Key person risk

Key person risk is the exposure a business carries when its revenue, knowledge, relationships or decisions depend on one individual. In owner managed companies that person is usually the owner: the best technician, the top salesperson, the only one who knows the pricing and the passwords. If that person is away for a month, the business stumbles. If they leave, the business may not survive.

In British Columbia this risk shapes everything from the owner's holidays to the sale price of the company. Lenders ask about it. Buyers discount for it heavily, because they are buying a business that may walk out the door with the seller. It also traps the owner, who cannot step back because nothing runs without them, and it makes growth impossible past the owner's capacity.

In practice key person risk is reduced by making the business's knowledge and relationships belong to the company rather than to a person: written SOPs and playbooks, a CRM with every relationship and its history, an accountability chart with seats others can fill, an operating cadence that runs without the owner and documented access to every system. Interim and fractional executives reduce it quickly while permanent seats are filled. Ali Sedighi's team treats key person risk as the central problem in most owner engagements, and BizSell.ca sees its cost in every valuation.