Whenever Accounting Broker represents the seller of an accounting practice, we coach that seller to have non-compete agreements in place with the accounting practice’s employees. This helps to protect the practice from employees leaving and taking clients of the firm with them when they leave. Without non-compete agreements, a potential buyer of the practice would justifiably have significant concerns about client retention, which could negatively impact his offering price and payment terms. Here are a few basics for managing what can be a thorny issue. Because non-compete agreements are legal documents, and because laws and precedents regarding these agreements can vary significantly between states, you’ll want to consult an attorney. At Accounting Broker Acquisition Group, we are experts on accounting practice sales, but we are not attorneys and we do not give legal advice.
In an ideal world, a non-compete agreement is already in place between the accounting practice owner and the employees long before selling the practice. If an owner knows he or she wants to sell the practice in a couple of years, it’s wise to start laying the groundwork ASAP.
In most cases, in order for a non-compete agreement to be valid, the owner must give employees additional compensation related to signing the agreement. The agreement cannot generally be just a condition of employment. A good strategy employed by many attorneys is to tie the agreement to a bonus or raise.
Picking the Right Time
What if you never got around to the non-compete agreement and now you’re in the middle of an accounting practice sale? When is the right time to bring it up with employees?
The sale of your firm has three main phases: 1) finding a buyer and executing a letter of intent 2) due diligence/ buyer application for financing and 3) preparation of final definitive agreements. We suggest that you not tell the employees about selling the practice until due diligence is complete, the lender has approved the buyer’s financing and all material aspects of the purchase and sale agreements between the buyer and the seller have been agreed upon.
Why do you want to keep your employees in the dark so long? Because if they know you’re selling, they’ll fear for their jobs. And if they fear for their jobs, they may leave. Loss of key employees – and their years of knowledge and experience – could then jeopardize your deal.
Instead, wait till it’s an almost-done deal. Normalize the transition by reassuring employees that little will change under the new owner’s control. Call employees in about a week before closing and present them with the buyer’s employment agreement with comparable terms to the existing one. If a non-compete agreement is not already in place, add it into this document.
Keep the interaction positive – the seller is excited to start a new phase of his or her life. The buyer is thrilled to acquire a practice with such terrific employees. The seller can announce the transition in a company meeting, or in individual one-on-one meetings with employees. Reassure employees that the buyer will maintain the overall status quo. Show them the buyer is being transparent and above-board by providing the employees with an employment agreement and making sure they’re on board.
Include the non-compete agreement in the document. Often employees expect this, as it is reasonable and customary in the industry, and sign without comment. If an employee questions the non-compete agreement; reassure him or her that it won’t limit future employment opportunities with other companies. Indentured servitude is outlawed in America. Employees are free to hunt for other jobs should they later decide they want a change. The non-compete agreement should simply prevents them from taking the firm’s clients.
Offer a signing bonus if necessary. A decent bonus will generally bring even balking employees on board.
Outside Help for Accounting Practice Sales
Accounting Broker Acquisition Group has helped hundreds of buyers and sellers smoothly transition through deals. We can help with the timing and approach to employee non-compete agreements and every other aspect of accounting practice sales. Accounting Broker Acquisition Group is the only national business brokerage of its type comprised 100-percent of brokers who are CPAs with significant “Big Four” merger and acquisition experience. This ensures an exceptional experience for the buyers and sellers we do business with. http://www.accountingbroker.com/contact/ Contact us today to experience the Accounting Broker difference.