Ownership transition activity in the architecture and engineering (A/E) space is certainly on the upswing with the Baby Boomer generation looking to retire in increasing numbers. But, how ready are you for taking on the task of transitioning ownership of your firm? Have you primed the pump with a list of possible successors?

1. WHAT EVERY A/E
FIRM LEADER NEEDS
TO KNOW ABOUT
TRANSITION PLANNING
E.BOOK SERIES

2. E.BOOK SERIES
II
Ownership transition activity in the architecture and engineering
(A/E) space is certainly on the upswing with the Baby Boomer
generation looking to retire in increasing numbers. But, how ready
are you for taking on the task of transitioning ownership of your
firm? Have you primed the pump with a list of possible successors?
Those who are looking to retire in the next decade need to start
planning today to guarantee a smooth transition, and one that is
beneficial to all parties.
Yet, if you are a firm owner looking to transition ownership within
your organization, you probably already know that generational
forces operating in today’s A/E firms present some major challenges.
Only a few years ago, when a young professional joined a design
firm, he or she expected to serve a long time in that firm, working
for the owners while becoming more and more knowledgeable and
capable, and hoping, after years of loyal commitment, to someday
acquire equity in the company.
Today, however, things are much different. Your incoming
professionals probably seem more loyal to their own careers and
their profession than to their companies. And who can blame them?
In their experience, they see companies that come and go, they see
companies merging or getting acquired, they see constant change.
The only way they can have some control over their own destiny is
to be independent: either move among companies to find what they
want, or become owners fairly early.
The most talented young professionals are educated about the
world, independent thinkers, and somewhat impatient for more
responsibility and financial reward. They aspire to early ownership.
If you want to keep them in your firm, you must make it clear that
the ownership path is open to them.
In What Every A/E Firm Leader Needs to Know about Transition
Planning, we help you navigate through some of the thornier
parts of planning for your firm’s ownership transition, as well
as present some expert advice on how firms can address the
generational challenges they face today when considering selling
their firm internally.
Though we only cover a small corner of the vast world of ownership
transition in this e-book, we do hope you find it helpful. For more
information and additional resources, please contact us at
617-965-0055 or www.psmj.com.
INTRODUCTION

3. E.BOOK SERIES
1
PART ONE:
COVERING THE BASICS
An Overview of the Ownership Transition Process
Why You Should Have an Ownership Transition Plan…Now!
Design Firm Transitions Differ From Other Business Transitions
PART TWO:
MAKING IT HAPPEN
The Four Different Generations in Today’s A/E Firm
First, There is the Financial Side of Ownership Transition…
…And Then the People-Based Side of the Equation
PART THREE:
NEXT STEPS TO OWNERSHIP TRANSITION SUCCESS
Ownership Transition Problems to Avoid
How to Prepare For the Transition
Financial Issues to ConsiderCopyright ©2016
by PSMJ Resources, Inc.®
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PSMJ Resources, Inc.®
P.O. Box 95190
Nonantum, MA 02495
Phone: 617-965-0055
Fax: 617-965-5152
Email: customerservice@psmj.com
www.psmj.com
TABLE OF
CONTENTS

4. E.BOOK SERIES
PART ONE:
COVERING
THE BASICS
AN OVERVIEW OF THE
OWNERSHIP TRANSITION
PROCESS
The goal of an ownership transition plan
is usually to keep the firm intact and
operating smoothly according to its original
vision, whether the occasion for change is
planned, such as an owner’s retirement, or an
unexpected event like the sudden death or
disability of a partner. Ideally, the day to start
planning your transition is the day you start
your firm. Don’t put it off. It affects your on-
going management decisions and the year-to-
year financial management of your firm. And
a transition could happen sooner than you
expect.
2
The following are the general steps you need to
take to complete a successful transition.
• Understand your firm’s culture. Are you
trying to create an empowered company
where all employees have an
entrepreneurial spirit? Or are you more
concerned with control?
• Understand your own goals and objectives.
At the end of the transition, where do
you hope to be, financially, personally and
professionally?
• Set your criteria for leadership. What does
it take to become a partner in your firm?
• Decide how you will finance the transition.
• Write a schedule. Whether your plan will
take five years or fifteen, decide what you
need to do and when.
• Know how to place a valuation on your
firm.
• Put in place a buy/sell agreement and plan
to review it every two or three years.
Ideally, the day to start planning
your transition is the day you
start your firm.

