What’s Your Firm Worth? A Guide to Valuation for Architecture & Engineering Firms

Why Valuation Matters

For many architecture and engineering (A&E) firm owners, the business is more than a source of income. It’s your life’s work. But when it comes to understanding the actual financial value of your business, most owners are in the dark.

Valuation isn’t just something to consider when you’re ready to sell. It plays a key role in succession planning, internal ownership transitions, ESOPs, personal financial and estate planning, and strategic growth. Knowing what your firm is worth helps you make smarter decisions and ensures you’re prepared for the opportunities and challenges ahead.

Whether building a legacy or planning an exit, your firm’s value is one of your most important financial assets. This marathon guide will walk you through the key concepts of valuation and the practical steps you can take to strengthen your firm’s worth. It also links to a Firm Valuation Calculator so you can get an estimate of the value of your business. 

Part 1: Reasons to Conduct a Valuation

When architecture and engineering firm owners think about valuation, it's usually in the context of selling their business. But the truth is, valuation plays a much broader role, and the sooner you understand your firm’s worth, the better equipped you’ll be to make strategic decisions, regardless of your exit timeline.

A valuation is more than just a number. It’s a reflection of how your firm is performing today, what kind of future it’s positioned to have, and how attractive it is to others, whether they’re internal employees looking to buy in or outside investors evaluating your growth potential.

In Zweig Group’s Valuation Report, internal ownership transition remains the number one reason firms pursue a valuation. But here’s what often gets overlooked: firms that value their business regularly tend to perform better over time. Why? Because they know what drives value, and they focus their operations, finances, and leadership strategy around those drivers.

Here are just a few reasons to conduct a firm valuation:

• Internal ownership transition: Setting a fair price for shares is critical when bringing new owners into the firm or transferring equity to next-generation leaders. Valuation provides transparency and avoids future conflict. It is important for both the original owners as well as the next generation of leaders to conduct firm valuations in order to negotiate a fair purchase agreement. 

• Buy/sell agreements: Whether among partners or family members, having a current valuation ensures agreements are grounded in real numbers, not speculation.

• ESOPs (Employee Stock Ownership Plans): A formal valuation is legally required and needs to be updated annually.

• Estate and retirement planning: Knowing your firm’s value can inform your personal financial planning, especially if your business is your primary asset.

• Strategic planning: A valuation helps you measure the effectiveness of your business strategy. It can highlight gaps in profitability, leadership depth, or operations. It also can be an asset to leverage when looking for loans, lines of credit or other financial tools that can help you reinvest for faster growth. 

Beyond these use cases, regular valuation helps you think like a buyer, even if you're not selling. It helps you and your firm's leadership team have conversations about ways to improve the business and increase profitability and value. It encourages you to ask:

• Are we consistently profitable?

• Is our backlog strong and diversified?

• Can this business thrive without me?

• Do we have the systems in place to scale?

• Are there internal people who may become future owners?

If you can’t confidently answer these questions, there may be some hidden issues at your firm that are limiting profitability or preventing growth. A firm valuation might uncover risks or challenges before they become real problems. It can also help you set goals to work towards to achieve business success and financial freedom. 

In short, valuation isn’t only about the dollar amount you could sell for. It’s about knowing where you stand, so you can choose your path with purpose.

Part 2: Understanding How Valuation Works

Valuing an architecture or engineering firm isn’t like appraising real estate or tallying up inventory and equipment. Much of a firm’s value is intangible: reputation, client relationships, leadership talent, brand recognition, and projected future earnings. That’s why valuation can feel like a gray area to many firm owners. But when you break it down, a formulaic approach can get you a decent estimate to give you some idea of where you stand relative to your goals. 

At its core, a valuation is an estimate of what your business is worth today, based on its performance, structure, and future outlook. This estimate is built on objective data, like size, revenue, and profit, along with subjective factors like perceived risk, leadership continuity, systems, and market conditions.

To understand how your firm is valued, it helps to be familiar with a few key terms and concepts:

Foundational Valuation Terms:

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization):
  A measure of core operating performance, often used as a baseline for valuation multiples. A higher EBITDA usually translates to a higher firm value. EBITDA excludes certain non-cash and non-operating expenses like taxes, depreciation, and amortization to reflect the business's ability to turn services into positive cash flow. 

• Profit: The firm’s net earnings after all expenses, including interest, taxes, and depreciation, have been accounted for, making it a more conservative indicator of financial performance than EBITDA.

• Net Revenue: Net revenue, also known as net service revenue (NSR) in architecture and engineering firms, is the total revenue earned from projects after subtracting pass-through expenses such as subconsultant fees, reimbursable expenses, and other direct costs billed to clients. It represents the actual income your firm retains to cover internal operations, salaries, and overhead expenses.
  

• Book Value: The net value of a firm’s assets minus liabilities. While often cited, it typically undervalues firms with strong brands or client relationships because it ignores intangibles like goodwill. You can find your firm's book value on your Balance Sheet report. 

• Backlog: The total value of signed work not yet completed. This is a critical signal of short-term stability and future cash flow.

• Goodwill: The intangible value of your firm’s name, reputation, and client loyalty. It’s often what makes your firm worth more than just its assets.

• Equity Value: Reflects what the owners actually own, after all debts are subtracted. Let's use a house as an analogy. If you own a home worth $1m but have a mortgage with a balance of $700,000, your equity value would be $300,000. 

