Employee Non-Compete Agreements in a CPA or Accounting Practice Sale

In planning for a CPA or accounting practice exit, sellers should consider the status of their employees in advance. It always strikes me as odd that accounting practice principals will not have any restrictions on their employees from a non-compete or non-solicit standpoint. They generally cite relationship or length of employment for not having one but in no case is it ok from our perspective. Generally, the employee that you least suspect or that you completely trust that will end up taking clients. Business Sales

How Does Employee Disloyalty Happen During a CPA or Accounting Practice Sale? The psyche has a way with the employees who generally have quite a bit of customer contact and these employees may actually have their own book of business that they are responsible for within the firm. Over time, they began to believe that those clients are loyal to them and they may have even built the book of business. They begin to believe that this is their personal asset and not the company’s asset.

I have seen countless situations over time where a long time employee leaves the firm and then steals clients away. This comes into play when the buyer is considering the risk of employees to an acquisition.

Consider this situation. The exiting owner is more than willing to sign a non-compete but does very little work with the clients themselves. There are five practicing tax professionals in the firm servicing the book of business. No employee agreements exist.

In this case, any one of the employees can leave and the buyer is left unprotected. The exiting principal is abiding by the terms of the agreement and there is therefore no legal recourse unless there is a retention agreement in place. The seller and or the buyer both stand to lose significant money if there is a retention agreement in place. This is a bad situation for all that could have been avoided with having a non-compete agreement in place.

Sellers and Buyers of Accounting Practices or CPA Firms Should Get Detailed Employee Restriction Agreements Signed Right Away: Sellers should always have an employee agreement that details their restrictions to compete and that deals directly with solicitation of clients or other proprietary data from the firm. This agreement should also be assignable to successors and or assignees. Buyers should also try to get employee agreements signed immediately after close to protect themselves from further risk.

Preparing for exit can be done- and should be done years in advance, Berkshire Business Sales and Acquisitions is happy to help. There are also a number of professional exit planners that will likely give the same advice. Be sure to use someone that is thoroughly experienced in the matters of accounting practice exit.

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