As a business owner, when you begin thinking about selling your company it’s far from easy to ultimately come to the decision that it’s the right time to transition out of business ownership.
Several factors go into making that very important choice, but in this article I want to look specifically at something that is often not thought of beforehand but is quite crucial to consider early-on; the non-compete clause in the sale agreement between you and the new buyer of your business.
If the money gained from the sale of your business means that your next stop is retirement on a remote island or rural town where you can enjoy sleeping-in and basking in the serenity of retirement, then a non-competition clause in a sale agreement is probably not a concern for you. But, if you plan on continuing to work, or building a new business in a similar industry, non-competition may certainly be a deciding factor on whether or not now is truly the time to sell.
A non-compete clause in a business sale contract is an agreement that a seller of a business will not open a new business or work for a competitor for a specific time or within a specific geographic area. A business owner might be required to keep any information regarding the business they sell confidential. (Ashe-Edmunds, 2019)
When it comes to the non-compete, based on where you are in your life cycle it helps to have some forethought and ideas, if not an actual framework of what you want to do next.
- – Are you tired of what you are doing now and determined that it is better to have someone else take over the business?
- – Will you need another income to replace the one you are selling?
- – Do you want to continue in the same industry?
A buyer will want to be reassured that they are protected before they ultimately make the investment in your business.
In this Instance, the buyers and the seller’s concerns are identical; both sides want protection on their investment/decision.
However, the buyer’s protection has to be the priority, with the assurance that their investment cannot be jeopardized by the seller opening up the same type of business down the street and drawing away business and clientele.
As the seller, if you know that you will want to be able to continue working in the industry that you know and love, drafting and designing a workable solution that meets both yours and buyer’s needs can be tricky, but certainly not impossible.
Working with a strong, professional Business Broker can help you mitigate difficulties in the sale of your business in the 11th hour, and provide foresight and proactive solutions in the early planning stages of your transition.
If you have any questions about business valuations or listing your business in San Jose, CA, or the surrounding area, feel free to contact Brian Bacher, Business Advisor of Sunbelt Business Brokers, Greater Bay Area. Sunbelt also handles Mergers & Acquisitions.