5. E.BOOK SERIES
WHY YOU SHOULD HAVE AN
OWNERSHIP TRANSITION
PLAN…NOW!
It is a common myth that ownership transition
planning is only for those firm leaders who are
ready to exit. This couldn’t be further from the
truth! Even if an exit isn’t in your near-term
plans, here are six reasons why you need to
start building a plan right now:
1. To allow older owners to liquidate their
investment in an orderly fashion.
2. To give younger professionals the
opportunity to acquire ownership over
a reasonable period of time.
3. To allow a smooth transition from one
management and ownership team to
another without disrupting service to
clients, whether the transition results
from a planned or unexpected event.
4. To allow older owners to phase out their
day-to-day involvement, but continue to
contribute where desired.
5. To help recruit talented people who want
to be on an ownership track.
6. To allow each current and future owner
to maximize the return on his or her
investment in the firm.
DESIGN FIRM TRANSITIONS
DIFFER FROM OTHER BUSINESS
TRANSITIONS
Some traits of architecture, engineering,
planning and interior design firms differentiate
their transfer of ownership from transfers in
traditional businesses.
Emotional ties to the profession. Most design
firm professionals want immediate ownership,
not for economic reasons, but to control their
own destiny and build security. They want
ownership, but might not understand what
ownership means.
Financial secrecy. Because owners tend to
keep finances a secret, potential successors
don’t understand the business side or the
financial status of the firm.
Secondary nature of profit. Profit and
profitability can often take a back seat to
design and client relationship management.
Ego and entrepreneurial drive. The
entrepreneurial drive of the founders is often
not found in the second generation.
The results: Entrepreneurs are replaced with
groups who don’t like to take risks and who
spend their time vying with each other for
position.
3

6. E.BOOK SERIES
PART TWO:
MAKING IT
HAPPEN
THE FOUR DIFFERENT
GENERATIONS IN TODAY’S
A/E FIRM
For the first time in our history, companies are
struggling to deal with four generations in the
workplace at one time. The resulting culture
clash is causing some serious issues that you, as
both emerging and established leaders, need to
understand.
A generation occurs roughly every 20 years.
Social scientists clump a generation together
according to events and external influences
that the group shared. This is not a fixed
science, so you will see different ranges of years
for different generations. The characteristics of
the generations don’t change though.
THE TRADITIONALISTS, born between
1900 and 1945, are mostly retired but some are
still working, carrying on the beliefs, practices,
and loyalty of the Greatest Generation, as they
have been called. They experienced world
wars, the Depression, and the industrialization
of our country. While they technically are
two generations, this group is viewed as
one generation because their values and life
experiences werethe same. The key invention
in their generation: radio.
4

7. E.BOOK SERIES
THE BABY BOOMERS, born between 1945
and 1962, are in management and leadership
positions today. This generation identifies
with JFK, Martin Luther King Jr., the Beatles,
and the Beave. They fought for civil rights and
women’s rights and in Vietnam and against the
draft. They rolled in the mud at Woodstock
and launched Saturday Night Live. The greatest
invention of their generation: television.
GENERATION X, born between 1963 and
1982, is comprised of so many different groups
that researchers couldn’t find one label that
fits all of them, thus the term Generation X.
Gen Xers identify with Bill Clinton, Bill Gates,
Michael Jordan, and Dilbert. They experienced
the highest divorce rate in U.S. history and
were the first latch-key kids. They saw their
parents’ loyalty to corporate America rewarded
by widespread layoffs. The greatest invention
for them: the personal computer.
45
And there are the MILLENNIALS, born
between 1981 and 1999. Influencers for them
include Prince William, TinkyWinky, Kurt
Cobain, and Britney Spears. These people
have lived with Colombine, the 9-11 bombing
of the Twin Towers, and the bombing at
the Olympics. The Millennials have grown
up with cell phones and instant messaging.
Whereas other generations have had to work
on diversity, the Millennials have grown up
expecting diversity. Some researchers believe
this group will be known as the Next Greatest
Generation. The greatest invention for this
group: the Internet. Population: 76 million.
What is critical to recognize here is that the
challenge of managing four generations is
marked by having to manage four different sets
of values:
Traditionalists value stability, responsibility,
frugality, and loyalty to the company.
Boomers value optimism, competitiveness,
idealism, and rising through the ranks.
GenXers value skepticism, independence,
resourcefulness, and work/life balance.
Millennials value loyalty, optimism, diversity,
and teamwork.
Use your understanding of these distinctions
to approach members of different generations
accordingly.
The challenge of managing four
generations is marked by having
to manage four different sets of
values.

