How to Sell an Architecture Practice

In addition to securing professional finance for architects, we are also able to guide you to the right selling agents who will act on your behalf to make the entire process easier.

If you’d like assistance in the sale of your practice or just want some impartial advice around finance in the professional service sector and specifically around architect firms, get in touch today. Otherwise, read on to learn more about selling your firm. 

Why sell your firm?

Selling can be a difficult thing – but it can also be a profitable decision that helps you achieve the lifestyle you want. If you have reached the decision to sell your practice, you are likely either facing retirement or looking towards a new venture.

Sometimes architects sell their practice In order to bring new talent into the business and revitalise the brand, which is becoming increasingly common as older architects look to plan their post-work futures.

Remember selling your practice means you are handing over your brand and business, as well as any assets such as office equipment or even bricks and mortar premises.

It is also important to note that not all buyers of architect practices are other architects. In fact, many buyers are instead construction, engineering or design companies who would benefit from owning an architecture business as part of their wider business portfolio.

When selling to these businesses, you need to take into account the fact that a senior architect may not exist to step in and take over your role, so the firm may have to negotiate with you to either accommodate for the cost of hiring externally or promoting one of your employees to the role. In some cases, you may even choose to stay on as the Principal but relinquish ownership. 

Identifying the right buyers

Preparing to sell your practice means identifying its key value proposition and performing all of the necessary steps to list it on the market. Most architects need a ‘succession plan’ that begins long before the actual sale. This plan must consider who will replace the Principal role and how the practice will continue when you leave. 

An outright sale is not actually as common as you may expect, with many architect founders instead choosing to hand over ownership to partners who buy you out. In these instances, you’ll still need to follow the standard sales process but will have less hassle in the marketing and negotiation stages. 

If you’d prefer to market for an outright sale to an external buyer, you’ll need to be strict about valuation and be ready to offer certain concessions. For example, if you’re exiting post-sale, what value will the buyer lose, and how will the price they pay accommodate for it? 

If you’re handing things over internally, you should also get specialist tax advice as it may be more beneficial to take payments as pension top-ups rather than as a lump sum. Ultimately, whichever route you go, you will benefit from the advice and guidance given by a selling agent.

Selling agents

The majority of architecture practice sales are to existing partners as part of a succession plan, so likely don’t involve any external help aside from solicitors and finance providers. However, if you’re selling to a third party, you may need a sales agent. 

Selling agents are professional service sector experts who specialise in the sale of businesses like yours. With the help of an agent, you’ll be able to leverage market insights and have a better understanding of each decision you make. Additionally, a sales agent takes the stress out of negotiating with buyers as they’ll do it for you. 

Just as you wouldn’t expect a contractor to draw up an architectural plan themselves, you can’t expect to be an expert in selling a business yourself. Instead, you should strongly consider using a sales agent to sell your architecture firm. 

The only instance in which you don’t really need one is if you’re selling to partners for succession – but even then, an agent can help you negotiate better by removing the emotion and personal relationships from the equation. 

Using a selling agent brings a field of benefits as they will:

• Provide you with market insights to help you determine your best course of action
• Help you identify and target the right buyers for your firm
• Field buyer interest and vet them for authenticity
• Negotiate the best price for your firm with buyers
• Manage the sale process from start to finish and even help you find the ideal solicitors who are skilled in the professional services industry

Going it alone

If you’d rather avoid sales agents, you should identify partners within your firm who you think will be interested in buying. Approach them for an initial discussion, and if they’re interested, you’ll only need support from a solicitor. 

Selling an architect practice externally alone is difficult because there are many factors to consider and specific industry challenges to deal with. The most important thing to remember is that the practice is only worth what someone is willing to pay for it, based on their own needs and on professional valuations.

Identifying the right buyer that understands the value of your projects, brand reputation, and client relationships is key – the value of your business is likely far higher than your brick-and-mortar asset value.   

You will need to find a buyer willing to pay the right price and qualified to take over the practice – whether that’s a partner or an external buyer with experience as Principal Architect. There are a few ways to find potential buyers, such as using a broker or contacting potential buyers directly.

If you’re not using an agent, you will also need to create a selling package that includes information about the practice, financial statements, and other important details.

