Our own market research this summer puts 87 percent of engineering firms at fewer than 20 employees. Nearly all of the succession advice an owner finds online was written for the other 13 percent. That gap explains why so many capable owners of good, profitable firms conclude they have no options: they keep reading about structures that were never built for a firm their size.
Run the numbers on a 20-person firm
Take a firm with 20 people. At roughly $100,000 to $150,000 in average salary, the payroll line alone puts that firm somewhere around $2,000,000 to $3,000,000 in sales. Every firm is different and this is illustrative arithmetic, not a claim about yours, but it lands squarely inside the $1M to $10M in sales range where we do our work.
Now look at what the succession market offers a firm that size.
An ESOP is out. The setup cost, the trustee, the annual valuation, and the ongoing administration only make economic sense above roughly $15,000,000 in revenue. Below that, the overhead eats the benefit. We wrote about that for MALSCE this month, and it is the same conclusion we reach with owners nearly every week.
The large M&A firms are out. Their fee structures require a transaction size a $3,000,000 firm does not produce. They are not being unreasonable, they simply cannot make the economics work on a deal this size, so the calls go unreturned.
The Main Street business broker is technically available and usually the wrong fit. A professional services firm with licensure requirements, a project backlog, work in progress, and value concentrated in a handful of licensed people is not a restaurant or a landscaping company. Selling it takes someone who understands how these firms are valued and financed.
So a profitable, well-run 20-person firm is too small for one path, too small for another, and too complex for the third. That is not a firm without options. That is a firm no one has bothered to serve.
The structure that actually fits
The internal sale financed by an SBA bank loan was built for exactly this firm. The people who already run the work buy it, coming in with as little as 5 percent down. A bank funds the transaction. The owner is paid at closing rather than carrying a note and hoping the payments arrive. Not an ESOP, no trust, no annual valuation, no administrative apparatus.
The valuation math is straightforward too. A/E and surveying firms generally trade at 5x to 7x EBITDA, or 2x to 4x SDE for smaller owner-operated practices. Those are numbers an owner can check against their own tax returns.
Why so many owners have never heard any of this
Here is the second half of the problem. Our research also suggests fewer than half of firms with 20 or fewer employees belong to any engineering association at all.
Associations are how this message travels. State ACEC chapters, NSPS, MALSCE, and the rest carry the newsletters, the conference sessions, and the podcasts where succession actually gets discussed in practical terms. An owner who is not a member is not in that room. They are not on the mailing list, they do not see the session titles, and nobody at their state association ever mentions that a bank will lend their senior engineers the money to buy the firm.
The result is an owner who assumes the choice is sell to a stranger, become the bank, or work until something forces the issue. None of those is the best available option, and each one costs real money.
If your firm is in that 87 percent, start with the alternatives to an ESOP, then look at the honest menu of exits and how the Step-Up Legacy Plan is structured. Give yourself 3 to 4 years before the year you want to be out, and the options stay open.