The Step-Up Legacy Plan™ delivers 100% cash at closing and empowers trusted employees to own your engineering firm with strong SBA-backed financing.

Successful succession planning for an engineering firm in 2025 requires a deliberate multi-year strategy focused on leadership grooming, financial clarity, and structured bank financing — and SBA loans for business purchase can make employee buyouts both practical and financially attractive. The Step-Up Legacy Plan™ leverages current SBA programs to enable owners to receive cash at closing while transferring the business to internal buyers.

Step 1: Leadership Development & Financial Cleanup (Years 1–2)
Identify senior, high-potential employees ready to grow into ownership roles. Clean and document your firm's financials — project backlog, work-in-progress (WIP), client contracts, and retainer agreements must be transparent, as SBA lenders prioritize stability and recurring revenue streams. Clear documentation builds lender confidence and maximizes your firm’s valuation.

Step 2: Client Contract Strengthening & Risk Mitigation (Years 2–3)
Formalize client agreements and retention guarantees to reduce perceived deal risk, enabling SBA lenders to offer financing with more favorable terms. Lenders’ familiarity with A/E firm revenue models is improving, especially when contracts underpin predictable cash flow.

Step 3: Early SBA Bank Engagement & Customized Financing Design (Years 4–6)
Engage SBA-approved lenders experienced with A/E sector buyouts early. Programs such as SBA 7(a) loans for business acquisition can provide up to 90% financing with modest down payments (around 10%). Current SBA guarantee fees have eased slightly, and interest rates for 2025 typically range between 10.25% and 13.75%, making cash-flow-driven buyouts feasible for firms in the $1M–$8M revenue band.

• Seller Cash at Closing: Unlike deal structures relying on seller financing or earnouts, the Step-Up Legacy Plan™ facilitates nearly 100% cash upfront payment to sellers, eliminating long-term seller exposure.
• Legacy Preservation: Trusted employees intimately familiar with your firm’s culture and client base become owners, ensuring continuity and protecting your firm’s identity.
• Cost-Effective Alternative: This approach avoids the high $150k+ setup and ongoing costs common in ESOP transactions, providing a streamlined, practical option for firms with $1M–$8M in revenue.

Compared to ESOPs, whose transaction costs can range from tens of thousands to well over $1 million and involve ongoing trustee oversight, this plan emphasizes efficiency and certainty. With disciplined preparation and early lender conversations, owners can unlock strong deal outcomes even in a challenging credit environment.

The firm highlighted in this updated case study executed a 5–7 year succession timeline and completed a fully bank-financed employee buyout, preserving culture and delivering seller liquidity without personal guarantees or seller notes required.

Implementation success depends on disciplined execution. Here’s how owners can start today:

• Groom and empower your successors. Invest in leadership development and assign ownership milestones tied to firm financial literacy and management responsibilities.
• Enhance financial reporting. Ensure clean, digital-ready accounting records with solid documentation of project backlog and WIP to satisfy SBA lenders and support valuation.
• Formalize client retention. Negotiate and document contracts and guarantees that make your recurring revenue streams predictable and bankable.
• Build lender relationships early. Approach SBA-approved lenders with experience in A/E firm transactions to design financing tailored to your employees' qualifications.
• Leverage SBA loan benefits. Understand updated 2025 SBA 7(a) terms — up to 90% financing, long amortization (up to 25 years), and reduced guarantee fees — to support deal structure.

By following this roadmap, engineering firm owners can avoid common pitfalls such as seller financing traps and lengthy ESOP complexities. The Step-Up Legacy Plan™ positions your firm for a smooth and financially secure transition that rewards your trusted employees and honors the firm’s culture.

The 5-7 year planning horizon enables gradual risk reduction and deal optimization, increasing buyer creditworthiness and ensuring maximum payout at closing. Recent SBA data confirms higher approval rates at smaller banks that understand niche professional services, reinforcing the viability of this approach.

Reach out to Allen Business Advisors today to tailor this framework to your firm’s unique circumstances and set a confident course for your ownership succession.