Insights Success The 10 Best Architecture Consultants in Nov 2017 | Page 4

Editorial
S
ome unique challenges are presented by an architectural practice
when the owners decide it is time to engage in succession
planning in order to assure the continuation of the firm and a
smooth exit for the principals. Succession planning can be viewed as
an art of structuring the transition of the ownership, management, and
control of the architecture practice. Each of these elements requires
careful planning, structuring, and implementation in order for the
succession plan to be fortunate.
Each option comes with its own challenges. The legal structure of the
architecture practice limits the universe of potential buyers to other
licensed professionals. In essence, this means that current key
employees or a competing architecture firm are the most likely to be in
a position to secure the practice of a departing principal. If key
employees are the preferred target buyers, consideration must be given
to the fact that few employees will have the financial resources to
purchase the firm outright. Often the key employees will need to
acquire ownership over time. That can be accomplished through a
variety of tools, from stock bonus plans to buy-sell agreements funded
with insurance or deferred compensation plans.
Succession Planning for
Architecture Firms
Typically, an architecture practice has few tangible assets. Office
equipment and systems are likely fully depreciated and may be in need
of replacement. Absent tangible assets, intangibles are likely to
comprise the bulk of the value of the practice. These intangibles will
include such items as the anticipated future profits of the firm as
represented by the volume of backlog of work, the skill level of the in-
place work force, special areas of expertise, and market share.
The target buyer (internal or external) can also impact the value of the
practice. When transitioning the ownership to internal candidates, these
small portions of ownership will often be subject to minority interest
and lack of control discounts, resulting in a smaller payoff to the
departing principal. Designing and implementing a succession plan
does not necessarily mean giving up control of the firm. If an internal
succession plan is preferred, the transitioning of the key employees
into ownership and management of the firm will occur over time.
Securing and monetizing the value that an architecture principal has
spent a career creating takes careful planning and a long-term vision.
Starting the process well before the need to exit the practice will help
reassure the success of the firm, both in terms of the continued
longevity of the firm and returning value to the departing principals.
Abhinav Chandrayan