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Question - restrictive covenants - how long is too long

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Ken, 

    Maybe you can help.  I am thinking of selling my alarm  business.  Can you tell me what is a normal amount of time not to  compete included in a restrictive covenant?  3 years/5 years? Thanks 

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Answer

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    There are lots of things to think about when you start thinking about selling your alarm business.  Anti competition provisions is certainly something you should be considering before deciding to sell.  You should expect some restrictions on your continued competition, but the scope of the restrictions should make sense within the deal itself.  In other words, the circumstances of the sale will offer the parameters for a realistic restrictive covenant agreement.  But you're looking for an easy answer, so here it is.

    First, you will be forever restricted from soliciting or servicing the subscribers you sell for the services you were providing unless the agreement provides limitations to this general rule.  The theory for this is that you can't sell accounts and the good will that goes with those accounts and expect to be permitted to try and get them back.  If course by agreement you can agree to anything.

    When you make your deal you should make it clear what your future plans are.  If you're 35 years old both you and your buyer should expect that you're going to stay in the alarm business in some capacity unless you've revealed other plans.  If you're 75 years old and ready to retire then you can agree to something a permanent restriction.  

    You should not agree to any restriction that you know you're not going to honor.  Your buyer isn't likely going to sit back and ignore your breach of the agreement.  As far as what is actually enforceable for a restrictive covenant, that depends on the need to protect the buyer and the need for the seller to be able to find gainful employment often in the only industry he knows.  But the restriction will generally be enforced only as needed to protect the buyer.  The restrictive covenant will be scrutinized as to scope of restriction of activities, territory and length of time.

    I generally include a restrictive covenant in the Buy - Sell agreements I work on in the alarm industry and the length of time can be from 1 to 5 years typically. 

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WEBINARS

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Topic:  Integrating Quick Books with alarm company management software and credit card processing for RMR.  You will learn how to inexpensively automate and streamline your alarm business management using sofrware designed to work with Quick Books.  Hands on tutorial will demonstate how easy and useful this software can be.

 

When:  February 13, 2014 at 12 noon to 1 PM EST.

Register here:  https://attendee.gotowebinar.com/register/3856781481977174786

 

Moderator:  Ken Kirschenbaum

Panelists:  Mitch Reitman www.sicc.us;   Scott Taylor www.FI-Soft.com; Thomas Aronica  www.skybankfinancial.com

Who are the panelists:

    Scott Taylor, with Fi-Soft and manages the firms product development and partner relations activities..  Fi-Soft specializes in QuickBooks accounting software, training, and integrated solutions.  As a founding member of the Intuit Reseller Channel, Fi-Soft supports all versions of QuickBooks software and carries the highest level certifications from Intuit.  

    Mitch Reitman is a tax expert specializing in the alarm industry.  Besides accounting and tax work, he is an active and effective business consultant and alarm business broker.

    Thomas Aronica with SkyFinancial has a focus on credit card processing for the alarm industry including RMR processing, and integrates and works with Fi-Soft's Quick Books. 

Who should attend:  alarm company owners, office managers and those involved in alarm company nabagment, accounting and accounting records.  

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