Sell to your employees without becoming their bank

You are paid at closing. A bank funds the purchase, so your proceeds arrive in cash the day the deal closes rather than in installments over the following years.

The deal is built so a bank funds the purchase and you are paid at closing rather than carrying your employees. When your employees come in with the full equity injection, your proceeds come to you at closing. When they come in with as little as 5 percent down, a limited seller note may be required for the balance. The exact structure depends on cash flow, deal size, and lender underwriting.

Most of the time, yes. Buyers typically access the down payment through a home equity loan, and there can be multiple buyers, which reduces the amount each one contributes.

We also have other solutions to help the buyers with the down payment. Remember, SBA financing calls for a 10 percent equity injection, and we arrange these deals so your key employees come in with as little as 5 percent down. Our banking partners specialize in these transactions, so you are paid at closing while your employees step into ownership.

It is simpler, faster, and less expensive.

ESOPs are a specialized retirement plan that costs hundreds of thousands to set up and maintain, making them primarily viable for large firms. The Step-Up Legacy Plan enables employees to purchase using SBA financing, eliminating that complexity and ongoing cost. You still achieve continuity, culture preservation, and liquidity, without the headaches.

It is the financial engine that makes employee buyouts possible.

The SBA loan limit is $5,000,000. On top of that, our banking partners will often lend their own money, which can bring the total financing to $10,000,000 or more. When banks add their own funds, some of the equity injection rules can change, but the structure stays highly advantageous. Any portion above what the loans cover is addressed through a seller note or other negotiated consideration, structured to meet bank requirements and protect the seller.

The SBA loan limit is $5,000,000 per loan. Larger transactions are reached by pairing the SBA loan with conventional bank financing alongside it.

Our banking partners will often lend their own money on top of the SBA loan, which can bring total acquisition financing to $10,000,000 or more. The SBA itself is not providing that larger figure, the combination of the two loans is. When a bank adds its own funds, some of the equity injection rules can change and the underwriting gets a closer look, but the structure still works. Any part of the transaction exceeding what the loans cover is usually handled through a seller note or other negotiated consideration.

Your buyers do. SBA 7(a) financing calls for a personal guarantee from every owner holding 20 percent or more of the buying entity, and lenders commonly extend it across the rest of the buying group.

That guarantee is what gives the bank comfort, and it is what puts real skin in the game for the people taking over your firm. A spouse can be brought onto the guarantee where the spouse's ownership counts toward the 20 percent threshold, or where a home or other jointly held property is part of the collateral picture, so it is a conversation worth having early rather than at signing. As the seller, you do not guarantee your buyers' bank loan after closing. Your only continuing exposure is whatever seller note you agreed to carry, and that note sits behind the bank's position.

It is possible, and it is worth raising with the lender early. SBA lenders look at the collateral available to them, and a personal residence with meaningful equity can be pledged where the loan is not otherwise fully secured.

The business itself is the collateral for the loan, and under SBA policy a collateral shortfall is not, by itself, a reason to deny the loan. In practice that means a lender will not usually walk away from a good deal over missing collateral, but it can take a lien on a personal residence where real equity is sitting there and the loan is otherwise short. Which residences come into the picture depends on who is guaranteeing the loan and what they own, including jointly held property. That is a separate question from funding the down payment, which many buyers do with a home equity loan or line of credit. Both come up in the same conversation with the bank, and both are better settled before an offer than at signing.

Often, yes. Minority holders can frequently remain in the business, and how that is handled shapes who signs the personal guarantees and how the buying entity is structured.

Whether a minority owner keeps their stake, sells alongside you, or comes into the new entity on different terms is a structuring decision, and it interacts directly with the loan. Ownership at or above the 20 percent threshold pulls a person onto the personal guarantee, and lenders look at the strength of the whole ownership group when they underwrite. There is no single right answer, because it depends on who those owners are, what they want out of the transition, and what the lender will accept. It is one of the first items worth putting on the table in a confidential conversation.

Yes. The employees know their jobs, but they need someone to teach them your responsibilities in insurance, budgeting, and administration. The seller signs an employment agreement for a year, with hours commonly running 40 a week during the first three months after closing, 30 in the following quarter, then 20, and on call in the fourth quarter.

Banks want to see a defined handover rather than a hard stop, and so do your clients. In architecture, engineering, and surveying work there is a practical reason for it, because licensure, professional registrations, and long-standing client relationships do not transfer overnight. Some sellers stay on past the first year, and what that looks like is worked out as part of the transition rather than fixed by a formula. The important part is that staying involved is a transition arrangement, not a condition of getting paid. You are paid at closing either way.

Enough for the business to keep running through the first months of new ownership. The bank determines the appropriate level, typically three to four months of expenses, sized against your billing cycle and receivables.

Total project cost includes the purchase price of the business, working capital, and closing costs, so working capital is part of what the deal has to fund rather than an afterthought. Project-based A/E/LS firms carry work in progress and receivables that swing from month to month, and payroll does not wait for a client to pay an invoice. Banks look hard at that cycle, and an SBA 7(a) loan can cover working capital alongside the purchase price, goodwill, and closing costs in a single package. What matters for you as the seller is that working capital is negotiated as part of the deal, including how much cash stays in the business and how receivables and work in progress are treated at closing. Settled up front it is a line item. Left unaddressed it becomes a renegotiation at the closing table.

