Understanding Key Man Risk

Key man risk refers to the dependency on a single individual whose absence could jeopardize the stability and profitability of a business. This risk often arises at the founder level, but can also be present in employees who possess unique skills essential for operations, such as sales or product delivery. For instance, if a business relies solely on one person for marketing or sales, losing that person could significantly disrupt lead generation or revenue generation. The solution to this risk lies in creating redundancy, ensuring that multiple individuals can perform critical functions, thereby preventing the business from coming to a standstill if a key person leaves.