We've covered what business resilience means, how to strengthen your finances and how to strengthen your operations.
This final post looks at the part of the business that ties everything together – your people.
Invest in people and processes
Businesses that document how things work and cross-train their people are simply better placed to manage disruption when it comes.
In times of pressure, the instinct is often to cut back. More often, pivoting or reinvesting intelligently is the stronger move.
A few practical steps make a real difference here. Document key processes and make sure they're accessible to everyone who needs them, rather than living in one person's head.
Cross-train staff so critical functions can still be covered if someone is off sick or leaves. Keep communication with your team open during uncertain periods rather than letting rumour fill the gap.
Make sure to review your employment contracts and HR policies regularly, since these often go untouched for years at a time and can create unnecessary risk.
The risk of relying on one person
When key knowledge or key relationships sit with a single individual, the business is exposed if that person is suddenly unavailable, whether through illness or because they've decided to move on.
It's a risk that's easy to underestimate, since most of the time nothing goes wrong. When it does, the impact can be immediate and severe, particularly for smaller businesses where one or two people often hold a disproportionate share of the institutional knowledge.
Building redundancy into your team and documenting it go a long way towards managing this risk, but they don't cover the financial impact of losing a key person, even temporarily. That's where key person cover comes in.
What is key person cover?
Key person cover, sometimes called key person insurance, is a policy that pays out to the business if someone whose skills, knowledge or relationships are critical to its performance dies or is diagnosed with a specified critical illness.
It's designed to give the business breathing room. The payout can be used to cover a fall in profits while the business adjusts or to fund recruitment and training for a replacement.
Some businesses use it to repay debt too, where a lender made the key individual's involvement a condition of borrowing.
Businesses typically consider cover for directors, founders and any employee whose absence would have a material impact on turnover or profitability. That might be a technical specialist or the person who holds your largest client relationships.
Just as often it's someone whose knowledge of how the business actually works has never been written down anywhere.
Working out whether you need it
A useful starting point is to ask what would actually happen if a particular person were suddenly unavailable for six months. Would revenue hold up? Would the clients who deal mainly with them stay put? If the honest answer points to a significant financial hit, that's a strong signal that key person cover is worth exploring.
The right level of cover depends on the individual's contribution to the business, so it's worth taking advice rather than guessing at a figure. Your accountant can help you work through the numbers alongside a suitably qualified insurance adviser.
Time to build business resilience
Across this series we've covered the numbers, the operations and the people.
None of this steps need to happen all at once. Most businesses find it more manageable to work through these areas one at a time, starting with whichever feels most exposed right now.
What matters is starting somewhere, rather than waiting until a disruption forces the issue.
If you'd like to talk through any of the areas covered in this series, from cash flow forecasting to key person cover, our team at Scholes Accountants would be glad to help.
Get in touch to arrange a conversation about building resilience into your business.
This is the final post in our four-part series on building business resilience.
← Previous: Building operational resilience
← Building financial resilience
← Intro to business resilience
