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Non-Compete Value Calculator

Reviewed by the CalculatorHub team, edited by James Graham. Estimates only, not legal or tax advice. Last verified 14 June 2026.

In a business acquisition, a portion of the purchase price is often allocated to a covenant not to compete (non-compete agreement) with the seller. The value of this covenant is typically the present value of the economic protection the buyer receives from preventing the seller from competing during the restriction period. This calculator estimates that value using the lost profits approach: what annual profits would the buyer lose if the seller competed, multiplied by the probability the seller would actually compete, discounted to present value, and adjusted for enforceability risk. All results are estimates only.

Estimated annual profits that would be lost to a competing seller.
Estimate of how likely the seller is to actually compete without the agreement.
Risk-adjusted discount rate reflecting the buyer's cost of capital.
Estimated probability the non-compete would be enforceable if challenged. 100% = fully enforceable.
$480,000.00
$401,978.16
$160,791.26
$120,593.44

Non-compete valuation formula

Undiscounted Value = Annual Profits * Restriction Years
PV Factor = (1 - (1 + r)^(-n)) / r, where r = discount rate, n = years
Present Value = Annual Profits * PV Factor
Risk-Adjusted = Present Value * (Compete Probability / 100)
Non-Compete Value = Risk-Adjusted * (Enforceability / 100)

The present value annuity formula discounts the stream of annual protected profits to today's value, reflecting that future profits are worth less than present profits. The result is then adjusted for both the probability the seller would actually compete and the enforceability risk in the relevant jurisdiction.

Non-compete allocation in business sales

  • Both buyer and seller must agree on how the purchase price is allocated among asset classes (including non-competes) and report this on IRS Form 8594.
  • The IRS has seven asset classes under IRC Section 1060; non-compete covenants are typically Class VI or Class VII assets.
  • Buyers prefer more allocation to non-competes (15-year straight-line amortisation); sellers prefer less (ordinary income vs capital gains).
  • Courts assess reasonableness: a 2-year non-compete in a regional market is more likely enforceable than a 10-year nationwide restriction.
  • In some states, courts may blue-pencil (modify) overly broad non-competes rather than void them entirely.

Non-compete value calculator: frequently asked questions

What is a non-compete agreement?

A non-compete agreement (also called a covenant not to compete) is a contract in which one party agrees not to start a competing business or work for a competitor for a specified period and within a defined geographic area after leaving employment or completing a business transaction. Non-competes are common in employment contracts and business sale agreements.

Are non-compete agreements enforceable?

Enforceability varies significantly by state. California, Minnesota, North Dakota, and Oklahoma broadly prohibit non-competes in employment contexts. Most other states enforce them if they are reasonable in scope, duration, and geographic area, and are supported by adequate consideration. The FTC issued a rule in April 2024 that would have broadly banned non-competes, but that rule was blocked by federal courts; enforceability continues to be governed by state law as of 2025.

How is consideration for a non-compete calculated in a business sale?

In a business acquisition, the value attributed to non-compete agreements is typically the present value of profits the buyer would lose if the seller competed during the restricted period. Courts and the IRS look at the seller's ability and incentive to compete, the economic impact of competition, and the actual economic harm that would result. IRS Revenue Ruling 69-643 addresses the tax treatment of covenants not to compete.

How is a non-compete valued for tax purposes?

In a business sale, amounts allocated to a non-compete covenant are taxable as ordinary income to the seller (not capital gains) and are amortised by the buyer over 15 years under IRC Section 197. Both buyer and seller must file Form 8594 (Asset Acquisition Statement) showing the agreed allocation of purchase price to a non-compete and other asset classes.

What makes a non-compete more or less valuable?

Key value drivers include: the seller's ability to actually compete (skills, reputation, relationships), the scope of restriction (narrower = less valuable protection), the duration (longer restrictions protect the buyer more), the geographic area, the industry's competitive dynamics, and whether the non-compete is likely to be enforceable under state law.

Official sources

Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.