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Every successful business depends on people—not just products or processes. Some individuals hold knowledge, relationships, or leadership roles that are critical to keeping the business running smoothly. What happens if they suddenly leave, fall ill, or pass away?
Key person planning addresses this risk. It helps protect your business from disruption by identifying essential personnel, securing continuity through insurance, and using strategies to retain top talent.
Neglecting this planning is like balancing a fragile masterpiece on a high shelf without a safety net. It assumes the future will go as hoped - without actually preparing for it.
In this blog, we’ll explore:
• How to identify key employees for succession planning
• The role of key person insurance in protecting business continuity
• Retention and non-compete strategies to safeguard your team
1. Identifying Key Employees for Succession Planning
Not every employee is mission-critical. Key people typically:
• Hold institutional knowledge or unique skills
• Maintain high-impact relationships with clients or vendors
• Influence company culture or team performance
• Would be difficult to replace in the short term
Ask these questions to identify key personnel:
• What tasks or decisions would come to a halt if this person left?
• Do they manage major client relationships?
• How long would it take to train a suitable replacement?
• Are they the only person who understands a certain system, vendor, or process?
Pro Tip: Use a succession chart to outline possible successors. If there’s no immediate backup, you’ve identified a key person. This also highlights training opportunities and succession gaps you can begin to fill.
2. The Role of Key Person Insurance in Business Continuity
Once you've identified your key people, the next step is to protect the business against their unexpected departure through key person insurance.
What is Key Person Insurance?
Key person insurance is a life (or disability) insurance policy purchased by the business on a critical employee. If the insured person dies or becomes disabled, the business receives a payout. This financial support helps the company recover while adjusting operations or recruiting a replacement.
The payout can be used to:
• Offset revenue loss from paused projects or lost clients
• Cover the cost of hiring and training a replacement
• Provide stability for stakeholders, partners, or lenders
• Maintain employee morale during uncertain times
How to Set It Up
• Choose the right people – only those whose absence would create significant disruption
• Estimate coverage amounts – consider recruitment costs, transition time, and potential revenue loss
• Review annually – as your team and business evolve, so will your coverage needs
Note: Key person insurance doesn’t go to the employee’s family—it goes directly to the business to support continuity.
3. Retention and Non-Compete Strategies for Key Employees
Prevention is better than cure. Retaining your key people is often more valuable than replacing them. Smart businesses use a combination of retention incentives and protective agreements.
Retention Strategies
1. Deferred Compensation
2. Equity or Phantom Stock
3. Professional Growth
4. Recognition and Flexibility
Non-Compete and Non-Solicit Agreements
If a key employee does leave, you want to ensure they don’t immediately take your clients, employees, or proprietary knowledge.
• Non-compete clauses limit the employee’s ability to work with direct competitors for a period of time.
• Non-solicit clauses prevent them from poaching your clients or team members.
⚠️ Use with caution: Non-compete laws vary by state. Some states (like California) prohibit them entirely. Make sure your agreements are legally enforceable, reasonable in scope and duration, and focused on protecting legitimate business interests.
Best Practices
• Align non-compete agreements with financial incentives (e.g., stay bonuses or severance packages)
• Keep terms reasonable—typically no longer than 6–12 months
• Revisit and update contracts as roles evolve or laws change
Planning for People = Planning for the Future
Legacy isn’t just about wealth - it’s about the people, knowledge, and values that built your business. If your most important people leave tomorrow, will your business survive - or stumble?
Key person planning offers a proactive way to secure your future:
• Know who your irreplaceables are
• Prepare financially for the unexpected
• Keep your most valuable people engaged and protected
Creating a plan today ensures your business isn’t left scrambling tomorrow. Whether you're growing a family business, preparing for succession, or simply safeguarding your next chapter - don’t let chaos fill the space that clarity should occupy. Reach out today to discuss your plan.
