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Identifying Key Employees

Identifying Key Employees

The term key employee can mean different things to different people. However, in Exit Planning, it has a specific meaning. Before you head down the path of identifying key employees in your Exit Planning clients’ organizations and creating Exit Plans that include them (either directly or indirectly), you, your client, and the other members of the Advisor Team should all be on the same page regarding what a key employee is. A true key employee has three critical qualities.

  1. He or she has a direct and significant impact on the business’ value.
  2. His or her combination of skills and experience would be difficult to replace.
  3. He or she will meaningfully participate in the company’s strategic future.

Because of these characteristics, the loss of a key employee will result in financial loss to the company and will delay the owner’s exit from the business.

Your business-owner clients will often include individuals who do not meet the criteria listed above on their list of key employees. Frequently, owners include internal accounting or bookkeeping personnel, office managers, technical project managers, and even CFOs. While these individuals more than likely have an emotional bond with the business owner, they are not key employees for the purposes of Exit Planning. As the quarterback of your clients’ Exit Planning Advisor Teams, it is your duty to redirect your clients toward placing these individuals in the important-employees category, which may even include giving these employees special treatment as part of the overall Exit Plan.

Once the group of confirmed key employees is agreed on by the owner, Advisor Team, and you, you can lead your client through the necessary steps to motivate, retain, and reward these key employees through the Exit Planning Process. You also may recommend including them in ownership, depending on your client’s Exit Objectives.

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