Key employees: who the business really depends on

In many small companies, a few people hold everything together. One knows every customer by first name. One understands the billing software. One holds the license the company works under. On the financial statements, each of them is just a line in payroll.

When you buy a company, you're counting on those people to stay. So it pays to know who they are, what the company would lose without them and what would make them want to stay, well before you sign.

Who counts as a key employee

Titles don't always tell you. Look for these roles, whatever they're called:

• The license holder. In some trades, the company can only work under a licensed person's credentials, and that person may be an employee rather than the owner.
• The relationship holder. The estimator, salesperson or account manager the biggest customers call first.
• The office hub. The person who runs scheduling, billing and payroll, and knows where everything is, including the passwords.
• The lead technician or foreman. The one crews follow, and the one who handles the hardest jobs.
• The keeper of know-how. The person who knows how to price unusual work, or how to keep the old machine running.
• Family members on the payroll. A spouse who keeps the books or a son who runs a crew may plan to leave when the owner does.

Florida contractors and the license holder

The license question deserves its own note. Under Florida law, a construction contracting company works through a licensed contractor called a qualifying agent. If that person is the only licensed contractor connected with the company and leaves, the statute gives the company 60 days to employ a new one. Until it does, it may not do contracting work, though in some cases a temporary certificate lets it finish jobs already under contract.

For a roofing, plumbing or HVAC company, that makes the qualifier one of the most important people in the deal. Find out who it is, whether they plan to stay, and what your backup plan would be. Your attorney and the Florida DBPR can tell you how the rules apply to a particular license.

How to find them

You'll learn who matters from several places at once.

The documents. A payroll summary shows who is paid well above the others and who has been there longest. A customer list shows who the contact is for the top accounts. License records show whose name the company works under.

Your visits. Watch who people go to with questions. If everyone heads to the same desk, that person matters. Our post on the first visit covers what else to watch for.

The owner. An owner usually knows who the company depends on, and many are glad to talk about them. Good questions include:

Question for the owner	What it tells you
If you were away for a month, who would keep things running?	Who already acts as a manager
Which customers ask for someone by name?	Where relationships could walk out the door
Who could you least afford to lose?	The owner's own view of the risk
What does only one person know how to do?	Knowledge that needs to be written down
Whose license does the company work under?	Whether a license could leave with someone
Who has talked about retiring or moving on?	Departures that may already be planned

Then rank the list. For each person, ask what would happen in the first month if they left, and how long it would take to replace them.

When to meet them

This part takes patience. Many owners keep a possible sale private until late, for good reasons: a rumor can unsettle the staff and reach customers and competitors. Meeting key employees is the owner's call, and the timing should be agreed between you.

A common pattern is to meet them after you've reviewed the financial records and the owner has accepted your main terms, but before closing. Raise the subject early, so it doesn't surprise anyone. If keeping certain people is essential to you, your attorney can write that into the purchase agreement, for example by making a meeting, or their agreement to stay, a condition you need met before closing. Our post on the purchase agreement explains how conditions to closing work.

When you do meet:

• Let the owner introduce you. Their endorsement carries weight you can't create on your own.
• Listen more than you talk. Ask about their work, what they're proud of and what gets in their way.
• Be honest about what you know and don't. If you haven't decided something, say so.
• Don't make promises about pay or roles on the spot. Work those out first with your attorney and accountant, then put them in writing.

Plan for the risk

Even with a good meeting, people can leave. Plan for it before you commit:

• Get the know-how written down. During the transition period, ask the owner and key people to document how critical work gets done: pricing, scheduling, the customer quirks nobody writes down.
• Cross-train. No single person should be the only one who can do an important job.
• Have a licensing plan. If the company works under someone else's license, know who could step in, or whether you could qualify yourself.
• Let the price reflect the risk. If much of the revenue depends on one or two people, it may make sense to build that risk into the price or the terms. With an SBA 7(a) loan, part of the price can't depend on future results, but the seller can agree to pay you back part of the price if the business falls short. Our post on price versus terms covers structures like that.

How to keep them

The first few weeks after a sale set the tone for everyone, and key people are watching closely. A few things make a real difference:

• Talk to them early and directly. Tell them what isn't changing. Pay, schedule and payday matter more than any speech.
• Check their pay against the market. If a key person is underpaid, a fair raise may cost less than replacing them. Some buyers also offer a stay bonus, an amount paid if the person is still with the company after a set period. Have your attorney and accountant help you write it.
• Ask for their advice, and use it. People who've done the work for a long time usually know what needs fixing. Fixing something that has frustrated them for years earns real loyalty.
• Don't put someone new over them without talking first. It's one of the quickest ways to lose a long-time employee.
• Offer a future. More responsibility, a new title or a share of profits can matter as much as pay. Any agreement about future ownership or profit sharing should be drafted by an attorney.

Agreements that limit what employees can do after they leave, like non-compete or non-solicitation clauses, are governed by state law, and the rules vary from state to state. Ask your attorney before you rely on one.

What to do this week

• If you're looking at a company, list every person you think it depends on and what each one does.
• Write down the six questions above, ready for your next conversation with the owner.
• For a contracting company, ask whose license it works under, and look that person up on the DBPR's public license search.
• Ask your attorney how to handle key employees in your letter of intent and purchase agreement.