Could your business survive the loss of a key individual? 

I am sure you have taken appropriate steps to protect your nursery business from risks such as fire, theft, accidents and claims under employment law, but have you considered the risk to your business of the loss of a key individual.

It is often the case that certain individuals within a business are crucial to its success; that might be the nursery owners who had the initial business idea or specific knowledge and skills to develop the nursery business. Perhaps you have key members of staff who have technical skills who are a genius with your back-office and IT systems. Or a team member with legislative or compliance knowledge. Maybe they are the person who knows exactly how your nursery functions on a day-to-day basis, keeping all those plates spinning, and you’d be lost without them

Whoever the key individuals are and whatever their role within the business, it is often the case that the business will suffer financially if they were to die or be seriously incapacitated. The effect on the business could be felt in a number of ways but most often it is in the form of a loss of profits caused by short-term disruption to business-as-usual activities. There might also be additional costs associated with the recruitment of a replacement or taking on temporary staff to plug the gap. To get the right individual with the skill set you need might mean paying above market rates to attract the right individual, especially where skills are specialised or in demand.

Fortunately, just like many of the other risks that a business can insure, it is possible to cover the risk associated with such a loss. A simple life assurance or critical illness policy, where the employer is the beneficiary in the event of death or serious incapacity could help the business meet the short-term financial challenges. Life assurance cover is relatively cost-effective and subject to the health of the key individual relatively simple to arrange.

Examples of where such cover would be appropriate: –

  1. Nursery Manager (Policy, Procedures & Regulation) 
    A nursery business with a number of settings employed a manager who was responsible for ensuring compliance with regulation Health & Safety, GDPR etc. She was also responsible for developing processes within the nurseries and training staff to ensure compliance and consistency across all of the settings. Her detailed knowledge of the regulation and processes made her key to the day-to-day success of the business and the cost of having to replace her with a similarly engaged and knowledgeable person was insured.
  2. Nursery Manager, your customer relationship champion
    Many businesses have one key individual who is the face of the organisation; for parents of children, that is the person they first think of when they consider the nursery, the person to whom they entrust their child’s’ care and the first port of call if they have any problems. They are the face that gives the parent the confidence that their child is safe and will be looked after and their loss, may well mean enrolment numbers fall and existing parents and their children drift away. The financial consequences should be considered and the need to replace them quickly with someone of equal stature.
  3. Nursery Owner – Key Driver
    A business in which most of the key decision making concentrated in one key individual who has been responsible in the past for the set-up and growth of the business and who is key in terms of its future direction. The loss of this individual might lead its bankers to question the security offered by the business and cover was put in place to enable it to reduce its borrowing in the event of his or her death.
  4. Nursery Owner – Borrowing for Expansion/Acquisition
    A nursery group who borrowed to expand via the acquisition of further sites felt that the loss of its owner/Managing Director might put at jeopardy its ability to service its loan. Cover was put in place on a reducing basis for the value of the outstanding loan.

The loss of a Key Individual can impact a business in many different ways and for a whole variety of reasons.

If you would like to find out more about how to cover these risks, please speak with your Account Handler in the first instance who will be able to put you in touch with an expert at Hammond Raggett and Co.