OK, this is the last in my series of topics about taking necessary measures to protect you company against the loss – at least for now. Have you adequately protected yourself against the loss of key personnel?
I usually call this the ‘Bus Problem.’ What happens if you (or someone else in your organization) doesn’t look both ways as you cross the street, steps off the curb, and gets hit by a bus?
Loss of an Owner
Thoughts in this area usually begin with addressing ownership transition. What happens to the business if the owner’s heirs want to extract their value? You need to take adequate preparations to deal with this possibility. At a minimum, there should be an agreed method of valuation. Write it down and have it assigned by the owners.
You may also want to anticipate and create by-out contigencies. For instance, creating a life insurance policy where the company as the beneficiary, so the business could buy back the shares of the company so the heirs could extract the value.
In addition to the owners, you should also consider critical personnel. What if a key manager or technical expert is incapacitated? You may want to consider getting keyman insurance that would provide money for the company to replace and train an new person.
In some case, companies attempt to minimize this risk by cross-training employees. But, you may encounter objections from employees who want to ‘protect their turf.’ If so, you might appeal to them to help you help protect the company and their fellow employees against the potential risk of their incapacitation.
Oustsourcing to Reduce Risk
Some people consider subcontracting as a related matter. They use subcontracting as a risk mitigation strategy to reduce the chance of lay-offs. So, they plan to have 20-40% of their labor subcontracted. Particularly in light of the recent economic issues, it may seem like a prudent strategy.