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Key Person Protection

key person protection

If a key person died, or was disabled, would the future profitability of your business be as certain today, as it was yesterday?


A key person is someone whom the business relies upon for cash flow, market share, expertise, contacts, knowledge and experience etc.

If this person were not there, or was unable to perform their normal duties, the profitability of the company would be dramatically impacted.

The death or disablement of a key person could impact the business in a number of ways:

  • Loss of profits and additional costs in finding and integrating a replacement.

  • Loss of customers and valuable contacts.

  • Loss of market share as competitors take advantage of the situation.

 

If the death, disability, or major illness suffered by a key person results in a reduction of business revenue, profit or value, the business owners my be faced with one or more of these alternatives:

 
1. Recruit a qualified replacement, quickly.

The problems here include;

  • How long will it take to find a replacement?
  • How long will it take the replacement to become fully effective?
  • Will the business still lose revenue/profit/value in the interim?
  • What if the key person is a also a business owner?
  • What if the business has contracts that incur non-performance penalties?
  • What if the key person has given a personal guarantee to support a business loan?

2. Train an existing employee to do the job, quickly.

The problems here are:

  • Is there a suitable on-staff replacement available?
  • How long will it take to train the replacement?
  • How long will it take the replacement to become fully effective?
  • Will the business still lose revenue/profit/value in the interim?
  • What if the key person is also a business owner?
  • What if the business has contracts that incur non-performance penalties?
  • What if the key person has given a personal guarantee to support a business loan?
 
3. Contract work out to a qualified competitor.

This will not be a practical option, unless:

  • There is a suitably qualified competitor
  • They can guarantee completion on time
  • They will keep information confidential

Additionally there are still problems if:

  • The key person is a business owner and loan guarantor
  • The business incurs contract performance penalties
  • The business loses value in the interim
  • The competitor uses information gained while "doing your contract work" against the business at a later date.
 
4. Borrow to fund a reduction in cash-flow, quickly.

The problems here are:

  • Will the business be able to service an additional loan at this time?
  • Will a lender be willing to make further loans at this time?
  • Does the business have existing loans?
  • Does the business or its owners have additional security to give the lenders?

5. Sell assets to fund a reduction in cash-flow.

The problems here are:

  • Does the business have surplus assets that can be easily sold?
  • Assets may not realise full value
  • How long will it take?
  • Will the business' lenders provide support in the interim?

 

"A key person protection plan to inject cash into the company is the only effective solution."
 

Copyright Graeme Lindsay Strategy Toolbox, 2003.

 

For a FREE, no-obligation, personal and confidential review and quotes, giving you options and comparisons for your key person protection, CLICK HERE

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Futureproof Life is a family owned business specialising in risk management & lifestyle protection solutions for businesses & families.
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Phone 09 413 6070