Key Components

• State-Specific Legal Requirements: Explains the need for a detailed purchase and sale agreement (asset vs. entity sale, assets/liabilities, price/terms, earnest money, inspection/diligence periods, reps/warranties, and default provisions). Emphasizes compliance with Texas law and entity good standing.

• Valuation Guidance: Covers drivers like financial performance, backlog, asset base, market demand, reputation, management depth, geographic reach, and trends. Notes that multiples vary by business type and transferability.

• Process Outline: Deal team formation, document prep, confidential marketing, IOIs/LOIs, management meetings, diligence, closing, and transition.

• Tax Consequences and Local Fees: References Texas tax categories that may impact the transaction and encourages professional tax advice.

• Advice for Working with Local Professionals: Highlights why Texas-experienced construction brokers and advisors matter (pricing, buyer outreach, structuring, negotiation, and coordination).

• Additional Resources: Practical checklists, timelines, and examples that help sellers prepare and execute efficiently.

This guide is designed to help Texas construction business owners navigate the complexity of a sale with clearer preparation, better positioning, and fewer surprises.

In Texas, a sale typically centers around a purchase and sale agreement that identifies the parties, specifies whether the sale is an asset or entity transfer, lists included/excluded assets, and sets price and payment terms. It commonly includes earnest money, diligence/inspection periods, representations and warranties, confidentiality, closing conditions, and default remedies.

Sellers should ensure the selling entity is in good standing with the Texas Secretary of State and Texas Comptroller. Authority and required consents (including spousal or member/shareholder consents where applicable) should be clearly documented.

Buyers often prefer asset sales to reduce unknown liabilities; entity sales transfer the entire entity (including liabilities). Financing contingencies, seller financing protections, and post-closing survival periods for reps/warranties are often negotiated.

Due diligence commonly includes financial records, backlog/WIP, contracts, employment agreements, insurance/bonding, licenses/permits, and any litigation or disputes.

Valuation typically considers market-based, income-based, and asset-based approaches. Key drivers include revenue quality, margin stability, cash flow, backlog quality, equipment/asset base, client relationships, management depth, geographic reach, and risk (customer concentration, safety claims, project type mix, and owner dependence).

To maximize valuation, sellers generally benefit from clean financials, strong job costing/reporting, documented estimating and handoff processes, a capable management bench, and clear licensing/insurance/bonding documentation. Strong profitability and a healthy backlog typically improve deal outcomes.

Most buyers will heavily scrutinize add-backs, WIP/backlog, and owner dependence—especially in construction where project execution and risk management drive outcomes.

Texas Guide to Selling a Construction Business: Step-by-Step Process

1. Build a Strong Deal Team

   • Engage a broker (often for smaller deals) or an M&A advisor (often for larger deals) with construction transaction experience.
   • Retain M&A legal counsel and tax advisors familiar with Texas requirements and construction-specific diligence.

2. Compile and Organize Materials

   • Prepare financials, tax returns, org charts, contracts, employment docs, insurance/bonding, and licensing/permit records.
   • Resolve obvious cleanup items (disputes, missing docs, unclear accounting).

3. Valuation and Pricing

   • Use multiple methods (asset/income/market) and sanity-check against comparable deal realities.
   • Align price with quality of earnings, backlog, systems, and management transferability.

4. Market the Business

   • Create an offering package and market confidentially to qualified buyers.
   • Use controlled outreach and NDAs before releasing sensitive information.

5. IOIs / LOIs

   • Screen buyers on capital capability and fit.
   • Run management meetings and negotiate an LOI.

6. Due Diligence

   • Support a 60–90 day diligence process with a structured data room and fast response cycles.

7. Closing

   • Finalize definitive agreements, satisfy conditions, and close.

8. Transition

   • Support training/transition as agreed to protect continuity and goodwill.

Additional Texas-Specific Considerations

• Confirm licensing/permit requirements for transfer or reissue.
• Plan for Texas-specific filings and tax-related clearance items.
• Use local specialists who understand Texas buyers and construction risk factors.

Many processes run ~7–9 months end-to-end depending on readiness, buyer type, and diligence complexity.

When selling a construction business in Texas, several tax consequences should be considered:

1. Sales and Use Tax: Texas sales/use tax rules can vary based on contract structure (lump-sum vs separated). Contractors should ensure compliance and proper documentation.

2. Capital Gains Tax: Texas has no state income tax, but federal capital gains may apply depending on structure and holding period.

3. Franchise Tax: Texas franchise tax may impact planning and final filings.

4. Local Taxes and Fees: Local jurisdictions may impose additional sales tax up to the maximum combined rate.

5. Tax Planning: Work with tax professionals to structure the sale efficiently and reduce avoidable tax leakage.

Local Transaction Fees

Sellers should budget for broker fees, legal fees, and standard closing costs. Fee structures vary widely based on deal size and complexity, so clarify them early and build them into net proceeds planning.

Preparation Phase (12–24 months before sale)

• Clean up financials (separate personal expenses, ensure WIP is accurate, improve bookkeeping).
• Improve job costing and reporting (budget vs actual, labor burden accuracy, change orders).
• Document estimating and sales handoff processes.
• Strengthen management bench and clarify org chart.
• Review licensing, insurance, bonding, disputes, and key contracts.
• Organize equipment and asset records (titles, maintenance logs, leases).

Sales Process Timeline (6–12 months typical)

1. Confidential prep and marketing materials
2. Targeted buyer outreach + NDA + qualification
3. Management calls and site visits
4. LOI negotiation
5. Due diligence (job costing, backlog/WIP, payroll, safety, contracts, compliance)
6. Closing and transition

Texas-Specific Requirements

• Obtain Certificate of No Tax Due (Form 86-114) from Texas Comptroller.
• Comply with franchise tax filings and final returns.
• Transfer or reissue licenses and permits where required.
• Confirm entity standing with Texas Secretary of State.

Work with experienced Texas construction transaction professionals (broker/advisor, M&A attorney, CPA/tax). A construction-experienced team helps validate valuation, properly market the deal, manage buyer diligence, and avoid preventable legal/tax pitfalls. Clean documentation and thoughtful preparation typically reduce diligence friction and improve outcomes.