You’ve built a successful A&E firm. You’ve put in the late nights, scaled operations, and increased profitability. But is your business making you wealthy?
Too many firm owners focus on revenue and reinvestment but fail to translate business success into personal financial security. They assume that because their firm is growing, their wealth is growing too. But without a strategic approach, you could end up with a thriving firm that fails to provide long-term financial independence.
Your firm isn’t just a business. It’s your greatest financial tool. When structured correctly, it should:
-
Pay you well and predictably
-
Fund your retirement and investments
-
Provide for meaningful experiences and fulfillment
-
Create passive income outside of the firm
If your business isn’t doing all of these, it’s time to restructure your financial approach. This article will show you how to:
1. Optimize firm profitability to fuel personal wealth
2. Structure salary and profit distributions for maximum wealth
3. Leverage tax-efficient strategies and retirement accounts
4. Build assets and income outside the firm
5. Plan for the long-term transition of your business
By the end, you’ll have a clear framework to turn your business success into personal financial security and independence.
Step 1: Increase Firm Profitability
If your firm isn’t consistently generating strong profits, there’s nothing to convert into personal wealth. Many firm owners undervalue their services, struggle with cash flow, or don’t track profitability correctly. From optimizing your pricing strategy to managing your operational expenses, you need to design your profit strategy.
How to Improve Profitability
Pricing & Profit Margins: Ensure your fees reflect the true value of your services. Too many AEC firms undercharge, eroding long-term wealth potential. Use fixed-fee pricing instead of hourly, this allows you to focus on delivering value versus just trading your time for money. Further, fixed fee pricing incentivizes your firm to improve its efficiency and invest in tools that allow you to deliver the same work in less time. It also allows you to reap the benefits of automation. Annually revisit your fees and adjust them up.
Utilization & Efficiency: If you or your team aren’t hitting billable targets, cash flow and profitability will suffer. Automate low-value work and utilize systems to maximize your output. Ensure that client revisions and scope creep are kept in check and billed for appropriately. As your efficiency improves, you are able to take on more projects with the same team. This creates the potential for dramatically increasing profitability.
Reducing Overhead: Audit business expenses and eliminate low-ROI costs (unused software, inefficient marketing, excessive office space). Negotiate on your larger expenses to help bring down costs. Make sure that your firm is “right sized’ and that you aren’t overstaffed for the work you are doing.
More Profit before More Work: If the work that you do is profitable, then doing more of it will make the firm more money. In order to do more work though, your operating and management costs will typically go up. It’s important to focus on high profitability first, and then scale into doing more of what is working. Many firms focus on doing more first, before they have the foundation in place which leads to a situation of being “busy” but not actually producing real success. Remember, revenue growth is only important if it goes alongside more profit.
Example:
It may sound obvious but it's important: increasing your rates, and therefore your revenue, without changing your costs leads to a significant increase in your profits. If a firm has $1,000,000 in revenue with $900,000 in overall costs, that leaves $100,000 in profits. By increasing revenue by 20% to $1,200,000 and keeping costs the same, profits are now $300,000 versus $100,000 a 200% increase! The other side of this is that if you raise your fees and sign projects at a higher profit margin, you don't need as many projects to meet your profitability goals.
Action Step: Review your last 12 months of revenue and expenses. Where can you increase pricing, improve efficiency, or cut waste?
Step 2: Optimize Your Compensation—Balancing Salary vs. Profit Distributions
Many firm owners either underpay themselves (causing personal financial stress) or overpay, starving the firm of growth capital and financial security.
The key is to find a balance between salary and profit distributions for tax efficiency and long-term wealth building. Oftentimes accountants will recommend taking a minimum “reasonable” salary for tax reasons, however, this can leave you in a situation where your salary doesn’t cover your personal expenses. Especially when profit distributions are unpredictable. It’s important to have a system and structure that is going to fund your goals without having to be constantly pulling money from one place to another.
How to Structure Compensation:
Base Salary: Covers living expenses and enables regular saving/retirement contributions. Needs to be “reasonable” to avoid IRS scrutiny for S-Corps. It should be a set amount that you pay yourself at every payroll period (be it bi-weekly or monthly).
Profit Distributions: Additional income that is taken as owner draws, typically taxed at a lower rate than salary (for an S Corp). Can use these to fund savings or investment goals, maximize retirement contributions, or for fun/larger personal expenses.
Reinvestment Strategy: Keep enough cash in the firm for hiring, marketing, and expansion while ensuring you’re personally securing wealth. Should maintain a minimum of 30% of profits in the firm.
