non compete clause

What is a non-compete clause

Often when you sell a business there is a non-compete clause included in the contract. This means is that the seller cannot operate in a certain number of kilometers around the existing business, in the same industry for a certain number of years.

The distance and timeframe varies, and that is always part of the negotiation with the buyer and the seller.

The reason for these restrictions are simple – the buyer doesn’t want the seller to wait two months, and then go hang his sheet or her shingle back up and start business and all the clients leave their business and go back to the original person, because then they bought something that has no value.

A non-compete clause is very, very common. When you sell a business you need to be aware of it and understand the rules. It’s generally not a problem, because you’re probably not going to go back into business in a hurry. If there’s a retention clause, you might be staying in the business for 12 months to make sure that that business value stays up. But even at the end of those 12 months, you could have another two or three years that you cannot compete in that industry.

You need to consider the non compete clause when you look at your sale price. Make sure that you’re going to have enough funds to get you through the interim period if you’re going to go back to the same industry or some plans in place as to what you’re going to do.

When you sell, some people will retire and jump the caravan and take off and that’s great. Some people will want to sell, start a new business and move on. You just need to be mindful of that non-compete clause.

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