I was recently working with a physician practice, and during the course of our meeting I asked the doctors what their succession plan would be at retirement. The doctors laughed off the concept and said thanks to the recent market downturn they will all have to continue working for a long time. I accepted that their recent retirement account damage would increase their time horizon to retirement, but then I asked what would happen if one of them got sick.

With that they saw the issue. The practice already operates with razor thin margins, and two of the doctors could not bear the overhead burden if one of them got sick. They realized that the importance of succession planning is not only an issue for the future, but also for the present.

Succession planning is the key to ensuring that your business will continue to operate as you take time away from the business. As business advisors, we always want to make sure that your business has a transition plan for either the unexpected or expected absence of key employees and owners. We often find that owners have not thought about a transition, either because they think they are going to work forever or because they think it would create an issue with their family. Neither of those reasons is good enough to avoid the subject. The key to overcoming the issue of succession planning is communication.

Colleen DeBaise from the Wall Street Journal recently wrote a brief article about ways to mitigate the stress and responsibility of succession planning for family/closely-owned businesses. Her article suggests to start by planning a multiday family retreat, away from home and the business to allow you to focus on the plan. If you find there isn’t a clear successor, then write a job description for the position. This will help reduce the emotion in choosing a successor, and perhaps also reveal that there is not a suitable family candidate and an external candidate should be considered.

No business should exist without a succession plan. While I have outlined some situations, excuses and ways to deal with the stress of succession planning they are by no means all-inclusive, and it would be wise to consult your business advisor regarding the assistance with planning. Please contact Somerset for help.

Source: Wall Street Journal, author Colleen DeBaise, November 12, 2009.