A key person in your business is someone whose skillset you cannot do without. Their distinctive abilities, knowledge and/or influence means that they play an integral role.
It’s never nice to think about worst case scenarios, but should this person be suddenly unable to work and contribute, it might be best to consider how you can reduce the impact of their absence.
In the case of start-ups or smaller companies, there might be a dependence on one or two key individuals. For larger businesses, whilst there may be more staff to substitute, there might be greater overheads and consequently the loss of a key person could affect the bottom line in a more serious way.
Here are some ways you can minimise the adverse impact of the loss of a key person:
1. Share the load – Across your team, ensure all the relevant people have the knowledge they need. Don’t let bottlenecks occur. Diversify responsibility and decision-making to distribute the burden and safeguard against potential vulnerabilities.
2. Succession planning – Identify and nurture potential successors to achieve a more seamless transition in the event of unanticipated departures. This proactive approach ensures continuity and minimises the upheaval caused by the absence of a pivotal contributor.
3. Insurance for the business – There are various insurance solutions available to address key person risk. Key person insurance can extend financial support in scenarios where a vital team member becomes unavailable. You can take out key person insurance with the agreement of the person who is being covered, but you must have a financial relationship with that person to make this possible.
4. Insurance for the employee – Owning a business is more than just the flow of income and expenditure, delivery of the product and satisfying clients. Looking after team members (and not just key employees) through employment, is a significant aspect of leadership. Most of the time, when a key employee moves on, they will be retiring or perhaps taking a new role. Occasionally, it is due to ill health. Protecting your team and their families through death in service cover, salary protection and health insurance may be crucial, so you can support your team in a critical situation.
Make sure your business is as resilient as possible for whatever the future may hold.