8. E.BOOK SERIES
6
FIRST, THERE IS THE FINANCIAL
SIDE OF OWNERSHIP
TRANSITION…
Looking at internal sales of stock ownership,
processes, and partnership agreements,
much has changed since the 2008 downturn.
Generational forces at work in today’s
architecture or engineering firm present
a major challenge to effective ownership
transition. Thus, as a firm leader, you must do
more than consider new or revised terms in
your buy-sell agreements.
Today’s Perfect Storm
Internal ownership transition has gotten to be
one of the most difficult challenges facing A/E
firm leaders today. In fact, we have just run
into what could be called the “perfect storm.”
The number of Baby Boomers who own equity
in the A/E industry and want to get out is at an
all-time high. It is going to get higher yet, but
it is peaking with the current demographic of
firm owners.
While current Boomers are looking to retire,
however, few Generation Xers are ready to take
over the reins, and the following generation
(i.e. Millennials) have different expectations.
And, many of these younger folks coming
up the line are still shell-shocked from the
recession. They saw themselves and all their
friends get laid off. They expect to be given the
ownership, that, in effect, they have already
earned it by being a good employee.
Because of a reduced demand for shares inside
the firm, there are not a lot of buyers out there
for internal ownership. And, of course, this
doesn’t fit with the retirement plans of the
Baby Boomers, many of whom are behind
schedule because of the losses they incurred
during the recession. And so, when you
combine a pressure for value with the fact that
the younger folks don’t want to pay, the result
is nothing less than a logjam.
Because of a reduced demand for
shares inside the firm, there are
not a lot of buyers out there for
internal ownership.

9. E.BOOK SERIES
Deep Discount vs. External Sale
Our experts at PSMJ are seeing a big
separation in valuation between what a seller
(who owns shares and wants to sell) can get
from an outside firm versus what they could
possibly get at a discount sell to an internal
shareholder. Also, the difference between
internal and external sales has become much
starker. We used to see a 25-30 percent
discount from an external to an internal sale.
Now we are seeing double that, at least a 50-60
percent difference between what firms could
sell themselves for externally versus internally.
Firm leaders, however, should not assume that
an external sale is always a good “fallback”
position. There’s a good chance that the
younger folks would not come along in a sale.
For sellers to be able to deliver firm value, they
have to be able to bring their key staff with
them. And so, the process is circular: It runs
right back into itself.
To say it another way, retiring Baby Boomers
must consider how an external sell would
impact firm culture. Moving from an internal
to external sale greatly increases the influence
of money on your decision. If you have
operated a practice-centered business for a
generation, and then all of a sudden you need
to get the place ready for an outside sale, you
are now money-motivated.
Thus, when you change to a business-centered
practice to make more profit, the firm falls
apart. The middle management does not get it:
They joined and stayed at the firm because of
the way it operates. You might be able to turn
a screw here or tighten up a bolt there, but
the culture turns very slowly even in a small
firm. Making the switch from an internal to
an external focus requires whipping your firm
into the opposite direction, and it’s likely that
your employees will not come along.
ESOPs Find New Popularity
Employee Stock Ownership Plans (ESOPs)
have become more popular. They’re less
overhead burdensome then they used to be
and less expensive to set up. Some firms put
an ESOP in place as a last resort for ownership
transition. They think: “We don’t want to sell
to a big firm and we can’t sell internally, so let’s
do an ESOP as a fallback position.”
7

