Dr. Paul Borosky, DBA, MBA
Business Plan Writer · Management Glossary
What Is Key-Person Risk in a Small Business?
Dr. Paul Borosky, DBA, MBA, has written plans for owners who were the only person who knew the ordering system, the pricing, or the biggest accounts. As a business plan writer, he sees lenders ask about it often. This guide defines key-person risk, shows where it hides in a small business, and lays out the steps that shrink it.
Questions? Call or text (321) 948-9588. Dr. Paul answers personally.
Last Updated: 11/07/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
What Is Key-Person Risk?
Does Your Business Stop When You Do?
In Plain English
What Happens If One Person Is Gone?
If one person gets sick, quits, or retires, does the business keep running? If not, that person is a key-person risk.
It is not about whether the person is good. Usually they are great. The risk is that nobody else can do what they do.
A Real-World Example
The Bakery That Missed Two Deliveries
A wholesale bakery in Nashville, Tennessee runs well, as long as the owner is there. Only she knows the ordering system and the contacts at the three biggest accounts.
She is out for two weeks after surgery, and two accounts get missed deliveries. When she returns, she writes down the ordering steps, trains the production lead to enter orders, and moves account contacts into a shared file. The next time she takes a week off, every delivery goes out.
From Dr. Paul’s Fabled Forest
Hazy Hazel and the Vendor Scroll
Doctor Owl was returning overdue scrolls at the forest library when Hazy Hazel’s assistant burst through the door, out of breath.
“Hazel sprained her tail,” the young chipmunk said. “The Thornberry wedding is Saturday, and every flower, every cake, every musician lives in Hazel’s head.”
Doctor Owl adjusted his spectacles. “The fire is the wedding. The foundation is that only one squirrel knows where the flowers come from.”
They visited Hazel that afternoon. From her nest, she talked through every vendor while the assistant wrote it all on one long scroll: who, what they bring, and how many coins they charge.
The wedding went off without a petal out of place. Afterward, Hazel kept the scroll on her desk and had her assistant shadow her on every booking.
Want more lessons like this? This story comes from Book 1 of Dr. Paul’s Fabled Forest Business School Series.
Dr. Paul’s Insight
In Dr. Paul’s plan reviews, the management section often comes down to one question: what happens if the owner is gone? A written answer reads stronger than a confident one.
Put It to Work
Key-Person Risk Self-Check
Answer each question for your most important person. Start with yourself.
| Question | Yes | No |
|---|---|---|
| Could the business run for two weeks without this person? | ☐ | ☐ |
| Are the steps for their core tasks written down? | ☐ | ☐ |
| Is a second person trained on each of those tasks? | ☐ | ☐ |
| Are passwords, supplier contacts, and key accounts stored somewhere shared? | ☐ | ☐ |
| Is there a plan (or insurance) if they leave for good? | ☐ | ☐ |
Scoring: every No is a place to start. Fix the one that would hurt most this month first.
Watch Out
Common Key-Person Mistakes
The smaller the business, the more likely one person holds it together.
A document nobody has practiced does not help much on the day you need it.
Owners often protect against losing an employee and forget about themselves.
Store logins and supplier contacts in a secure shared place someone else can reach.
Why It Matters
Benefits of Reducing Key-Person Risk
- The business can keep running while the key person is out
- A stronger story for lenders and buyers
- Can support a higher value at sale
- Less pressure on the key person
In Your Business Plan
How Key-Person Risk Shows Up in a Business Plan
Lenders and buyers often look for single points of failure. Naming the risk and showing the fix tends to build more trust than leaving it out.
Sample plan excerpt: Risks and Mitigation
“The business relies on the owner for wholesale ordering and its largest accounts. To reduce this risk, ordering steps are documented, the production lead is cross-trained on order entry, account contacts are kept in a shared file, and the company carries key-person life insurance.”
FAQ
Questions Owners Ask About Key-Person Risk
What is key-person insurance?
How do you reduce key-person risk?
Do lenders care about key-person risk?
More From the Series
Keep Building Your Business
Every book in Dr. Paul’s Fabled Forest Business School Series teaches one subject through short stories, real terms, and one-page worksheets.
Dr. Paul Borosky, DBA, MBA
Dr. Paul is a business consultant and author with 14+ years of experience and 1,000+ written business plans. He works with owner-run small businesses on plans, financial projections, and the systems that let a business run without the owner doing everything. This page is part of the glossary for Management and Leadership for Small Businesses, Book 1 of Dr. Paul’s Fabled Forest Business School Series.
This page is for general educational purposes only. It is not legal, insurance, or financial advice. For decisions about your own business, consult a qualified professional.