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Business Valuation: Don’t Underestimate the Key Person Discount

Concannon Miller

It's more common for smaller businesses to depend heavily on a key person — and the actual, or even the potential, loss of that individual is likely to have a major impact on value. Key person discounts are applied to reflect the reduction in a company's value resulting from such a loss.

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The Cost of Losing a Key Person: Understanding the Impact of Key Person Discount on Business Value


However, losing a key person can also impact the valuation, resulting in a key person discount that reflects the potential risks and uncertainties associated with their departure. Learn more about key factor discount. "A

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The Difference Makers: Key Person(s) Valuation

Musings on Markets

In appraisal practice, the effect of the potential loss of an owner, founder or other key person in a business that you are acquiring is usually captured with a key person discount , where you price the business first, based upon its existing financials, and then reduce that pricing by 15%, 20% or more to reflect the absence of the key person.