Key Person Flight Risk
The Silent Deal Killer
When a deal falls apart, it’s not only because the numbers don’t add up. Sometimes, it’s because the people don’t.
A few months ago, I sat across from a buyer who had spent six months courting a $7.5 million manufacturing company. The financials were strong. Margins were solid. Customer concentration was minimal. On paper, it was a clean acquisition. But the deal died in week two of diligence when the buyer discovered that 80% of the company’s key client relationships ran through one person: the founder’s top lieutenant, a 23-year veteran named Steve.
Steve wasn’t an owner. He wasn’t bound by a retention agreement. And when the buyer met him, Steve was polite but distant. By the next week, Steve had accepted a competitor’s offer. The buyer walked.
That’s what is called Key Person Flight Risk and it is often the single most underestimated threat to business value in private transactions.
The quiet trap owners walk into
Most founders don’t realize how exposed they are until due diligence shines a light on their dependency web. They’ll say, “Oh, Karen runs operations,” or “Mike owns the client relationships.” But when you peel it back, Karen’s the only one who can run payroll, and Mike’s the only one clients will call when there’s an issue.
Buyers see that and immediately discount. In one study by the Pepperdine Private Capital Markets Project, nearly 45% of deals that stalled or collapsed during diligence cited management or personnel continuity as a contributing factor. The logic is simple: if the business can’t run smoothly without its key players, it’s not a business—it’s a collection of personalities.
The unspoken fear behind every buyer’s smile
Here’s the emotional truth most sellers miss: buyers aren’t just buying your earnings. They’re buying your future. And nothing rattles confidence like the possibility that the people holding the business together might bolt the moment ownership changes hands.
Recently, I spoke to another founder who wanted to sell a regional logistics firm. He insisted his team would “never leave.” But when he started succession planning, he discovered two key managers were already fielding offers. He slowed the process, implemented retention bonuses, and drafted stay agreements with clearly defined incentive triggers. Twelve months later, when he sold, those same two managers became part of the transition team…and the business fetched a 15% higher multiple.
If your business depends on one person, it’s not yet transferable. It’s fragile.
The power of preparation
Savvy founders start preparing three years before exit. They identify their key players, create growth paths tied to the company’s success, and include them in the strategic narrative of the sale. They’re transparent. They share upside. They invest in redundancy.
When the buyer arrives, the team leans in, not out. They see continuity, not chaos. The buyer pays top dollar because confidence compounds just like revenue.
That’s how you turn key person risk into key person leverage.
Institutionalize what’s personal
If you’re an owner thinking about selling within the next three years, start now:
Have open, honest conversations with your key team members about the company’s future and their role in it. Create documented systems that make institutional knowledge transferrable. Use retention bonuses or equity-linked incentives to ensure alignment.
And if you’re on the buy-side, don’t underestimate your ability to turn flight risk into a win. Offer meaningful retention packages early. Include key employees in vision-setting. Make them part of the growth story, not casualties of it.
Because the truth is, people don’t leave companies.
They leave uncertainty.
In closing, what’s one thing you’ve done, or wish you’d done, to reduce your company’s dependence on key people before an exit?
David Hermann, CEO of hermanngroup and M&A Advisor/Broker at Sunbelt Business Brokers of Colorado
David Hermann is a transformative advisor and strategist who turns complex business challenges into extraordinary successes. Known for driving over $500 million in documented financial improvements for clients, David partners with C-suite leaders to unlock their full potential. With 60+ speaking engagements, numerous publications, and a spot in the top 1% of Consulting Voices and top 1% of the Social Selling Index on LinkedIn, he’s passionate about making strategy, change leadership, and operations insightful and accessible.