Key points
- Owner dependency concerns the owner; key person risk concerns anyone.
- Reducing one can move risk to another person.
- Buyers and successors usually examine both.
- Cross-training and documentation help with each.
The two ideas overlap but are not the same. Owner dependency is one form of key person risk — the one that matters most when ownership changes.
Owner dependency vs key person risk
Who it concerns
- Owner dependency
- The shareholder or owner
- Key person risk
- Any individual — owner, manager, engineer or salesperson
When it matters most
- Owner dependency
- On retirement, succession or sale, when the owner leaves
- Key person risk
- Whenever that person might leave, fall ill or be unavailable
Typical signs
- Owner dependency
- Decisions, customers and knowledge centre on the owner
- Key person risk
- One person holds a critical skill, client or system
Typical response
- Owner dependency
- Delegation, handover and management development
- Key person risk
- Documentation, cross-training, retention incentives and cover
Why does the distinction matter?
An owner can reduce their own dependency only to find the risk has moved to one manager or salesperson. A buyer or successor will usually look at both: whether the business needs the owner, and whether it relies on any other single person.
How do you reduce key person risk?
- Identify roles where one person holds critical knowledge or relationships.
- Document and cross-train.
- Spread key customer relationships across more than one person.
- Consider retention arrangements for people a successor would need.
- Review employment contracts and notice periods with an employment adviser.
This guide is general commercial information based on professional experience of UK SME transactions. It is not legal, tax or financial advice. Take advice from appropriately qualified professionals before acting.