Top 20 Destroyers of Business Value: # 7 Dependence on Key Employees Without Non-Compete Agreements

Posted on September 11, 2012 · Posted in Blog

Is all or part of the business dependent on key or hard to replace employees? This is always an area of concern and risk when valuing a business. If you remember our central theme to increasing value is to decrease risk. The potential of key employees leaving to go with a competitor, start their own business or divulge company information is a risk that can significantly impact value.

The existence of non-compete agreements helps address this concern. A well-written non-compete agreement can protect a business and increase value. These agreements help to protect the business from the risk of former employees leaving to compete in some form against the company. A well written non-compete must conform to state and national employment regulations to be enforceable. You should always consult an experienced, proven labor law attorney who knows your state’s laws as they vary significantly.

In practically all acquisitions, the buyer will require the seller to sign a non-compete agreement.  Often times this requirement includes partners, key managers and even critical suppliers. If this is not a part of standard operating procedures for the company, waiting until an outside investor or buyer requests it can prove to be a challenge.

Be proactive now by establishing strong and enforceable non-compete agreements with all critical employees, shareholders and suppliers. Are you unknowingly destroying value by having an open door for employees and other critical resources to walk through and compete against your company?

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