Twelve ways to maximize value

For AEC firm owners and top managers who say they care about value but keep acting like they don’t.

Inevitably, when an AEC firm gets into serious introspection about their business and the direction it is heading, the subject of maximizing firm value comes up. And maximizing value doesn’t necessarily mean an external sale is inevitable. Value is critical for internal sale and ESOP options as well, and for firms that want to use their stock as currency to buy other firms with instead of cash. 

Anyone who has read my stuff over the years knows I have little tolerance for financial jocks who only want to look at multiples of EBIT for valuation of companies in this industry. While EBIT is important, there are many other contributors to firm value.  

Here are some of them:

1. Grow the firm or admit you are comfortable shrinking. In the AEC business, firms that are not growing revenue are falling behind, even if profitability looks good. Costs increase every year. Compensation expectations increase every year. Flat revenue means declining real performance. Buyers want firms that are growing, not firms explaining why “growth for growth’s sake is not our goal.” If growth is not the goal, maximizing value never will be either.
2. Be known for something specific that few firms can do well. High-value AEC firms are not generalists. They provide specific services to specific markets that require experience, judgment, and reputation. That specialization untethers the firm’s geographic reach. Firms that try to be everything to everyone are easy to replace and therefore worth less.
3. Be a top-three firm in your market for what you do. Brand recognition matters in the AEC business, whether owners like it or not. Firms that get called in by clients enjoy higher hit rates and higher fees. Firms that are unknown rely on price and personal relationships, both of which make it vulnerable. If your firm is not one of the first three companies named for its specialty, it will always struggle to command value.
4. Develop real successors, not titles and empty promises. If the firm depends on one person, it’s vulnerable. Period. Valuable firms have clear CEO successors and depth at every key leadership position. Those people already manage clients, staff, and profit centers. Owners with no credible succession plans who refuse to let go of control reduce the value of the very firm they claim to be building.
5. Charge higher billing rates and fees than average firms. Firms with higher billing rates and labor multipliers are worth more. Firms that compete on low fees train clients to treat them like commodities. High fees reflect strong positioning, confidence, and leadership willing to walk away from bad work. Buyers know that firms accustomed to discounting are hard to change.
6. Produce consistent profit and cash flow. Revenue growth rate alone won’t do it for you. Consistently profitable firms are better managed, better positioned, and better prepared for downturns. Buyers look for profitability that shows up year after year, not explanations about why “this year was different.” Ditto for cash flow and faster than typical collection periods. Strong cash flow is evidence of discipline and means the firm needs less working capital to operate.
7. Maintain a strong balance sheet. Well-run AEC firms manage working capital, control debt, and do not treat the company as a personal bank account. A strong balance sheet lowers risk and increases flexibility. Weak balance sheets signal a lack of willingness to invest in the company, poor decision-making, and short-term thinking.
8. Have audited financial statements. A history of outside accountant audited financials improve credibility and speed up transactions. They reduce buyer concern and eliminate unnecessary debate. Owners who won’t spend the money on audits usually underestimate how much that can hurt their value. Serious firms act like real businesses.
9. Avoid overreliance on any one client. No single client should represent more than 4% of total revenue. Client concentration in a few big clients is risky, no matter how strong the relationship seems. Buyers discount firms that could be damaged by the loss of one client. Diversification equals stability.
10. Build recurring revenue with repeat clients and annual agreements. Firms with predictable revenue streams are easier to manage and easier to sell. Annual contracts, on-call work, and long-term client relationships reduce volatility and improve forecasting. Chasing one-off projects creates uncertainty and lowers value.
11. Invest continuously in systems, technology, and facilities. Deferred investment always shows up in due diligence. Buyers subtract the cost of outdated software, weak IT, and tired facilities from what they are willing to pay. Strong firms reinvest every year and don’t put off necessary spending.
12. Demonstrate the ability to acquire and integrate other firms. Firms that have successfully acquired smaller practices and integrated people, systems, and operations are more valuable. This shows leadership strength, scalability, and sound management. Talking about acquisitions is easy. Executing them well is not.

The bottom line is most AEC firm owners and top managers say they want higher value but refuse to operate differently. They rationalize for low growth, underprice services, delay succession, and resist discipline. Firm value is not created at the time of sale. It is built over many years by owners who run their firms like businesses instead of personal practices.

Mark Zweig is Zweig Group’s chairman and founder. Contact him at mzweig@zweiggroup.com.