10. E.BOOK SERIES
The problem is that an ESOP comes with
a cultural change. And firms often don’t
understand how an ESOP shifts the culture of
the firm into one where everybody is – in some
respects –taking an ownership mindset.
Sometimes firms prep for that and do some
lead-up. If firm leaders talk it up and become
more open book, than the firm may not change
in bad ways.
But generally, our view has always been that
you can’t make people act like owners just
by giving them equity-based benefits. People
need to act like owners first, and then an ESOP
might be a good solution. You can’t do it in
reverse.
Financial Planning for Ownership Transition
Many firms want to stay independent. Their
owners say: “I don’t want to or I don’t think I
could sell to an outside firm, and I don’t want
to stick around here very much longer. I have
to do whatever it takes to make this go.” And
so, in order to induce the younger folks to
buy, buy/sell agreements are becoming much
more negotiated in the favor of the buyer. This
includes much more financial assistance to the
buyers, reductions in valuations for the firm
for internal transition, and less-restrictive non-
compete clauses.
The other thing firms are doing in the
good economy right now is finding ways
to maximize profits, and then increase the
distribution to the owners as much as possible.
If you can absorb the discount to keep the
firm independent and give it to the next
generation—and you can sell it at a value they
are willing to accept—that’s great.
Prior to that, however, the firm would have
had to set up an “earnings club”(i.e. where as
much profit as possible is distributed each year
to the shareholders). You have to maximize
that for a few years, and then hand it off to
the next group of leaders. Maybe they are
prepared to handle it or maybe it’s the death
of your firm. You never know, but as the Baby
Boomer, you have your money at that point.
Firms interested in staying independent in this
way need to begin planning at least 10 years in
advance.
8
People need to act like owners
first, and then an ESOP might
be a good solution. You can’t
do it in reverse.

11. E.BOOK SERIES
9
…AND THEN THE PEOPLE-BASED
SIDE OF THE EQUATION
While current Baby Boomers are looking to
retire, few Gen Xers are ready to take over the
reins. Because there’s not a lot of them, trying
to transfer your firm to Gen Xers is going to
be difficult. And if you are planning ten years
down the road, you are thinking the following
generation (i.e. Millennials). In fact, front-edge
Millennials are now just coming into the heart
of their careers where they can really push a
business forward. And so the question arises,
how do Millennials view A/E firm ownership?
What are their reactions when approached
with such offer?
There are no simple answers to these questions
as Millennials come to the work place with
completely different expectations than today’s
retiring Baby Boomers. There are a lot of Baby
Boomers who started and own A/E firms and
need to transition out. Yet, they are having
difficulties finding Millennials that want to
step up and take over.
Millennials Value Work-Life Balance
One of the biggest challenges has to do
with the value Millennials consign to work-
life balance. As a result, they often show a
resistance to the owner/partnership track,
which has been a core part of our business
forever. It took time to figure out why, but this
dilemma can be attributed to nothing less than
the overprotective and goal-oriented parenting
received by this younger generation.
If you think about it, when they were babies,
their parents were trying to get them into a
great kindergarten, so they could get off to a
good start. In elementary school, they were
told, “If you work really hard, you’ll get into
all the advanced programs in high school.
And if you take all these advanced courses in
high school, and do all these extracurricular
activities, then you’ll get into a great college.”
And when they get into a great college, they
are told if they work hard, get great grades, and
There are a lot of Baby Boomers
who started and own A/E firms
and need to transition out.
Yet, they are having difficulties
finding Millennials that want to
step up and take over.

