Non-compete (seller)

Definition

The seller's promise not to start or join a rival, for a set time.

Why It Matters

The business's durability assumes the seller does not start a new company down the road and take the customers back, which is why lenders expect one and why its terms deserve a lawyer's eyes rather than a template's. Enforceability varies by state and an overreaching clause can be struck down entirely, so a narrow one that holds is worth more than a sweeping one that does not. Check who signs it as well: a non-compete binding the selling entity but not the individual behind it protects nothing.

In numbers: A seller's non-compete might run 5 years within 50 miles, and the purchase price allocation assigns it a value, say $165,000 of a $4,000,000 deal; a buyer who skips it learns why if the seller opens across the street eighteen months later with the customer list in memory.