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© Copyright 2002-2003. All rights reserved.
Page 23
How To Investigate Any Business Opportunity
Covenant not to compete: Protects the buyer and his investment from immediate competition by the
seller in his market area for a limited amount of time. The scope of this document must be reasonable in
order for it to be legally enforceable. The covenant not to compete is sometimes included as a part of
the purchase and sale agreement and is sometimes written as a separate document. It is signed by both
parties. It is not required in every transaction.
Employment Agreement: Specifies the nature of services to be performed by the seller, the amount of
compensation, the amount of time per week or per month the services are to be performed, the duration
of the agreement and often a method for discontinuing the agreement before its completion. Employ-
ment agreements are not required in all transactions, but they are used with great frequency, It is not
uncommon that the seller remain involved with the business for periods of as little as a week or as much
as several years. The length of time depends on the complexity of the business and the experience of
the buyer. For periods of more than 2-4 weeks, the seller is often compensated for his services. It is
signed by both the buyer and the seller.
Contingent Liabilities
Contingent liabilities must be taken into account and provided for when a business is sold. They most
often occur because of pending tax payments, unresolved lawsuits or anticipated but uncertain costs of
meeting regulatory requirements. Contingent liabilities can be handled by escrowing a portion of the
funds earmarked for disbursement to the seller. The sum escrowed then can be used to pay off the li-
ability as it comes due. Any remaining money can then be disbursed to the seller.
The Buy-Sell Process
Is there a small-business owner who has never considered selling his business? Probably not. Is there
an individual with some money, talent, or an urge for independence (often only the last) who hasn't
thought about owning his own business?
The number of small businesses actually bought and sold, however, represents only a small fraction of
those who have felt these urges. To many people, the desire to buy or sell is only a passing thought. 
Others find various ways to solve their problems or satisfy their ambitions. But sometimes an individual
doesn't follow through because he finds the prospect of buying or selling a business too baffling.
The objective of this section is to describe the process of buying and selling a small business and to es-
tablish some guidelines. It will not remove the difficulties, but it will make them more manageable.
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