Submitted by Allen Business Advisors, Inc.
Many owners of engineering and land surveying firms reach the same point. The firm is profitable, and client relationships are strong. A small group of key employees who have been with the firm for years, know the work, and have earned clients’ trust is ready to lead. The owner is ready to step back. The question becomes: how do I sell my engineering or land surveying firm to my employees?
For firms with revenue between one million and ten million dollars, the answer is rarely straightforward. The most widely known employee ownership structure is an Employee Stock Ownership Plan (ESOP). ESOPs incur setup costs ranging from $150,000 to $300,000, with ongoing annual costs. In addition, the seller receives only 30 to 40 percent of the sale proceeds at closing.
Alternatives include selling to a larger competitor or a private equity firm, watching the culture disappear, or structuring a seller-financed internal transfer and waiting 5 to 10 years to realize the firm’s value.
There is a fourth option, one that is underused, underrecognized, and uniquely well-suited to the architecture, engineering, and land surveying market.
The SBA-Financed Employee Buyout
The SBA 7(a) loan program is the largest small business lending program. Less widely understood is that it can be used to finance the purchase of a business by its own employees, including professional service firms such as engineering and land surveying practices.
The structure is straightforward. A group of key employees, senior engineers, project managers, and licensed surveyors identifies itself as the buyer group. A third-party business valuation establishes the firm’s fair market value. The buyer group applies for an SBA 7(a) loan, which is underwritten on the business’s historical cash flow rather than the buyers’ personal balance sheets. At closing, the bank funds the transaction. The seller receives the proceeds and secures their retirement.
The project cost consists of the purchase price of the business, working capital, and closing costs. The SBA requires a 10% equity injection of the project cost. The employee buyer group may provide the full 10% or 5% if the seller provides a matching 5% loan. Buyers frequently fund the equity injection using savings or a home equity loan. The remaining 90% is financed through an SBA loan and repaid over 10 years from the company’s cash flow.
For a firm generating more than a million dollars in annual revenue, with a stable client base and competent management, this structure works. The business supports debt service. The employees acquire a firm that they already know. The selling owner exits cleanly on a defined timeline.
What Makes This Different from Seller Financing
Seller financing is the most common way that a business is sold to the employees. The typical arrangement is for the seller to act like a bank, and the employees pay the owner over time using firm distributions or future earnings. Seller financing has a place in certain transactions. However, it is not equivalent to being paid at closing.
With seller financing, the seller becomes a creditor. The seller’s retirement security depends on the continued performance of a business the seller no longer manages. If a key client departs, the economy contracts, or a natural disaster impacts the company, the seller absorbs the risk. The SBA-financed employee buyout transfers that risk to the bank, where it belongs.
This distinction matters enormously for owners who have spent twenty or thirty years building a firm and who need the proceeds to fund a retirement that is not contingent on someone else’s actions.
A Process That Works in Practice: Roberts Engineering Group
Roberts Engineering Group is a civil engineering and land surveying firm whose owner, Carmela Roberts, reached a point many owners do. The firm was successful, and the clients were loyal. Cameron Corini, PE, a trusted Project Manager, was ready to lead. What was not obvious was how to structure the transaction to pay Carmela in full and give Cameron a realistic path to ownership.
The transaction was structured as an SBA-financed employee buyout. Cameron secured an SBA 7(a) loan. Carmela received nearly full payment at closing. The firm retained its name, clients, team, and culture. Six months after the close, Carmela said she is the happiest she has been in a very long time. Cameron is thrilled to be the owner of a successful 28-person firm.
Roberts Engineering Group is the kind of transaction that is possible when the structure fits the firm. It is not an outlier. It is a repeatable model.
The Step-Up Legacy Plan™
Allen Business Advisors has formalized this approach as the Step-Up Legacy Plan™ , a proprietary methodology for SBA-financed employee buyouts, developed exclusively for architecture, engineering, and land surveying firms. The Step-Up Legacy Plan replaces the three conventional exit paths: an outside sale, ESOP, and seller-financed internal transfer with a single transaction that pays the owner at closing, preserves the firm’s independence, and gives the buyer group a structured path to ownership that does not require personal wealth they do not yet possess.
The methodology addresses the specific characteristics of A/E/LS firms: revenue dependent on licensed professionals, client relationships tied to individuals, project backlogs that serve as a form of goodwill, and buyer groups that are technically skilled but financially new to ownership. SBA lenders familiar with professional service firm transactions understand these characteristics. When the deal is packaged correctly, they fund it.
Who Is a Candidate
Not every engineering or land surveying firm is a candidate for an SBA-financed employee buyout, but such profiles are more common than owners typically expect.
The firm should have annual revenue between one million and ten million dollars. It should have a history of stable or growing revenue. There should be at least one identified buyer with the management capability, professional credentials, and the personal commitment to lead the firm after the transition. The owner will remain with the company for a year after the sale to train and mentor the new owners. As the year progresses, this role will transition from full-time to call-as-needed.
If those conditions exist, the transaction is worth exploring. The question of whether the firm is too small for an ESOP does not apply. The SBA 7(a) program has no minimum firm size, but it does have underwriting standards. Firms that meet them can close.
About the Author
John R. Allen III is the principal of Allen Business Advisors, Inc., a boutique M&A advisory firm specializing in ownership transitions for architecture, engineering, and land surveying firms. With a background in commercial lending and experience structuring SBA-financed employee buyouts, he helps founders achieve liquidity while preserving the culture, client relationships, and team continuity they have spent decades building. He is recognized as a national authority on A/E firm sales. More information is available at allenbusinessadvisors.com.