A non-compete agreement is a contractual clause preventing the seller from starting, joining, or working for a competing business within a defined time period and geographic area after the sale. It protects the goodwill and customer relationships the buyer paid for.
Worked example
| Term | Detail |
|---|---|
| Duration | 5 years |
| Geographic radius | 25 miles |
| Scope | Same industry & customers |
| Consideration | Allocated in purchase price |
Without this clause, a seller who kept their reputation and contacts could rebuild a competitor and erase much of what you bought.
Why it matters when buying a business
In an SMB deal you're largely buying goodwill, relationships that walk out with the seller unless a non-compete holds them in place. Pair it with a defined transition period and firm reps and warranties. Enforceability varies by state, so have an attorney tailor the scope to be reasonable and defensible.
