Key Man or One Man Operation Risk

by a searcher from Boston University

4 months ago

Has anyone run across businesses run by one person? Has anyone closed on deals like this? I know there are clear key man risks and I wanted to reach out to the community to get some better insight into how this has been done. For context, I am looking at a business where there is an owner and a secretary. Work is subcontracted out to individuals and companies who the owner has long term relationships with (another risk) and he acts as project coordinator and quality expert. The owner is open to staying on for a year to teach the business operations/make intros and act as a consultant afterwards. The appeal of the business is that its old school with no website, no marketing, a great reputation and portfolio and is limited by its one man owner. I believe with a small and lean team the business could grow significantly but I am also wary of the one man risks. Any thoughts, experience or ideas about how to structure a potential deal would be welcome!

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searcher from University of Wisconsin-Madison - Wisconsin School of Business

This is a very risky business because the owner appears to run the vast majority of the business and the business runs off the owners relationships. Would he be open to hiring you and letting you work under him for a year so you can learn more about the business, your ability to run it, and start to build the relationships? I think the most important pieces of diligence are: 1) What does the seller want to do after selling the business? Is he old and want to retire (less risk) otherwise I would be concerned he could be a competitor in the future; 2) Make sure that this is a business that you are capable of running on your own; and 3) building a good relationship with the owner and negotiating a long transition period (at least 1 year) and long earn-out is absolutely critical.

4 months ago | like reply | 0 likes

admin from Massachusetts Institute of Technology - MIT Sloan School of Management

^Searchfunder member‌ have previously commented on Key Man Risk and might be able to share additional insights with you here.

If anyone else has questions on Key Man Risk, or related topics, please post them and I'll do my best to get them answered for you.

4 months ago | like reply | 0 likes

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