All businesses contain people that are key to the success and profitability of the company. Many businesses would be severely affected if one of the these people were to die or become unable to work suddenly, leading to problems such as lack of confidence in the company, withdrawal of credit facilities, the need to recruit and train a replacement. In some circumstances it could lead to bankruptcy of the company.

The problems associated with the loss of a Keyman fall into four main areas:

• Loss of profits
• Loan protection
• Management buy-outs
• Sole proprietors

Loss of Profits

The loss of a Keyman can result in a reduction in profits in the following ways:

• Interruption/ loss of sales
• Loss of confidence in business
• Special projects delayed or not completed
• Recruitment and training costs

Loan Protection

The ability for a company to obtain finance as and when required makes all the difference to most companies. Any situation that could jeopardise existing loans or the capacity to take on new one should me carefully mitigated.

There are 3 main areas of Keyman loan protection to consider:

• Commercial loans
• Directors loans
• Personal guarantees

For all these types of loans it is important for a company to plan for the possible death or illness of a Keyman guaranteeing a loan.

Management Buy-Outs

Management buy-outs or other company restructuring often depend on one of two keymen obtaining the necessary backing from the banks or other institutions and securing vital contracts with suppliers and buyers. If such a keyman was to die during negotiations or in the early years of the new company, it would likely lead to the buy-out not going ahead or the failure of the new company.

Sole Proprietors

Usually the businesses of sole proprietors contribute directly to the financial well-being of the owner and his family. Sole proprietors face all the potential problem of the loss of a keyman and on death the consequences for the business could be catastrophic.

The aim in this scenario will be to provide money for the family on the death or illness of the sole proprietor, to help ensure continuation of the business in the short term, until the family has been able to make provision for the longer term. A lump sum available to the family can for example be used to retain or recruit employees with the skills to run the business.