Unlocking the key person discount
Abstract: Businesses of all sizes sometimes rely heavily on one or two key employees. Valuations of such companies may include a key person discount, and courts have allowed them in certain cases. This article discusses what a key person discount is and some of the factors valuators consider in estimating it, including the key person’s responsibilities, the degree of dependence on the key person and the likelihood of losing him or her. The article also notes that it’s important that valuators avoid the pitfall of double dipping when incorporating key person risk into a valuation.