No one lasts forever, but many middle market companies that lack a strong succession plan are woefully unprepared to replace a CEO, CFO or other important member of the management team. Of the 150-plus middle market family-owned businesses most recently surveyed by PwC, only 27 percent had a substantive, documented plan ready to go.

Lacking a succession plan is dangerous. Key executives could become unavailable due to illness, death, personal circumstances or career decisions at any time. If there's not a contingency plan in place, you're banking on the hope that your company won't suffer because of an unexpected loss. This can be costly, especially if you have to scramble to bring in a replacement from outside the company.

Here are eight factors to consider when developing your succession plan:

  1. Internal candidates. People brought in from outside tend to cost more because they often give up existing career options, which may include equity positions, bonuses and more. They also have a long learning curve, even if they come from the same industry, because they don't know how their new company works. Internal candidates, on the other hand, having a background at the firm, typically don't require as much additional compensation and are more stable. According to research from the Wharton School of the University of Pennsylvania, external candidates are 61 percent more likely to be fired and 21 percent more likely to leave a company than internal candidates.
  2. Candidate development. Internal candidates must be groomed for new positions. The process starts with identifying high-potential candidates before focusing on development. Candidates should be exposed to different parts of the company through assignments in various departments.
  3. Family considerations. In a family-owned company, succession can be particularly thorny because business mixes with family dynamics. Family members should be given the opportunity to learn about the company and decide if they want to be a part of it while in turn being evaluated for leadership potential. There are also other considerations, such as tax planning and equity transfer between generations.
  4. Multiple candidates. A company should develop talent at lower levels so there are multiple candidates to take the place of a given executive or manager. If you limit potential replacements to one individual, that person also becomes a possible point of critical failure if he or she leaves or is unable to continue.
  5. Retention. Grooming multiple succession candidates, although necessary, brings another problem. When several people are groomed for a position, only one will attain it. This can leave other candidates feeling angry or embittered. There must be other development paths and rewards for them, unless the company is willing to watch talent walk away.
  6. Diversity. Many companies unknowingly suffer from a lack of diversity in management. If your company wants a more diverse management force, consider that during your succession planning. Think about your leadership's most prevalent demographics and try to identify, promote and develop candidates outside that group.
  7. Team approach. No executive should be solely responsible for choosing a replacement. A succession plan is a project for the company and its board, not for a particular individual. You want to avoid picking a candidate who is a carbon copy of a departing executive, so at least be cognizant of the specific skill set, knowledge base and characteristics you're looking for (they could be different or similar to the employee who's leaving).
  8. Middle management. Succession is clearly important at the senior level, but it is also critical for middle management. In most companies, there is a statistically higher chance of losing someone important below the level of top management because there are simply more of those people. Identify critical positions in middle management, and extend succession planning to them, as well.

How much input should departing employee have in succession planning? Let us know what you think by commenting below.

Erik Sherman is an NCMM contributor and author whose work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, Newsweek, the Financial Times, Chief Executive, Inc. and Fortune. He also blogs for CBS MoneyWatch. Sherman has extensive experience in corporate communications consulting and is the author or co-author of 10 books. Follow him on Twitter and circle him on Google+.