Valuation is crucial 

How do you decide what all of your hard work is worth? A professional valuation is a core part of the buying and selling process, as it helps assign a true monetary value to businesses where value is often a combination of tangible and intangible assets.  

Valuing your practice in a fair, reasonable and industry-standard manner is absolutely essential for sales success. Without a good valuation in place, you’ll be setting a price that is either too high or too low – meaning further negotiations will be needed or you’ll end up out of pocket. 

Instead, you should have a valuation carried out that assesses: 

• Standard of value, often called fair market value, which refers to the price that will be paid by a willing buyer at arm’s length. However, you may also need to consider factors that may increase or decrease value post-sale, such as an inexperienced buyer who lacks Principal experience. 
• Date of value, which applies to what is known about the practice at the date it’s valued. This must be recent to stand any chance of success in the open market. 
• The premise of value, which assumes the circumstances in which the sale is completed. A going concern of value refers to a viable business that has the assets and employees in place to continue operating once the sale is finished. 

The valuation is then carried out using a wide array of external and internal data. They’ll need to assess your business's financial history, your own experience, your physical assets, workforce, regional location, client base, regulatory compliance, competition in the market, profitability, office space and any leases or credit. 

After arriving at the valuation, you can begin to attract buyers. However, they (or their finance provider) will perform their own valuation and due diligence to ensure your price is fair and meets the buyer’s needs. 

Liability & legality

When you’re selling your practice, the buyer has to take any existing liabilities into account. If you’ve got projects underway, they will have to take on your liabilities unless otherwise pre-negotiated. Existing liabilities can mean significant risk, which means it’s likely that firms with lots of liability will have to reassess their asking price. 

However, if you’ve been running your firm to the highest standards and are confident in your ability to demonstrate compliance with recent rulings like The Building Safety Act, you’ll be in a better bargaining position to reduce the perceived risk to a buyer. 

Some liabilities can last as long as 30 years under UK ruling, so it’s important to present as much information as possible to the buyer. A solicitor will help you put this information together and will make the process easier. 

Employees and TUPE

Selling your firm is emotional, not just because it represents your hard work but also because it likely has a human cost. Your employees will be affected by the buyout – but perhaps not as much as you might think. In the UK, employment rights fall under TUPE protection, which sets out rules around how workforces transfer to new owners. 

Under TUPE, your buyer must offer employees the same conditions they’re already contractually bound to. Any changes that will affect these, such as changing business hours, must be communicated to your employees. 

You, as the owner, must be the one to explain the TUPE transfer and outline any changes. Your employees will then have a chance to give feedback and request changes themselves, which you do not have to accept – but you will need to produce reasons for declining them in writing. 

When informing employees about a TUPE transfer, you don’t need to give them the same notice as you would for a contract termination. Instead, you must ensure you have given them the following or risk an employment tribunal:  

1. The chance to elect an employee representative or recognised trade union
2. The chance for the representative to properly consult and negotiate with you
3. If you have a small firm with less than ten employees, you’ll need to consult with employees directly

Negotiation and agreements

When it comes to the buyer actually making a purchase, they’ll first have to negotiate with either yourself or your selling agent. The negotiations are to outline clear elements of the sale, such as what is being sold, what warranties you are offering and how payment will be made. 

Unless you have significant legal experience, it’s worth consulting a solicitor during this process. If acting with a selling agent, they will likely suggest one for you to use. This process can be fairly drawn out and may even grow distressing without the right guidance.

These negotiations will cover: 

• Everything that is being sold - assets, business structure etc. 
• The warranties and guarantees you are providing
• Any liabilities you know about that the buyer should also know
• Your team’s structure and employment conditions

Once you are happy, your legal representative will exchange the contracts and arrange for payment. 

A note on buyer finance

Buyers typically need finance in order to buy your practice. If you’re selling to a partner or someone you know, you can help them secure finance at more favourable rates by encouraging them to work with finance professionals like our team here at Rangewell. 

We can navigate the ins and outs of the buying process and help guide the buyer through their application, making it more likely they’ll get the finance they need at favourable rates – which ultimately means a smoother sale for you. 

In addition, if selling your practice is just part of a different journey for you as an architect, and you intend to start something new in future, remember that our professional services lending team can help you start from scratch and raise development finance to begin again. 

Get in touch with our team today to learn more.