12. E.BOOK SERIES
10
do lots of extra-curricular activities, then they
will get a great job. And finally, they come into
our firms, and are told, “If you work hard and
sacrifice for twenty years, you can be a partner
just like me, and you’ll be set.” Their response
is “I think I heard this story before, and I don’t
buy it anymore.”
The other problem is that Boomers do a
terrible job selling firm ownership. Millennials
look at the Boomers with dark circles under
their eyes, stress lines everywhere, and families
falling apart, because they are not spending
enough time at home. And so the Millennials
say, “I don’t know if I really want that life.”
Millennials Are Risk Averse
Furthermore, any idea of loyalty to an
employer was broken in their parent’s
generation, where there were massive layoffs in
the Great Recession. So Millennials don’t buy
the idea that “if I put my head down and work
hard for an employer, they will take care of me
for the rest of my life.” They think it’s a lie.
There are a lot of forces working against
Millennial’s interest in firm ownership. In
addition to distrust in the process and an
aversion to sacrifice, there is also the financial
element. A core of Millennials graduated from
college during the Great Recession, so they are
risk averse when it comes to investment.
For one, Millennials are disproportionately
not in the stock market. Also, their debt load
is very high due to student loans. So when
you ask them to take ownership of a business,
and buy in, they just don’t have the financial
wherewith all. If it’s going to happen, firm
leaders need to come up with a smart plan to
transfer ownership over time.
Millennials Need Leadership Training
While financial help can make it easier for
Millennials to move toward ownership,
successful transition cannot happen if firms
do not engage in training their future leaders.
That means identifying stars early in their
careers by putting them in situations where
they have the opportunity to thrive. Here are
some guidelines to help you maximize the
generational forces in your firm as you start to
move toward ownership transition:
While financial help can make
it easier for Millennials to move
toward ownership, successful
transition cannot happen if firms
do not engage in training their
future leaders.

13. E.BOOK SERIES
1. Call upon Boomers to resume their youthful
role as change leaders. Now is the time to
abandon hierarchical norms, sink-or-swim
management, and one-size-fits-all career paths.
2. Prepare Gen Xers for supervisory
responsibility and leadership roles. Gen Xers
are now entering their prime working years
in short supply and full of attitude. Xers want
status, authority, and rewards, but often resist
traditional management roles. Create new
paths to leadership, redesign leadership roles,
and develop the new generation of leaders for
those roles.
3. Accelerate the professional development of
Millennial employees. Recruit new employees
at younger ages, get them up to speed faster,
and trust them with important roles involving
critical tasks and responsibilities. There’s
no choice; there won’t be enough older
experienced workers to get all the work done.
Teach managers to coach these seemingly
high-maintenance younger workers through
every step.
11
Also, Millennials are an impatient generation
when it comes to advancement. They feel
that after a few years out of school they
should be the CEO of the company. So there
needs be a lot of interim steps in their career
advancement. It’s too long to say, “You will get
there in five years.”
Emerging leaders not only need to understand
technical skills, but also how the business
works and the leadership skills they are going
to need to be successful. It is essential to have
a leadership development program that is
formalized within your organization. By doing
so, firms encourage their best stars to stay by
investing in them. They also attract potential
stars who want that type of training. Since
very few firms are doing this, it is a powerful
recruiting and retention tool.
Millennials are an impatient
generation when it comes to
advancement. They feel that
after a few years out of school
they should be the CEO of the
company.

14. E.BOOK SERIES
Millennials Want to See a Career Path
And finally, firms need to develop a realistic
and well-thought out ownership transition
plan. It takes ten years to do an ownership
transition right—with people selling out and
people buying in—and everyone happy with
how it works out. So it is very important that
the generation that wants to sell out have
realistic expectations on the age that they
will exit.
Among firm owners all over North America,
the consistent theme is “I am going to retire in
five years.” And five years from now, they are
still going to retire in five years. That drives
Millennials nuts.
If you want to do an ownership transition, the
right time to do it is around social security
retirement age. That’s the time to step back
and let other people step up. It is those folks
in their 30s and 40s who are going to have the
passion to really move your firm forward into
the future.
12

15. E.BOOK SERIES
PART THREE:
NEXT STEPS TO
OWNERSHIP
TRANSITION
SUCCESS
OWNERSHIP TRANSITION
PROBLEMS TO AVOID
In many cases, firm owners wait until it was
too late to create a plan. Requirements for a
smooth transition have not been considered as
part of the firm’s on-going business planning.
As a result, a number of problems arise. These
generally fall into four categories:
1. Leadership. The owner has been so busy
managing the firm and making all the
decisions, that he hasn’t spent enough time
or thought to develop the people who should
be ready to take over as he prepares to retire.
The most serious problems are leadership
problems, not ownership problems.
2. Financing. The owner approaching
retirement still owns a large percentage of
the stock. There aren’t enough buyers in the
firm with the resources to buy him out. The
firm hasn’t been funding the transition over
a period of time: Younger employees are not
likely to have the independent resources to
purchase the firm because the younger people
have not been investing in the firm and have
other financial commitments.
13
3. Valuation. Without careful study and firm
data, many owners vastly overestimate the
market value of their firm.
4. Outdated buy/sell agreements. Agreements
should be reviewed every two or three years,
partly because circumstances change but
especially because tax laws change.
SUCCESSFUL OWNERSHIP TRANSITIONS
SHARE THE FOLLOWING ATTRIBUTES:
1. Future leaders have at least five years’ management
experience before they assume leadership.
2. The transition plan has been in operation for several
years before the owner’s retirement (ideally, ten to
fifteen years).
3. Everyone understands what is expected of him or her
before, during and after the transition.
4. An up-to-date buy/sell agreement is in place.