Example:
An engineering firm with two partners generates $1.5m in annual revenue with a 15% profit margin which results in $225k in annual profits. The owner's compensation and profit use should break down as follows:
-
$120k base salary for each owner (taxed as regular income. This is part of wages in the business operating expenses, not taken from the profit amount.)
-
$112,500 profit distributions to owners ($56,250 to each. Potentially taxed at lower rates)
-
$67,500k reinvested in the business
-
$45,000 for staff bonuses
Action Step: Determine monthly personal expenses/spending and “reasonable” salary to establish your base salary. Maintain a threshold of profits for the business to fuel growth, expansion, and build up a reserve for slow times. Take remainder as profit distributions or as needed for larger personal objectives.
Step 3: Use Tax-Advantaged Retirement & Investment Accounts
The tax code rewards business owners who take advantage of retirement accounts and tax-efficient wealth strategies. If you’re not leveraging these, you’re leaving money on the table.
Best Retirement Plans for AEC Firm Owners
Solo or Regular 401(k): Contribute up to $70,000/year (2025 limit) through a mix of employee + employer contributions.
Cash Balance Plan: Allows high-income firm owners to contribute $100K+ per year pre-tax while dramatically reducing taxable income.
Other Investment Strategies for Diversification:
-
Taxable Brokerage Accounts – For investments outside of retirement accounts
-
Real Estate – Buy rental properties or invest in commercial spaces
-
Backdoor Roth IRA – Tax-free retirement income option for high earners
Example:
A firm owner combined a Solo 401(k) + Cash Balance Plan, reducing taxable income by $150K while maxing out retirement savings.
Action Step: Work with a financial advisor to set up the best tax-efficient retirement strategy for you and your firm. Balance the needs of you as the firm owner with retirement benefits for your team.
Step 4: Build Wealth & Income Streams Outside the Business
Many firm owners rely entirely on their business for financial security. This leaves them vulnerable if revenue declines or if they want to retire.
How to Create Wealth Beyond the Firm
Stock Market Investments – Regularly contribute to retirement or brokerage accounts to build up an asset base beyond your firm that can eventually be used to support your lifestyle.
Real Estate Investments – Owning your own office space, developing your own projects, purchasing rental units, or investing in other real estate can create ongoing income streams.
Other Businesses – Starting, acquiring, or investing in other businesses, especially complementary businesses, can strengthen your firm, create new revenue streams, and enhance long-term financial stability.
Hard Assets – Precious metals, art, equipment, etc. can all be ways to diversify your wealth that are typically subject to less variations in value.
Example:
A firm owner reinvested profits from the business into purchasing a commercial office building. The firm operates out of this while paying rent back to the owner. Other units in the building are also rented out creating a secondary income stream for herself and building an appreciating real estate asset owned outside of the firm.
Action Step: Allocate a percentage of firm profits toward wealth-building investments outside the business.
Step 5: Plan for the Firm’s Long-Term Transition & Value Extraction
At some point, you’ll want or need to step back from your firm. The earlier you plan, the more wealth you can extract. It's important that all firms start planning for this transition, and it is never too early. Even if you are just starting a new business you should think of a strategy for an exit when the time is right. It could change how you manage and grow the business.
3 Wealth-Building Exit Strategies:
External Sale of the Business – Build firm value to exit by selling the business to an external party.
Employee Buyout – Transition ownership to employees over time or in a buyout.
Step Back & Maintain Ownership – Keep the firm as a cash-flowing asset while transitioning to an advisory role.
Example:
A firm owner sold the firm to senior employees over 5 years while receiving regular payouts creating ongoing personal cash flow. This structured transition created financial stability for herself, the firm, and the employees as well as a path to full retirement.
Action Step: Identify your long-term exit strategy and start structuring the business for a smooth transition.
The Blueprint for Personal Wealth from Your Firm
Building a thriving Architecture or Engineering firm is an incredible achievement, but true success is measured by more than revenue and growth. It is about ensuring your firm works for you, creating personal financial security, and setting you up for long-term independence. The strategies outlined here — maximizing profitability, structuring compensation wisely, leveraging tax-efficient investments, diversifying income streams, and planning for your firm’s transition — are the foundation for turning your hard work into lasting wealth.
The key is to start now. Whether you are in the early stages of business ownership or planning for the future, the sooner you take control of your financial strategy, the greater the rewards. Your firm should be more than a business. It should be a wealth-building engine for the life you want to create.
-
Maximize firm profitability to create wealth-building capital.
-
Structure salary vs. distributions for tax-efficient income.
-
Leverage retirement accounts to save aggressively.
-
Invest outside the business for future income.
-
Plan your exit strategy to extract long-term value.
Action Step: Want to ensure your firm is fueling personal wealth, not just business growth? Let’s create your personalized Wealth Blueprint.
