Key Person Risk Assessment Checklist for Buying a Business in Australia

Key Person Risk Assessment Checklist

Part 1: Identify Key Persons

Complete this section before formal due diligence begins — ideally after you've visited the site and had initial conversations with the seller.

Organisational mapping

• Obtain or construct an organisational chart covering all roles with more than 12 months tenure
• Ask seller: "If you were unreachable for three months, who would run the business?" Note the names given and any notable omissions
• Ask: "Who do clients call when they have a problem?" Map client relationships to named individuals
• Ask: "Who handles supplier negotiations and knows the rates we get?" Identify relationship holders on the procurement side
• Ask: "Who does the estimating / quoting / scheduling?" Identify the person(s) with revenue-generation knowledge

Licences and accreditations

• List all trade licences held by the business — note whether they attach to the entity or to specific individuals
• Confirm which employees hold individual licences required to operate (e.g. master plumber, electrical contractor licence, refrigerant handling licence)
• Identify any certifications that are required for current client contracts (e.g. working at heights, confined space entry)
• Check state-specific requirements: licences vary by state (Queensland, NSW, Victoria, WA all have different frameworks)
• Verify whether the business could legally operate if each licence-holding individual left — and what the replacement timeline would be

Technical knowledge concentration

• Identify any proprietary methods, systems, or know-how that exist only in employees' heads (not documented)
• Ask: "Which parts of the operation would be hardest to replicate if a key employee left tomorrow?"
• Review whether critical processes are documented in any form — SOPs, job cards, manuals, software settings

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Part 2: Score the Dependency

For each identified key person, rate the concentration on a 1-5 scale across four dimensions. A total score over 12 per person warrants a significant contractual response before settlement.

Revenue dependency — how much of gross revenue can be attributed to this person's relationships or output?

• 1: Less than 10% — minimal
• 2: 10-25% — moderate
• 3: 25-40% — elevated
• 4: 40-60% — high
• 5: Over 60% — critical

Score for [Key Person 1]: ___ / 5 Score for [Key Person 2]: ___ / 5

Replaceability — how hard is it to find and onboard someone with equivalent capability in this market?

• 1: Standard skills, local market has plenty of candidates
• 2: Specialist skills, 2-4 weeks to recruit and onboard
• 3: Specialist plus institutional knowledge, 1-3 months
• 4: Rare combination of skills and relationships, 3-6 months
• 5: Unique to this person — cannot easily be replaced

Score for [Key Person 1]: ___ / 5 Score for [Key Person 2]: ___ / 5

Knowledge documentation — how much of what this person knows is written down or accessible without them?

• 1: Fully documented, processes in SOP format
• 2: Mostly documented with some gaps
• 3: Partially documented — key processes captured but not consistently
• 4: Very little documentation — mostly tribal knowledge
• 5: No documentation — entirely in their head

Score for [Key Person 1]: ___ / 5 Score for [Key Person 2]: ___ / 5

Flight risk — how likely is this person to leave following a change in ownership?

• 1: Very stable — long tenure, expressed interest in staying, close relationship with incoming buyer
• 2: Likely stable — moderate tenure, no obvious reason to leave
• 3: Uncertain — mid-tenure, unclear feelings about ownership change
• 4: Some risk — known to have had offers elsewhere, or known dissatisfaction
• 5: High risk — actively looking, or has said they'd consider leaving if ownership changes

Score for [Key Person 1]: ___ / 5 Score for [Key Person 2]: ___ / 5

Total score per key person: Sum the four dimensions. Interpret:

• Under 8: Manageable risk — standard employment contracts and a documented handover are sufficient
• 8-12: Elevated risk — consider retention bonuses and enhanced onboarding; negotiate process documentation as a condition of sale
• Over 12: Material risk — require contractual retention structures before settlement; consider adjusting offer price to reflect exposure

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Part 3: Due Diligence Questions to Ask the Seller

Ask these directly in a DD session. Cross-reference answers against your own observations from site visits and staff conversations.