16. E.BOOK SERIES
14
HOW TO PREPARE
FOR THE TRANSITION
• Start early.
• Create a vision statement early, along with
strategies for implementation and corporate
value. Make sure the behavior of leadership
conforms.
• Study the valuation process early.
• Talk with other CEOs who have done it first,
and collect lots of information. Get good
advice from five sources: peers, management
consultants, attorneys, accountants and
insurance counselors.
• Decide what your personal goals and
objectives are before entering ownership
transition, including what you want
financially out of the firm (retirement
account, supplement your estate, etc.)
• Decide what you want to do after you leave
the firm.
• It’s easier to go to something than to simply
leave something behind.
• Don’t engage attorneys and consultants too
early in the process.
• Continue to dream and vision the future.
FINANCIAL ISSUES TO CONSIDER
• Make your transition is on a solid financial
footing.
• Sell in small increments over time.
• Require some payment directly from the
candidate.
• Don’t give it away.
• Don’t make an offer until you get things
together (buy/ sell agreement, valuation, etc.)
• In setting the stock valuation formula, look
at both your leaving and other shareholders
leaving.
• Keep the sale and valuation as simple as
possible.
• Be careful with disability clauses and
insurance clauses.
• Be sure owners clearly understand the details
of the buy/sell agreement.
• Don’t trust lawyers to develop documents
alone.

17. WHAT YOU SHOULD REALLY
EXPECT FROM THIS
ROUNDTABLE:
PSMJ’s Ownership & Leadership Transition
Roundtable takes a complex process and simplifies
it into clear steps you can implement while running
your business. A solid understanding of how the
process works brings with it greater confidence,
efficiency, and value.
Our experts walk you through the Ownership &
Leadership Transition process step-by-step. We
help you take action to getting your own process
underway with maximum efficiency and best return
on effort. Many of our attendees come away saying
“We didn’t know what we didn’t know until we came
to this program, but now that we know, it is clear what
we need to do.”
A huge benefit from attending this Roundtable comes
from the opportunity to talk candidly with your peers
about how they may have approached this aspect of
their business. Too often, firm owners procrastinate or
fail to act quickly on the pressing issue of transition,
sometimes ending in painful outcomes.
PSMJ HAS BEEN ADDRESSING
OWNERSHIP & LEADERSHIP
TRANSITION ISSUES FOR
OVER 40 YEARS
PSMJ’s Ownership & Leadership Transition
Roundtable is designed for the leaders of today’s
A/E/C firms who want to realize the value of their
firms upon retirement. Together, we walk through a
structured, logical approach to developing practical
planning tools for your firm’s transition planning.
This Roundtable helps you understand and design
a transition process to deal with this increasingly
complex challenge.
A unique opportunity for A/E/C firm leaders to dig deep into the thorny issues
that get too many ownership and leadership transition plans into trouble.
OWNERSHIP
& LEADERSHIP TRANSITION
ROUNDTABLE
“This Roundtable really addresses the future of the firm.
Attend early—not too late.”
Lindsey Henry, President - Midwest Environment
“Very useful. Use of case studies really helps drive the
points home.”
Robert Walker, President - Walker & Associates
“Excellent program! Very comprehensive overview with
lots of real world examples.”
R. Von Beougher, President - G&A Consultants
“Excellent presentation, very useful.”
Travis Trent, Principal - Fullerum Environment
A/E/C
OLT
2016
CALL:
(617) 965-0055
E-MAIL:
education@psmj.com
VISIT:
http://store.psmj.com/a-e-c-ownership-and-leader-
ship-transition-roundtable/8
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