When a key person leaves: Preparing for the unthinkable

Every business has people who are impossible to replace overnight. They may be the founder, a shareholder, or a senior leader whose knowledge, relationships, and decision-making drive the organization forward. These “key people” are often the glue that holds strategy, culture, and operations together.

But what happens if one of them suddenly leaves – through illness, accident, unexpected retirement or even death?

It’s not a scenario any business owner wants to imagine. Yet planning for it is one of the most important responsibilities of leadership.

We’ve spent decades helping businesses think ahead to protect what they’ve built. The goal isn’t just survival. It’s continuity, stability, and confidence that the company can thrive no matter what comes.

Why key person planning matters

A sudden departure can shake a business in ways that go far beyond the financial. Clients may lose confidence, employees may worry about their jobs, and growth plans can stall. The ripple effect can last for years.

Without a plan, businesses often have to scramble – borrowing cash, selling assets, or stretching already thin management teams to cover the gap. The result? More stress at a time when steady leadership is needed most.

That’s why proactive key person planning is so valuable. It creates a roadmap for continuity, protecting both the business and the people who depend on it.

Three pillars of protection

1. Succession planning

Succession isn’t only about retirement or a future sale. It’s also about asking: If a key person were gone tomorrow, who steps in?

Strong succession planning identifies potential leaders, builds their skills, and documents the processes that keep the business running. It also considers how ownership will eventually transfer, whether within the family, to management, or through a sale.

The best succession plans are living documents. It's important to review your succession plan regularly, adapt it as your business grows, and integrate it into your broader business strategy.

2. Continuity planning

Continuity planning goes hand-in-hand with succession. It’s about ensuring your business has the cash flow, systems, and structures to weather disruption.

This might include:

• Cross-training employees so no one person holds all the knowledge.
• Keeping updated job descriptions and process documentation.
• Building strong banking relationships to ensure credit is available.
• Ensuring contracts and responsibilities don’t rest with a single person.
   

The more a business can spread out knowledge and authority, the less vulnerable it is to sudden change.

3. Key person protection

Even with strong succession and continuity planning, the financial impact of losing a key person can be significant. Recruiting a replacement, training staff, or covering lost revenue requires capital. And if the key person is also a partner or shareholder, any remaining shareholders may need to buy out their interest from a spouse or estate – often at the very moment when stability is most important.

When this happens, there are a few options for funding, including:

• Cash on hand. Provides immediate access to fund a buyout, but most businesses don’t have this level of liquidity readily available, and using it can weaken day-to-day operations.
• Borrowing. May be possible, but lenders often view a business as riskier without a key leader, which can mean higher interest rates or restrictive terms.
• Selling assets. Can generate capital, but often at a discount if done quickly, and rarely without disrupting operations or long-term plans.
• Insurance. Creates a dedicated pool of capital for exactly this type of event, available immediately and without straining the business.
   

By addressing this risk proactively, businesses avoid being forced into difficult choices at the worst possible time. Insurance doesn’t remove the challenge of losing a key person, but it provides the financial stability to manage the transition, protecting employees, partners, and families while leadership focuses on moving the business forward.

How we help

Our role at RLF Advisory is to make sure no stone is left unturned. We integrate succession, continuity, and protection strategies into a clear plan that reflects your unique situation. That often means stress-testing scenarios, collaborating with your accountants and lawyers, and balancing immediate needs with long-term goals.

For many entrepreneurs and executives, the business isn’t just a source of income – it's their life’s work. It provides for their family, supports employees, and often plays a role in the community.

Preparing for the unthinkable ensures that this legacy continues. It protects not only shareholders and partners, but also the people who depend on the company for their livelihoods.

Final thoughts

Preparing for the unthinkable isn’t pessimistic; it’s proactive. It’s about honouring the work you’ve put into your business and ensuring it can endure, no matter what comes next.

Protect your business, your people, and your legacy. Let’s start the conversation today.