Smaller than $1M in sales or fewer than 10 employees is where it gets harder, but not automatically impossible.

The plan works best for firms with $1M to $10M in sales and 10 to 50 employees. Below that range, feasibility depends heavily on profitability, the strength of the client base, and how experienced the potential buyers are. It is worth a conversation rather than ruling it out based on size alone.

Once you are ready to approach your employees, typically 3 to 6 months. Selling to an outside third party normally takes 9 to 24 months from the time you go to market.

Timing depends on how quickly your financials are prepared, how ready your employees are to move forward, and lender processing. We manage the process to keep strong momentum.

Value is based on the cash flow your business generates for the owner, the size of your firm, and the type of work you perform. A rule of thumb is 2 to 4 times Seller's Discretionary Earnings or 5 to 7 times EBITDA, and the better your cash flow, the higher the multiple.

Note that for acquisition lending, banks place the greatest weight on normalized historical cash flow and demonstrated debt service capacity. Projections may support the analysis, but they ordinarily do not replace documented historical performance. It is highly recommended that you have a professional value your business.

It is rarely a dealbreaker. There is almost always a path forward.

SBA lenders look at the combined strength of the buying group, not just one person's credit. If one key employee falls short on credit or liquidity, adding a second or third buyer, restructuring the down payment, or using a seller note to bridge the gap usually solves it. We work with our banking partners early in the process specifically to flag and fix qualification issues before they stall a deal.

Usually the cash flow or the buyers, not the idea of an employee sale. Most declines trace back to a handful of specific, and often fixable, problems.

The recurring ones are worth knowing. Cash flow that does not cover debt service with room to spare, since lenders generally want a DSCR of at least 1.25 on historical numbers. Heavy client concentration, where losing one relationship would take the firm's earnings with it. Earnings that depend on the departing owner personally, through the relationships or the seal on the drawings. A thin or unproven backlog. Buyers with weak personal credit or no way to fund the equity injection. And financials that do not reconcile to the tax returns, which stalls a file faster than almost anything else. Most of these respond to lead time, which is why we bring the bank into the conversation early rather than after the deal is papered.

Just one or two is common, and often preferable.

Many Step-Up Legacy Plan transactions involve two or three key employees rather than the entire staff. A smaller buying group is easier to underwrite, keeps post-sale governance simpler, and still preserves continuity for clients and remaining staff. The right number depends on your firm's leadership depth and who is actually ready to take on ownership.

Start with a confidential conversation with us first, not with your employees.

Before you say anything to your team, it helps to know whether a Step-Up Legacy Plan is realistic for your firm's size, profitability, and buyer readiness. Once we have confirmed the numbers work, we help you structure how and when to raise it with your key employees so the conversation lands as an opportunity, not a surprise.

Most of the upfront work protects you either way.

Valuation, financial preparation, and legal documentation all have value beyond a single transaction. They are useful if you pursue a different buyer or exit path later. Deals can fall through due to financing, buyer readiness, or changed circumstances, but the process is structured so you are not left exposed or out of options if that happens.

Your risk is limited to whatever seller note or guarantee you agreed to at closing, not the full loan.

The bank, not you, is the primary lender and holds the collateral and personal guarantees from your employees. If you carry a seller note for part of the balance, that portion is naturally structured to sit behind the bank's position. We review your specific exposure with you before closing so there are no surprises.

In most cases, taxation is similar to any other business sale. An employee buyout does not create special tax treatment.

Whether you sell to key employees or an outside buyer, the sale is generally structured and taxed the same way, based on how the purchase price is allocated between assets and goodwill. A seller-financed note, if used, may allow some tax deferral. We always recommend reviewing your specific structure with your CPA or tax attorney before closing.

This is worth surfacing early, and it is manageable with the right structure.

Disagreement among potential buyers about ownership percentage, roles, or control is common, and it is better addressed before a deal is underway than during it. Part of our process includes helping you and your buying group align on structure and governance upfront, so ownership questions are settled before the bank financing is finalized.

It is a specific, proprietary version of that broader category, purpose-built for A/E and surveying firms.

A leveraged employee buyout is the general category, using debt financing so employees can acquire a company. The Step-Up Legacy Plan is our named methodology within that category, engineered around SBA financing rules, A/E firm valuations, and the licensing and client-relationship realities specific to engineering, architecture, and surveying practices.

It gets you paid at closing instead of collecting payments for years.

Seller financing means you personally carry the note and collect payments from your buyers over time, taking on the risk if they cannot pay. The Step-Up Legacy Plan replaces that with bank financing, so a lender, not you, takes on the repayment risk, and you are paid at closing instead of waiting on your buyers.

Yes. It was built for all three: architecture, engineering, and land surveying firms.

The plan is designed around the ownership transition patterns, licensing considerations, and revenue profiles common across A/E/LS practices generally, not just one discipline. Firm size and profitability matter more to fit than which of the three fields you are in.