There may come a time when you’re ready to sell your practice and move on to your next big adventure. While there’s a lot of important paperwork to consider for any big sale, the non-compete and non-solicitation agreements are vital. Understanding the role of a non-compete and non-solicitation in a business sale is crucial as these agreements protect the buyer and seller’s interests.
What Is a Non-Compete & Non-Solicitation Agreement?
A non-compete agreement is a legally binding contract where the seller agrees not to start or engage in a competing business within a certain geographic area and for a specific period after selling their business. A Non-Solicitation Agreement specifies that the selling party will refrain from soliciting clients that were served by the business at the time of closing. These agreements aim to protect the buyer from immediate competition, ensuring the seller doesn’t undermine the value of the business they’ve just sold.
For example, the non-compete and non-solicitation agreements ensure that the seller doesn’t use the money you just gave them for their accounting practice to open a brand new one to steal business from the practice that you just purchased.
Why Non-Compete & Non-Solicitation Agreements Matter
Non-compete and non-solicitation agreements are pivotal in business sales for several reasons. First and foremost, they protect the buyer’s investment. While you may be buying both physical assets and intangible ones, such as customer goodwill and market position, the seller’s unwillingness to support the transaction (and refrain from competition), can drastically diminish the value of those assets.
The role of a non-compete and non-solicitation in a business sale prevents the seller from exploiting any potential goodwill by setting up a competing business or practice and then soliciting the client relationships that were the main source of the goodwill that was transferred. It also helps both parties conduct their deal amicably and in good faith.
Crafting an Effective Non-Compete Agreement
Creating a robust non-compete and non-solicitation agreement requires careful consideration and legal expertise. It should be reasonable in scope, duration, and geographic area. Keep in mind that not all states have the same rules when it comes to the enforceability of a non-compete and non-solicitation agreement, so an overly restrictive agreement may not be enforceable! Consult an attorney in your state to ensure you know what is permissible.
The common duration range you should expect typically falls between one and five years, ensuring the buyer gets a good head start without hampering the seller’s ability to earn a living wage. Both parties should consider the geographic scope of the potential market area.
Let Private Practice Transitions guide you through this process if you think, “It’s time to sell my practice.” Our expertise in handling business sales ensures you get the most out of your hard-earned investment. We offer personalized support, from valuing your practice to negotiating favorable sale terms and crafting enforceable non-compete agreements. Contact Private Practice Transitions today and take the first step toward a new chapter of your professional life.
