|Over the past few months we have all been forced to face up to the reality, or at least the very real possibility, that we might not always be able to give 100% to the business. And it’s not just us business owners, any successful business will rely on the expertise and experience of a number of key personnel. So how do you protect your business from the potentially catastrophic consequences of losing the skills of a key player?
I am sure most of you will be aware of key person insurance, it can be a really effective way to protect the business against the financial impact of death or terminal illness, but these are not the only scenarios in which you might lose a key member of staff.
Hopefully you will have your key staff on strong contracts that include reasonable notice periods and non-compete clauses, but it may be worth considering some balance. In addition to sanctions that discourage jumping ship, it might be appropriate to consider offering shares, profit share or some other scheme that encourages staff to feel invested in the continuing success of the business.
There are, of course, other ways that you as an employer can help insure yourself against losing staff to ill health. Offering benefits to key employees like health insurance, gym membership, and investing in staff welfare can often have a positive impact on the business that far outweighs the cost.
The football model
Football clubs and many other sports teams face this issue all the time. The physical nature of competing in top-level sports means the risk of injury is a very real challenge for clubs. An injury that keeps your key striker on the side-lines for six months can be catastrophic to a season.
The model they employ is to have depth in their squad so that they have a capable replacement to fill the vacant position and keep the team going. But that’s a very expensive model and many players are paid huge salaries simply to ‘warm the bench’.
However, it might be appropriate in your business given the right set of circumstances. In the same way that a midfielder may fill in at left back to help the team through a crisis, it may be possible to cross-train certain roles within your business which will provide at least temporary cover in an emergency.
One of the biggest challenges SME businesses face is how to replicate the knowledge and experience of the owner, or other key personnel. In one sense, there is no replacement for years at the coal face, learning and refining your skills. But if the business is too reliant on the skills and expertise of one individual it can be a precarious situation for all involved. If you think about it, this is a key step in ensuring the longevity of the business and influential in determining its value.
The best way to mitigate against this is to record as much knowledge as possible in a way that can be retained within the business. Think of it like creating a manual for the business, a how to guide that details how you would approach different situations, your five year plan for the business and any tricks, tips and techniques that are relevant to doing what you do.
Training and development programmes
Of course, all of this is not just useful for planning for the worst. It also has significant value in your general succession planning. There are plenty of stories of business owners leaving it too late to plan ahead and they end up working beyond the time they wanted to or worse, the business falters as the energy and drive behind it slowly declines. Investing in the next generation, training up apprentices and promoting from within are some ways that might be appropriate to think about.
Three steps forward
So how do you go about addressing this need, especially if it’s something you haven’t thought about before now?
Here is our suggestion of three steps you can take to begin addressing the issue:
1. Audit – make a list, who are your key people and what unique skills, expertise or experience do they have? Don’t forget to include yourself!
2. Assess Risk – it may be rather uncomfortable to think about, but ask yourself what the impact on the business would be if each of those people were unable to perform their job for an extended period of time? One month, six months, a year?
3. Plan Ahead – prioritise those that pose the highest risk and start to think about what you can do to mitigate that risk.
This can be a difficult thing to do, it’s hard to think about and can be very challenging to be truly objective in these situations. Entrepreneurs Hub can help! Our expert advisors, each well-seasoned in running and growing businesses, are well placed to provide honest, third-party advice and guidance in this area.
Every business owner should review their succession planning on regular basis
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