If you have ever started a company and then sold it to someone else, you are likely familiar with the non-compete agreement, which is the bane of serial idea entrepreneurs everywhere. Usually, it is an arrangement legally binding the seller of the business to not act as a direct competitor to the person they sell the business to.
While this makes sense, and is a common-sense protection on the part of the buyer, if you aren’t careful you can get trapped in an overly restrictive agreement; not all NCA’s are created equal. Here are four tips that can help you negotiate a fair NCA with prospective buyers that won’t prevent you from moving on after the sale:
- Always Use an Attorney – Never, ever consider signing a non-compete without having an attorney look over the document. You may even want to retain one for the negotiations themselves.
- Ask For Specific Exemptions – The more specific you are, the more likely it is to get what you want. Try limiting the non-compete to covering extremely specific products, services, or customers, in a way that will allow you to still do something in the industry if you care to.
- Non-Solicitation – A non-solicitation agreement can replace a non-compete; you agree to not pursue customers or clients that you were doing business with at the time of sale. Again, be specific; try to limit the agreement to specific product lines with specific customers, so you can retain large corporate contacts.
- Earn-Outs – Another alternative to a non-compete is an earn-out. Under this arrangement, if the buyer does well with the business, the seller will receive additional bonuses. This means that if they were to compete against the buyer, they would be undercutting themselves, and are not likely to do so.
By keeping these tips in mind when the time comes to sell your business and possibly negotiate a non-compete with the new owner, you will find yourself placed well to continue on professionally after the sale and move into whatever project you have in store next.