About the employee

• "How long has [name] been with the business?"
• "What does a typical week look like for them?"
• "Have they ever had job offers from competitors? Do you know if they're currently looking?"
• "What's their current remuneration — base, super, any bonuses?"
• "Do they have an employment contract? Can I review it?"
• "Have you told them about the sale? What was their reaction?"
• "Would they be open to meeting with me before settlement?"

About relationships and knowledge

• "Which clients does [name] manage directly? Would those clients work with a new manager?"
• "Is there anything only [name] knows how to do? Is it documented anywhere?"
• "Who is their backup? Who could cover if they were sick for two weeks?"

About the seller's intent

• "Are you prepared to provide a warranty that [name] is not aware of any other employment opportunities at the time of settlement?"
• "Would you be willing to make [name]'s continued employment for 12 months post-settlement a condition of part of the purchase price being held in escrow?"

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Part 4: Protective Mechanisms

Check which mechanisms you have in place before settlement.

Employment contracts

• Confirm whether key persons currently have written employment contracts
• If not, negotiate inclusion of written employment agreements as a condition precedent to settlement
• Ensure new employment agreements include:
  • Reasonable notice period (minimum 4 weeks for senior staff; 8-12 weeks is defensible)
  • Confidentiality clause covering client lists, pricing, and business processes
  • Non-solicitation clause covering clients and staff (typically 6-12 months post-departure)
  • Restraint of trade clause — reasonable in scope (geographic, time, activity) so it's enforceable
• Have your solicitor review for enforceability under applicable state law

Retention bonuses

• Design a retention bonus paid in tranches (e.g. 50% at 6 months, 50% at 12 months)
• Ensure the bonus is forfeited in full if the employee resigns before the relevant milestone
• Set the bonus amount relative to the exposure — a reasonable starting point is 3-6 months of their total remuneration
• Document the bonus as a formal letter of offer accepted in writing by the employee

Earn-out and escrow conditions

• Consider making a portion of the seller's deferred payment (earn-out) contingent on retention of named key persons for a specified period
• Alternatively, negotiate a price escrow where 10-15% of purchase price is held in a third-party account for 12 months, released subject to key person retention
• Document which employees are named as key persons in the SPA and what the consequences are if they leave within the escrow period

Knowledge transfer

• Negotiate process documentation of the key person's role as a condition of sale — the seller facilitates, the key person contributes, documentation is delivered at or before settlement
• Agree on a cross-training requirement: the key person trains at least one other team member in their core functions during the handover period
• Include a minimum handover period in the SPA that explicitly involves the key person, not just the seller

Post-acquisition insurance

• Obtain a quote for key person insurance on the identified individual(s) post-settlement
• Confirm coverage terms: death, permanent incapacity — note this does not cover voluntary resignation
• Use as a cash-flow buffer during replacement, not as a substitute for contractual retention

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Part 5: Post-Acquisition Integration Plan

Complete these steps within the first 90 days of ownership.

Week 1-2: Relationship introduction

• Personally introduce yourself to each key person — not as a formality, but as a real conversation about what you're trying to build
• Ask each person what they want from the next 2-3 years of their career — listen, don't pitch
• Avoid making promises about roles, pay, or conditions until you understand the business properly

Month 1: Knowledge capture

• Begin formal process documentation for each key person's role — job cards, SOPs, system walkthroughs
• Schedule regular 1:1s to extract institutional knowledge — keep them conversational, not interrogative
• Identify a backup for each key person and begin informal cross-training

Months 1-3: Dependency reduction

• Review whether client relationships can be broadened to the team level — introduce multiple points of contact where possible
• Audit which licences, accreditations, or certifications need to be held at the entity level or obtained by additional staff
• Begin building systems (job management software, documented pricing, CRM) that reduce dependence on individual memory

Months 3-6: Review

• Assess whether dependency has reduced — re-score each key person using the Part 2 rubric
• Confirm retention bonus milestone payments where due
• Revisit employment contracts if circumstances have materially changed

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Related resources

Once you've worked through this assessment, the full due diligence checklist covers the complete picture — financials, legal, operational, and people — in one structured document.

For the employment-side specifics — what you're inheriting in terms of entitlements, Long Service Leave, and Fair Work obligations — the employee entitlements checklist walks through the compliance items that often catch new owners off guard.