Succession planning a critical component of any business plan

Whether we like it or not, life has a way of getting in the way of business. I speak from experience: six years ago at the ripe age of 40, I was diagnosed with Stage IV lung cancer. After radiation and chemotherapy, followed by surgery, the cancer went into remission, only to appear three years later. While I had both disability and life insurance, I wished it were more. But I wasn't ever going to get sick - I had run six marathons, for crying out loud! The thing I hadn't done was protect my biggest asset - my business. I had no succession plan in place for maximizing this asset when life got in the way.

Succession planning is a very important component of any business plan. Developing a succession plan should be part of strategic planning since the illness of an owner or a key employee can threaten the stability and profitability of a business. When done effectively, succession planning leads to the ongoing success of a business or practice, allowing for the retention and recruitment of top talent and keeping the business running as an ongoing concern.

So how should we begin when we want to develop a plan? First, we need to recognize if there are potential employees who could be groomed to take over the business. Another option could be to transfer ownership of the business to family members if they are willing and able. Yet another option would be to find a friendly competitor who might be willing to buy the business, or a similar business that is looking to expand.

In a large firm, a company should involve all senior leaders in the process and hold each of them accountable for growing new leaders within the firm. In many organizations, this would mean linking the process to both strategic planning and workforce development. Talent needs to be identified and developed early. Here are some steps to consider:

• Make sure you link your long-term vision with the values of the organization as well as the needs and interests of the senior leaders.

• Analyze gaps you might have between current resources you have and the talent you think you'll need.

• Create a talent "ladder" to move people along as they develop their skills.

• Develop strategies for recruitment, retention and ongoing learning and development, including coaching and mentoring.

• Link succession planning to any human resource processes that are in place, including performance management, compensation and workforce planning.

If the option for succession planning is simply to sell the business, it's necessary to identify the value of the business. This can be done by a certified business appraiser or an agreement between the parties involved. The structure of a sale could be to sell the company stock or its assets, and depending on the structure, can be financed by the owner, a financial institution or through life insurance via a buy/sell agreement.

The best step to take in succession planning is to work with your trusted CPA, attorney or other financial advisers to ensure your business is protected. I'm lucky: I joined a larger practice and was able to bring my clients with me as well as to contribute to the new business development of the firm. My clients are now assured of the bench strength of a bigger team and I get to continue to make a difference as an accountant and an advisor.

• Brian Eisenmenger, CPA, is a partner in Mathieson, Moyski, Austin & Co. LLP, a full-service accounting firm based in Wheaton. beisenmenger@mmaadvisors.com.