Your key employees already know your firm’s culture, clients, and project workflows intimately. Thanks to updated 2024 SBA lending programs and alternative plans like the Step-Up Legacy Plan™, they can become owners while you receive near 100% cash at closing, securing your retirement and safeguarding your legacy.
This streamlined ESOP alternative eliminates complexities and seller financing risks, making employee buyouts practical for firms with $1M to $8M revenue. It fits the current financing environment, including SBA 7(a) loans requiring about 10% down and competitive interest rates.
In this article, we outline a clear 5 to 7 year roadmap to structure a bankable buyout deal that unlocks full seller proceeds upfront while preserving your firm’s culture and long-term independence.
With the right financing and planning, your trusted employees can own the firm you built—and you get paid 100% at closing.
Succession planning for A/E/LS firms demands a disciplined, multi-year approach that aligns leadership development, financial transparency, and financing strategy. Here’s how to architect a bankable transition over 5 to 7 years:
Year 1-2: Leadership Grooming & Financial Hygiene
Identify and mentor key employees who are ready to lead and own. Concurrently, rigorously clean financial records by documenting project backlog, work-in-progress (WIP), client contracts, and retainer agreements. Transparent and detailed financials build lender confidence and enhance valuation multiples, which currently average around 5x EBITDA for A/E firms.
Year 2-3: Client Contract Formalization & Risk Mitigation
Formalize client retention mechanisms such as enforceable contracts and guarantees to reduce perceived risk. This strengthens revenue stability and lender comfort, facilitating SBA loan approvals and making the deal bankable. These contracts directly impact valuation and financing terms.
Years 4-6: Early Bank Engagement & SBA Financing Design
Proactively engage SBA-approved lenders familiar with A/E/LS firm acquisitions. SBA 7(a) loans enable up to 90% financing with approximately 10% down payment from employee buyers. Current SBA guarantee fees have slightly reduced, with interest rates generally ranging from 10.25% to 13.75%, depending on loan size and term.
The Step-Up Legacy Plan™ leverages SBA financing to deliver sellers near 100% cash at closing, eliminating the need for seller carrybacks or personal guarantees. This streamlined plan contrasts sharply with traditional ESOPs which involve six-figure setup fees, ongoing trustee costs, and complex administrative burdens.
Compared to the high costs and regulatory complexities of ESOPs, the Step-Up Legacy Plan™ is a cost-effective alternative ideal for firms with $1M to $8M revenue seeking legacy-friendly ownership transitions. SBA lenders show growing familiarity and willingness to finance these transactions, especially when owners prepare detailed financials and client risk mitigations early.
Careful 5-7 year planning turns employee buyouts from risky dreams into fully financed, legacy-preserving realities.
Implementing this plan requires coordinated actions over several years. Begin by assessing leadership readiness—are your potential successors committed and equipped to lead? Next, establish governance and accountability structures so employee owners understand their roles and responsibilities.
Financially, maintain updated, transparent records that emphasize recurring revenue and contractual stability. Engage SBA lenders early to understand their underwriting criteria and loan approval processes, adjusting your financial preparation accordingly.
Consider working with advisors who specialize in A/E/LS firm transitions to guide you through legal structuring, valuation, and deal negotiation, ensuring the financing aligns with your retirement and legacy goals.
This practical roadmap empowers you to exit on your terms, paying yourself in cash upfront while empowering trusted employees to sustain and grow your firm’s legacy far into the future.
Your architecture, engineering, or surveying firm’s future is too important to leave to chance. With the Step-Up Legacy Plan™ and current SBA financing options, you can achieve a full cash exit, protect your legacy, and ensure your trusted employees take ownership.
Starting your 5 to 7 year succession process today—focusing on leadership, financial transparency, and early lender engagement—positions you for a smooth, bankable transition. Allen Business Advisors offers expert guidance tailored specifically to the A/E/LS industry to help you navigate this evolving market.
Contact us now to explore how this proven framework can secure your firm’s future and maximize your retirement security.
