1. Gets things done. They might be a business partner, director, manager, company secretary, accountant, supervisor, foreman or specialist. Any person whose brains, knowledge, skill or energy converts the tangible assets of the business into income and profit is a key person.
2. Builds goodwill. Their human attributes and qualities inspire confidence, attract custom, build clientele. Goodwill enhances the value of the business – it is vital to continued success.
3. Improves the credit standing of the business. The confidence and goodwill built up by their skill and efficiency often enhances the credit extended to a business by suppliers and bankers alike. And credit, it is said, is the life-blood of a business.

It would mean that:

1. Profits may fall. It will take time and money to find a replacement and many months for the new person to become fully effective. In the meantime momentum flags and profits may fall. This is an opportune time for competitors to grasp an advantage.
2. The remaining business partners’ attention is diverted.  New people can make mistakes. That means money.  Supervision and support in the early stages means less time for more profitable activity. That means money too.  Employees get restless – expenses often tend to rise.
3. Liquidity and credit can be affected. Creditors are quick to press for payment, debtors slow to pay. Goodwill and credit are closely linked – one tends to follow the other.  Cash is urgently needed for financial stability.

he most effective answer to the problems caused by a business partner or key person’s death or disablement is cash.

Cash is the stabiliser which enables the surviving business partner/s to:

1. Absorb the financial shock which business disruption will cause
2. Attract a suitable replacement and establish them in the business
3. Minimise the loss of momentum in the business
4. Avoid a diminished credit standing and its unpleasant consequences
5. Instil confidence in the employees that their future is secure
6. Continue plans for expansion and development despite the business partner or key person’s death or disablement.

There are arguments for and against each one of the methods discussed in determining the value of a business partner. However, there is no correct way! The needs and objectives of all businesses differ and it is difficult to derive a method that fully satisfies these needs. Nevertheless, prudent business owners cannot afford to disregard the very real problems that can arise on the death or disablement of a business partner or key person.

Business owners who insure their tangible assets against every possible hazard surely ought not to exercise less care in protecting themselves and their heirs against the loss of their most valuable intangible assets – managerial skill, knowledge, experience, skill and energy.