Key-person risk

Every small business concentrates some knowledge in a few heads, but key-person risk becomes a deal issue when one person’s absence would be hard to replace on any reasonable timeline. It looks different in every business: a restaurant built around one chef, a trades company where only the owner holds the licence, an agency where a single account manager holds every client relationship.

Where it commonly hides

• A licence, certification or bond held personally rather than by the corporation
• Supplier or customer relationships that were never put in writing
• Pricing logic, a proprietary process or a real vendor contact that lives only in one person’s head
• A family member working below market wages who is not staying after closing

How it gets priced or managed

A buyer cannot remove key-person risk before closing, but a seller can shrink it — cross-training a second employee, moving a licence to the corporation where the regulator allows it, putting supplier terms in writing. Where the risk can’t be removed, it usually shows up as a longer transition period, an earn-out, or a retention agreement that keeps the key person incentivized to stay.