Continuing on posts from earlier this week (see here), I’m still riding shotgun for the founder of a company who raised VC funding while negotiating a sale. Most things have been agreed upon, with a noncompete agreement still outstanding. A noncompete is just what it sounds like, a contract that prevents a former employee from working for a competitor or starting a similar business for a specific period—and sometimes within a defined geographic area.

It makes sense for a buyer to ask for a noncompete. You don’t want to purchase something and then see the seller start a competing company that reduces the value of the one you bought. Warren Buffett learned this lesson the hard way with Rose Blumkin (see here).

The downside is that it’s a legally enforceable agreement. Translation: you can be sued for breaching it. From a seller’s perspective, not having a noncompete is ideal but unrealistic in many instances. If a seller has to sign a noncompete, good strategies are to make sure it defines competition as specifically and narrowly as possible and covers as short a period of time as possible. The goal is to reduce the risk of breaching and being sued. Broadly defined (or undefined) competition is risky because it doesn’t set clear expectations for the buyer and seller, opening the door to disputes down the road. And the longer the agreement period, the longer the founder is limited in what new ideas he or she can pursue.

Noncompetes make sense, but founders should aim to use them to set crystal clear expectations. Murky expectations can lead to avoidable disputes down the road, which isn’t good for anyone.