Protecting your key people in your business
Protecting key people in your business is as important as protecting your business assets such as plant, stock and equipment.
One of the most valuable assets a business owner can have is the right person in the right role but it can take valuable time and money to find the right person for your business.
You may even need to go through a few employees to find the right person, and getting them up to speed in your business, but protecting key people once you have found them is smart.
The payoff is, once the right person is up to speed, they can become very valuable and become a Key Person in your business. But until you reach that point, it’s all investment on your behalf.
What is a Key Person?
A Key Person is someone who contributes to the success of your business, and that your business will be impacted financially if this person were not able to perform their duties.
For example, you may have a sales person who contributes to 20% of your overall revenue, I would consider this person a Key Person.
Identifying a Key Person
Stop for a moment and think about the individuals in your business and how each of them contributes to your business. If a certain individual were to leave your business, and your business would not be impacted financially then this is not a Key Person.
However, if an individual were to leave and your business would feel the pinch financially because of what they contributed, then I would consider them to be a Key Person.
Remember you are the first Key Person!
Protecting key people in your Business
Now that you have identified who the Key Person or People are in your business, you need to protect your business from any loss of revenue when they cannot perform their duties due to sickness or accident or even death.
There are a few methods to make up for any shortfalls in cash flow when these events occur, which are;
You can use reserves
Extend lending (if the bank will allow it)
Bring in a capital partner (this will take time)
Find a suitable replacement (this will take time also)
Use an Insurer
Pass on the risk
A cost-effective way of protecting key people in your business in the event of death or disability is to pass on the risk to an Insurer.
This can be one of the cheapest ways to secure funds when your business experiences a loss of a Key Person. You pay a premium for them to take the risk and pay your business the income and capital should any of these events occur.
Some Insurance companies, have specialist solutions to protect Key People in business. Depending on the insurance company you can replace lost revenue, have a lump sum capital injection into the business to meet shortfalls in cash flow, and to incentivize to recruit a new replacement.
You can never eliminate risk in business, but you can manage it, and how much it will affect your business and your personal life including your family members.
If you are not completely certain that your coverage is in line with your current needs and budget, please contact our expert Insurance Adviser Shaun Nicol email:firstname.lastname@example.org
ph: 06 870 3012 or 0210 391 899 Shaun can talk it through with you over the phone, via email, skype or meet with you in person to help you decide what's best for you, your business and your family.
We're always here to help you make the best decisions based on your individual needs, current situation, and long-term goals. Don’t have an adviser? Call : 021 039 1899 or Click HERE to Talk it through with an expert
Shaun Nicol is a New Zealand Registered Financial Services Provider: FSP272065