals to complete the transition successfully.
Navigating those next steps for your Texas business can be a daunting task, so you might need to think beyond standard approaches to get the job done.
Section 1: Evaluating Your Business's True Value
You don’t want to leave money on the table when you prepare to sell your business. That’s why it’s so important to go beyond basic valuation methods.Each industry has its own set of valuation considerations. For example, Texas-based oil and gas businesses might be valued based on their production and reserves, while manufacturing is valued on recurring revenue and output.
Thanks to its lack of a state income tax and pro-business regulations, Texas is known as a business-friendly state. This beneficial business environment can make Texas-based businesses more attractive to potential buyers, further increasing their potential value.
Section 2: Tax Optimization Strategies
Understanding tax optimization is a key component of exit planning. As a Texas business owner, it’s important to consider state and federal taxes when you’re working on an exit strategy.Because Texas does not have a personal income tax, owners won’t have to pay income taxes on the sale of their business. However, if you’re a Texas-based business owner, you still may be liable for franchise taxes.
At a federal level, your liability might include capital gains taxes or net investment income taxes (NIIT,) depending on the structure of the sale.
There are some advanced strategies that business owners can use to maximize after-tax proceeds, including:
- Installment sales, which can help owners defer capital gains to future years
- Qualified small business stock (QSBS) exemptions, which allow investors to exclude some or all of the capital gains tax on the sale of eligible stock, if certain conditions are met.
- Converting company stock to a charitable remainder trust (CRT) to help cut down on tax liability
- Open a cash balance plan. A cash balance plan is a defined benefit retirement plan that can save business owners cut down on their tax burden.
Section 3: Succession Planning Options
Choosing the right future path for your business can take many forms, including:- Family transitions: Many family businesses opt to pass ownership onto the next generation. In these cases, succession plans and a clear, legal framework can help ensure a smoother transition.
- Management buyouts: With adequate financing and a thoughtful transition plan, a management buyout can be a great way to preserve continuity within your business.
- Third-party sales: Selling to a third party tends to net the highest price. Make sure all documentation, like financial audits and operational information, are prepared in advance to ease any potential sales roadblocks.
Section 4: Wealth Management After the Exit
After you’ve celebrated a successful sale, it’s time to make a plan for the resulting wealth.You might be looking to reinvest the profits in a new venture, real estate or other opportunity for growth. Or, if you are retired, you might be looking for ways to allocate those funds to your retirement savings strategy.
Whatever you choose, make sure you diversify assets in your post-exit portfolio. The closer you are to retirement, the more you’ll want to focus on investments, like bonds. But if you have a longer time horizon, you can invest in riskier, but potentially more rewarding, assets like stocks.
You can also incorporate the wealth from your sale into estate planning. By setting up trusts, charitable foundations or gifts for loved ones, you can create a long-term plan for your money while minimizing tax burdens.
Legal Considerations Unique to Texas
Each state carries its own laws for exiting a business, so it’s crucial to be familiar with your state’s business laws.It’s important to protect yourself from any post-sale liabilities. In Texas, these liabilities tend to relate to asset sales, where buyers are usually protected from seller liabilities. Try to structure any deals with clear representations and indemnification clauses to protect yourself from legal claims in the future.
Additionally, Texas law enforces non-compete agreements under certain conditions. Be sure to draft enforceable agreements that protect your business interests without violating state restrictions.
Ready To Exit?
Exiting your business successfully requires careful planning, a comprehensive timeline and a team of professionals to ensure a smooth transition.Take the steps you can now to create a clear, thoughtful exit plan that will support your goals and help you hand off your business with confidence.
This is provided for informational purposes only and not intended to provide investment, tax, or legal advice. We suggest that you speak with a tax or legal advisor about your individual situation prior to making any investment, tax, or legal decisions. Neither the information provided, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any strategy mentioned may not be suitable for everyone. All investing involves risk including possible loss of principal. Past performance is no guarantee of future results.
Steward Partners, its affiliates, and Steward Partners Wealth Managers do not provide tax or legal advice.
Diversification does not guarantee profit or protect against market losses. It is a method used to help manage investment risk.
Any examples presented are provided for illustrative purposes only. Any strategies mentioned or discussed in detail do not guarantee a profit or protect against loss, and may not be suitable for all investors. Each person's specific situation, goals, and results will differ.