360Private

When thinking about the risk factors in each business, the term ‘key man’ is often used. What this relates to is revenue and how the exit of 1 or more person(s) could affect the revenue of the business. It occurs when a business becomes heavily reliant on a key individual(s). Although this risk is typically found in small to medium enterprises (SME), it occurs in companies of all scales and to varying degrees.


If you own, manage or work within a SME, chances are you can name a select few people who are critical to the viability of your business.  Now imagine you suddenly lost them. This could be the catalyst for uncertainty for your business, poor staff morale or loss of staff.

Consider these questions;  

  • Did they have a unique skill set in the business? Eg Perhaps they hold important sales relationships or have a niche skill difficult to replace.

  • Would their exit have a downward impact to the business’ revenue? Eg reduced sales or profitability

  • Would they be difficult to replace? Consider how long it may take

If you’ve answered Yes to the above exercise, chances are you have identified someone critical.

So how do you protect and ensure the viability of your business?

One common and cost effective method to protecting your business from financial distress is through insuring the individual(s).  The intention being to provide a capital injection to the business should the key person die, suffer a serious accident or illness.  In receiving a lump sum, the business can seek an ideal replacement, provide inducements (if necessary), fund advertising and buffer the loss in revenue and/or capital value through the transitionary period.

Should you have someone whose knowledge, relationships and experience are unique to the business, this is a risk that should be addressed appropriately. Our Risk team is happy to talk through your situation and make recommendations of the right strategy for you.

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