Importance of a Non-Compete Agreement in Accounting Practice Sales

For years, I have been helping accountants and CPAs exit their practice. It is common for buyers to want a non-compete after a sale but for many reasons, a principal, his attorney, and others involved insist on having a non-compete with a radius around the business and a certain number of years tied to the sale. Accounting Practice Sales

Common Concerns for Selling Accounting Practices: While it is my experience that most selling principals expect to have to sign one, many do not really want to when the time comes. The reason for the resistance is not that they want to open a competing shop and compete against the business they just sold but in case they need to earn an income later in their life or the new venture that they are about to embark on doesn’t work out. There are laws around non-compete agreements that are effectively challenged in court every day. The reality is that these can and do protect a buyer in a sale however, it is amazing how quickly a 3 – 5 year non-compete can expire. Once it expires, the principal is free to open up a shop right next-door. Once the non-compete expires they are also free to solicit and target the clients that were already sold. I personally do not see this kind of behavior from selling principals but lives and financial situations change and it is best to be totally prepared.

Different Options for a Non-Compete Agreement: In my experience, it is best to have a non-compete agreement but far more important is a non-solicit/no services agreement. A non-solicit or no services agreement can be extended for a much longer period or become indefinite. This new agreement can protect buyers for a longer period and can stop the selling principal from completing services for or soliciting any of the clients sold.

Common Concerns for Buyers of Accounting or CPA Firms: Buyers should not be overly concerned with obtaining a non-compete agreement depending of course on your counsel’s advice. While there are some firms that are excellent marketers, most are average to below average marketers and would cause very little damage if any by opening up a competing shop unless they were un-restricted from soliciting or servicing the clients sold. When speaking with buyers their concern primarily lies with holding on to the clients that they purchased, not that the exiting principal will be restricted from practicing their trade.

Reassurance for Sellers of Accounting Firms and CPA Firms: In the event that seller would need to earn an income later in life- know that, it is possible to utilize your ability to earn a living unrestricted. Some buyers will insist on it but most can be convinced that a non-solicit and non-services agreement can protect them better and for longer than a non-compete agreement.

If you need help in understanding how to negotiate this effectively, be sure to reach out to an attorney or business intermediary like Berkshire Business Sales and Acquisitions.

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