Regardless of industry, people are the core of every small to medium-sized business in Australia. Unlike larger organisations, SMEs often rely heavily on a small number of individuals to drive strategy, manage operations, maintain client relationships, and deliver essential services. Without strong leadership structures and clear contingency plans in place, businesses can face significant pressure when a key team member is unexpectedly unable to perform their duties. Productivity slows, decisions stall, and confidence can waver across teams and clients alike. According to the Australian Bureau of Statistics, nearly 2.73 million actively trading businesses operate in Australia, with almost 1 million of these employing staff – emphasising the potential scale of risk when a business loses a key person. Explore the key ways such a loss can affect operations, timelines, and overall business stability, and why preparation is critical for long-term resilience.
Lost revenue
When a key member of your business is unable to work, cash flow and revenue can be seriously impacted. Many SMEs operate with lean staffing models, meaning the absence of a single individual can leave a noticeable gap in daily operations. If that person is responsible for generating income, overseeing sales, managing suppliers, or delivering specialist services, the financial consequences can be immediate.
Lost revenue places a strain on every aspect of the business. Fixed expenses such as rent, loan repayments, utilities, and wages continue regardless of reduced output. At the same time, opportunities may be missed due to delays, reduced capacity, or the inability to take on new work. Over time, this financial pressure can compromise growth plans, diminish financial reserves, and decrease staff morale.
Project delays
Losing a core team member can significantly disrupt project rollouts and delivery, particularly within SMEs where responsibilities are often highly concentrated. Projects rely on momentum, decision-making, and clear ownership of tasks. When a key person becomes unavailable, work can slow or stop altogether, particularly if knowledge and authority are fixed to the individual.
In the short to medium term, tasks may take longer to complete as responsibilities are redistributed among the remaining staff. Team members may lack the necessary expertise or context, leading to re-explanation and inefficiency. If the absence is prolonged, projects may need to be rescheduled, postponed, or restarted entirely, which can impact timelines and budgets.
Client impact
In the SME environment, client relationships are often built on trust, familiarity, and direct communication with specific individuals. When a key team member who manages clients becomes unavailable, the impact is felt not only in internal operations but also in client relationships. Clients may experience delays, inconsistent service, or uncertainty, which can impact their confidence in the business.
Whether the key person is responsible for account management, technical delivery, or customer support, stability is critical. A lack of communication can prompt clients to seek alternatives, particularly in competitive markets. Even long-standing relationships can be tested if clients feel overlooked or uncertain about the ongoing quality of service.
Loss of operational knowledge
In many SMEs, key team members hold a wealth of tacit knowledge that is not formally documented. This includes processes, systems, historical decisions, and practical know-how developed over time. When this person is incapacitated and unable to work, a significant portion of operational knowledge may be lost or inaccessible.
As a result, leaders are often forced to divert resources away from production and revenue-generating activities toward training and knowledge transfer. This can slow progress, increase the risk of errors, and negatively affect client satisfaction. While training and development are integral to any business, unplanned knowledge gaps can be costly and disruptive.
Insuring your key person
No matter how you look at it, SMEs are held together by people. When a key person is unexpectedly unable to work, the ripple effects can be felt across revenue, projects, clients, and internal operations. While the impact of losing a key individual can be significant, having the right preparation in place can help protect a business from serious financial and operational strain.
However, according to an Insurance Inquiry report by the Australian Small Business and Family Enterprise Ombudsman, less than 10% of small businesses have some type of key person insurance cover in place.
A key person insurance policy can provide a timely lump sum payment if a core employee, manager, or owner becomes unable to work due to illness or injury, helping to stabilise cash flow and meet ongoing obligations. This financial buffer can allow a business to engage temporary expertise, appoint contractors, manage recruitment or training expenses, and maintain service levels while internal operations adjust. Having appropriate cover in place also gives owners the space to prioritise continuity planning, client communication, and operational recovery rather than reacting solely to short-term financial strain.
Because every organisation has different revenue dependencies, staffing structures, and risk tolerances, seeking guidance from an experienced insurance specialist can be a practical step when assessing suitable levels of protection. An independent review of business liabilities, replacement costs, and revenue exposure can help ensure that any policy aligns with real-world operational needs rather than generic estimates, supporting more informed and sustainable risk management decisions over the long term.
