A key person discount is a method of valuation that aims to recalibrate the value of a company’s intangible assets due to the potential risk of the loss of a key individual within the organisation. This discount recognises that certain people, such as founders, executives or highly skilled employees, possess unique knowledge, expertise, relationships or leadership qualities that underpin a company’s success. When assessing the value of intangible assets, such as IP or customer relationships, the presence of a key person is considered a valuable asset. However, like many valuation questions and issues, the key person discount method can and should be examined in the context of expected cash flows, their growth and the risks associated with achieving them.
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