You Built the Business - But What Happens If You Can’t Be There?
Building a business takes more than money.
It takes time, knowledge, relationships, reputation and a lot of hard work.
For many business owners, the business they've built is one of their most significant financial assets. It may provide their income, employ other people, support their family and represent years of work.
But there is an important question that can sometimes get overlooked:
What happens to the business if one of the people it relies on suddenly can't be there?
Businesses are built around people
It's easy to think of a business in terms of its physical assets.
The premises. Equipment. Technology. Stock. Vehicles.
But many businesses rely just as heavily on people.
Perhaps there's a business owner who has built the key client relationships over 15 years.
Maybe one employee is the only person who knows how a particular system works.
Perhaps a salesperson generates a significant proportion of the company's revenue.
Or maybe the business depends heavily on one person whose knowledge, experience and relationships would be difficult to replace.
These people may not appear as assets on the balance sheet, but their contribution can be incredibly valuable.
What happens if a key person can't work?
Consider a business that relies heavily on its owner.
The owner might be responsible for bringing in new clients, managing major relationships, making important decisions and overseeing the day-to-day operation of the business.
If that person became seriously ill or suffered a major injury and couldn't work, the business could face several challenges at once.
Revenue could fall.
Clients might become uncertain.
Other employees could be placed under additional pressure.
Important decisions could be delayed.
The owner may also have personal financial commitments that depend on the business continuing to generate income.
The issue isn't necessarily that the business would immediately fail.
It's that the business may not have the same capacity to keep operating while it adapts to the loss of a key person.
What is key person risk?
Key person risk is simply the risk that a business could suffer financially if someone who is particularly important to its success dies or becomes unable to work.
That person could be an owner, director, employee or another individual whose contribution is difficult to replace.
The risk isn't limited to their job title.
A person might be “key” because of their:
Knowledge and experience
Client or supplier relationships
Technical skills
Leadership
Ability to generate revenue
Industry connections
Understanding of the business
Role in making important decisions
The more a business depends on one person, the more important it can be to consider what would happen if that person wasn't available.
It's about continuity, not catastrophe
Business protection isn't about assuming that the worst will happen.
It's about giving a business options if circumstances change.
If a key person dies or becomes seriously ill, there may be costs associated with replacing them, recruiting and training someone new, maintaining operations or managing a temporary reduction in revenue.
There may also be debts or other financial commitments that still need to be met.
Business protection can be structured to help address some of these financial risks, depending on the type of cover, ownership arrangements and policy terms.
The objective is not necessarily to make the disruption disappear.
It's to give the business breathing room while it works out what comes next.
What would happen to your business?
If you own or help run a business, it can be useful to step back and consider how dependent the business is on particular people.
Ask yourself:
If I couldn't work for six months, what would happen?
And then ask:
What if I wasn't coming back?
Would someone else be able to step into your role?
Do your clients have relationships with the wider business, or primarily with you?
Is important knowledge documented, or does it live inside someone's head?
Could another employee take over?
Would the business have enough cash available to manage the transition?
What would happen to business debts or financial commitments?
And perhaps most importantly:
How much of the business's value depends on people who may be difficult to replace?
You may find that the answers reveal risks you hadn't previously considered.
Protecting what you've built
When you've spent years building a business, protecting it isn't just about protecting the building, equipment or stock.
It's about protecting the things that make the business work.
The people.
The relationships.
The knowledge.
The income.
The reputation.
The future you've been working towards.
Key Person cover is one tool that can form part of a wider business protection strategy. Other arrangements, such as Shareholder Protection or Debt Protection, may also be relevant depending on the structure and circumstances of a business.
There isn't a one-size-fits-all solution.
The first step is understanding what could happen to your business if one of the people it relies on was suddenly no longer able to contribute.
You've built something worth protecting
A successful business rarely happens by accident.
It's built through years of decisions, relationships, hard work and persistence.
For many owners, it's also tied closely to their family's financial future and their own personal plans.
So while you might have plans for where you want the business to go, it can be just as important to consider what would happen if circumstances forced those plans to change.
Because protecting what you've built isn't about expecting your business to fail.
It's about giving it the best chance of continuing when the people behind it face the unexpected.
If your business relies heavily on you, a business partner or particular employees, it may be worth reviewing what would happen if one of those people could no longer work. At New Vision Financial Services, we can help you understand the different business protection options and how they may fit into your business structure and plans.
Glen Hatcher
Financial Adviser
New Vision Financial Services
Plan your future and let us help you have peace of mind along the way.