The architecture firm checklist buyers use
- Signed fees not yet earned, by project and phase
- Repeat clients versus one time commissions
- Who leads design, who manages projects, who signs drawings
- How long the founder will stay to hand off clients
- Work in progress billing and collection habits
Backlog is the first page buyers read
A buyer wants a list of every signed project with the total fee, the amount already billed and the phases left. That remaining fee is the work they are buying. A healthy backlog covering the next year or more makes the rest of the talk easier.
Next comes the pipeline: proposals out, shortlists and repeat clients likely to bring the next job. Buyers give less credit to hopes than to signed work, so be plain about which is which.
Who the clients are calling
Clients often hire an architecture firm because of one or two people. If every developer calls the founder, a buyer worries that the calls stop when the founder leaves.
The fix takes time. Put a senior architect in front of key clients for a year or two before the sale, and let them run projects start to finish. A buyer will pay more for a firm whose client trust is spread across a few principals.
Buyers will also ask who holds the professional licenses the firm relies on, and whether those people stay. Your attorney can explain how a change of ownership affects the firm's registrations where you practice.
Numbers that need recasting
Architecture firms often run owner perks, uneven partner pay and slow billing through the books. A buyer recasts all of it to see what the firm earns with a fair salary for each principal.
- Show work in progress and unbilled fees clearly, not buried in receivables
- Separate one time income, like an insurance payment, from fees
- Note any client who makes up a large share of revenue
If the top two or three clients bring in more than about 15 to 20% of fees, expect a lower price or part of it tied to keeping them.
Structure and the founder's role after closing
Most firms in this size range sell their assets rather than their shares, and the founder often stays on for a set period to hand off clients. Part of the price may come later, tied to that handoff going well.
A promise not to compete with the firm you sold is still allowed in DC, even though most employee noncompetes are not. Keep it reasonable in length and area.
Many firms are LLCs taxed as partnerships. If yours operates in the District, read how the unincorporated business franchise tax treats the gain on a sale, and talk to your CPA early.
Timing
From hiring a broker to closing, seven to nine months is typical. Firms with federal clients may take longer if contracts need agency approval; see the federal contractor page for that part. The step by step outline covers the rest.
If you want to know where your firm might price, send a request or call (202) 555-0174.