by Noel Bagwell
for ExecutiveLP

August 22, 2016

The Smaller, the Greater

The smaller your business is, the greater will be the impact of losing a key employee. For a start-up or a business with only a handful of employees, losing even one employee can be a bona fide disaster–especially when that employee is a key person.

What would happen if

[___________] never returned to work? Fill in the blank with the name of any person you consider essential to your business. Assume they died suddenly. How would your business respond to that situation; how would it recover from that loss?

Evaluate Your Risk

Consider each person whose name you put in the blank space above. What procedures do they follow, what tasks do they complete that only they know how to effectively, efficiently accomplish? It is likely you cannot satisfactorily answer that question. You need to interview the person, and extract the answer from them. Your goal should be to not permit any knowledge of how to complete any business processes, necessary tasks, or other important know-how exist only in the mind of a key employee.

Two particularly important aspects of the know-how you want to record are: (1) operation of the productivity software you use, and (2) passwords. It is important, especially in small businesses, for all employees to have basic familiarity with all software relevant to their skills and positions. This does not mean everyone should be trained to do everything. It simply means that, if software is used to accomplish some effect that is necessary to an employee’s job, they should understand the role the software plays in the process and, generally, how the software accomplishes the necessary effect.

Your company policies (contained in your Employee Handbook) should specifically require all passwords to be securely stored in a place where upper management can access them. There are a number of good password managers on the market, and you should select one that allows you to share passwords between users in a user group. Make sure that key employees do not possess a password, themselves; instead, they should have access to the password possessed by the business.

These are not the only aspects of the know-how you want to record. Consider developing a full Operations Manual for each position. In fact, if you have hired your first employee in a key position, make creating this Operations Manual part of their job.

Risk Reduction

The best safeguard against losing a key employee is quickly being able to get a replacement employee up to speed and functioning in the role the key employee once played in your business. One of the best tools for that job is a good Operations Manual. The Operations Manual should also include a concise job description, which can be used in your efforts to recruit a replacement and help both your current key employee and any new hires understand their role in your business, which aspects of their job are most important, and on what criteria their performance is likely to be evaluated.

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Briefly mentioned, above, is documenting the business processes, necessary tasks, or other important know-how which might presently exist only in the mind of a key employee; and I have already alluded to the benefits of some cross-training on software systems. The necessity of such documentation and cross-training, however, is not limited to use of software. Wherever it is efficient to cross-train employees on systems to create redundancy of familiarity with key processes, tasks, or systems, a good manager will endeavor to promote such redundancy as a safeguard against the loss of key employees.

Use written employment agreements–especially with managers. These agreements will contain provisions which will govern the orderly exit of a key employee from the business, and, ideally, the transition of that employee’s responsibilities to their replacement. Also, you should consider (at the highest levels of management) adding a Key Person insurance policy to cover any financial losses the business may suffer as a result of a sudden, unexpected loss of a key employee.

Hope for the Best, Prepare for the Worst

There are costs associated with a proactive, preventive approach–costs which may not appear to have an associated immediate benefit. Consider, however, the alternative: getting caught with your pants down, being unprepared, suffering the loss of a key person without doing any of the things recommended above. Isn’t that more expensive than preparing for a scenario that really could happen to any business, and often happens to start-ups and small businesses.

Be prepared. Have a plan. It may cost you a little on the front-end, but when the storm comes, you’ll be glad you boarded up your windows and secured all your valuables.


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