Entrepreneurs often have many concerns before purchasing a business. A common is that the former owner will set up competition right down the street, potentially harming their ability to create value and turn a profit. Luckily, new owners can avoid this hassle by enforcing a noncompete clause.
Noncompete agreements can put limits on when and where owners can set up new ventures. They can also place restrictions on when or if employees can work for similar competitors. That way, owners can better protect their business’s value, goodwill and profitability over time.
A successful agreement begins with the details
Buyers should try and avoid leaving out nitty-gritty details when writing out their contract. To do so, buyers should try to list any possible outcomes they would like to avoid when they purchase the business. For a sound agreement, owners should consider implementing these provisions:
- The timeframe and geographic region the previous owner can build up competition in.
- Restrictions on activities the previous owner can do.
- Restrictions on the previous owner’s ability to use specific names in new ventures.
- Restrictions on any proprietary assets.
- Consequences for violating any provisions.
- Limits on the previous owner’s ability to consult, train or support any competitors.
Businesses often need a ramp-up period
New owners want to make sure the venture remains profitable after purchasing. Luckily, by establishing a noncompete agreement, they can give themselves time to develop a robust organization without the fear of fierce competition looming in the background.