• Enterprise Value: Reflects the entire firm’s value, including debt and excluding cash. Most small to mid-sized A&E firms focus on Equity Value for ownership transitions. Using the house analogy again, if your home is worth $1m and you have that same $700,000 mortgage, your house's enterprise value is still $1m. 

• Fair Market Value: What a willing buyer would pay a willing seller in a neutral market.

• Investment Value: What your firm might be worth to a specific buyer who sees strategic benefit, like a competitor looking to expand into a new region. This could be higher or lower than Fair Market Value.

• Number of FTE Employees: This may seem like an obvious calculation, but it can be a bit nuanced. You need to calculate the total number of people working for the business, including all partners/owners, while prorating any part-time staff. If someone is working full time, or about 40 hours per week on average, they would be an FTE of 1. If someone works, say, three days a week or 24 hours, they would have an FTE of 0.6. Make these calculations for the full team and add up all the numbers to get your business's FTE number. 

• Interest Bearing Debt: Any loans or financial obligations that require the firm to pay interest over time. This includes lines of credit, business loans, equipment financing, and other borrowed funds. However, it excludes accounts payable or other short-term liabilities that don’t accrue interest. It's an important factor in firm valuation, as higher debt levels can reduce equity value and increase financial risk.

What Goes into a Firm’s Value?

Contrary to popular belief, and what you may find with a quick internet search, firm value is not just a multiple of revenue or a multiple of EBITDA. While revenue matters, value is more closely tied to profit and predictability. For example, two firms with $5M in revenue could have dramatically different values if one consistently earns a 20% profit and the other breaks even. Or if one has a strong leadership team and defined processes, while the other has high turnover and approaches each project differently depending on who is working on it. 

Here's how various components contribute to your firm’s value:

The valuation process takes all of these into account, combining hard data with expert judgment, to arrive at a number that reflects the real-world marketability and health of your business. A comprehensive business evaluation that is conducted by a valuation consultant is the best way to get a true reflection of what your business may be worth in a sale. However, those will be an investment that you may not want to make to get a rough estimate of your firm's value. This is why formulaic valuations are still a useful tool. 

Knowing the basic terms and valuation methods can help you understand what your firm is worth and empower you to make improvements that boost that value over time.

Key metrics in AEC firm valuations from The 2025 Zweig Group Valuation Report

The median firm in the study has 45 full-time employees with 6 owners

These firms have an average book value of $2.6 million

They reported a net service revenue of $7.7 million

They generated an EBITDA of about $1.3m and profit of about $1.2m (about a 16% profit on average)

They have a backlog of $7.6 million (so almost one full year of revenue in their pipeline)

The value/EBITDA ratio, saw a slight increase from 4.23 to 4.28 from 2024 to 2025's report

These figures indicate growth in firm size and value compared to last year’s data.

Part 3: Valuation Approaches for A&E Firms

There’s no single formula for valuing an architecture or engineering firm. In fact, most firms are valued using a blend of methods that account for profitability, market comparisons, and the specifics of how your business operates. But generally, all approaches fall into three primary categories: income-based, market-based, and asset-based.

Understanding how each works can help you prepare for a valuation and influence the factors that drive your firm’s value higher over time.

1. Income-Based Approach

This is one of the most common methods used for valuing A&E firms, especially those with consistent earnings and many years of financial reporting.

How it works:
The income-based approach focuses on your firm’s ability to generate future earnings. Valuators use either a Discounted Cash Flow (DCF) model or a Capitalization of Earnings model to estimate what those future profits are worth today.

When it’s used:

• Your firm has stable or growing profits

• You’re focused on long-term value creation

• There’s reliable historical financial data to work from

Why it works well for A/E firms: 
This approach highlights your firm’s most important asset: its ability to produce income from projects. Since most A/E firm value is tied up in human capital, not physical assets, an income approach captures the intangible drivers of success.

2. Market-Based Approach

This approach compares your firm to similar businesses that have been sold, valued, or benchmarked recently in your area or market.

How it works:
Valuators apply industry-standard multiples to key metrics like:

• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

• Net Service Revenue (NSR)

• Profit

• Book value

These multiples are informed by valuation data from actual firms in the market, like those found in the Zweig Group’s annual Valuation Report. The person conducting the value will also research comps for recent sales, or similar businesses that are currently on the market. Sort of like when a real estate agent is setting a price for a new home so runs a market analysis to understand what similar houses in your neighborhood have recently sold for. 

Example:
If your firm has $1 million in EBITDA and the industry average multiple is 4.2, your estimated value might be $4.2 million.

When it’s used:

• You’re preparing for an ownership transition or external sale

• You want a ballpark figure based on current industry norms

• You’re benchmarking against competitors

Why it works well for A/E firms:
The market-based approach gives firm owners a reality check. It reflects what buyers are actually willing to pay in the current environment and shows how your firm stacks up.

3. Asset-Based Approach

This is a less common method for A&E firms because they don't tend to own a lot of valuable assets. The value of the business isn't in equipment or inventory, but rather the expertise of its people. The common exception to this is if the business owns real estate, like your office space. However, this approach is still worth understanding.

How it works:
The asset-based approach calculates the value of your firm’s assets, like cash, property, and equipment, minus your liabilities. The result is your book value.

When it’s used:

• The firm is winding down or liquidating

• Profitability is low or unpredictable

• Most value is in tangible assets (rare for A&E unless the business owns its office space)

Why it’s rarely used:
In professional services, the real value lies in your people, your processes, your backlog, and your brand, not your desks or laptops. For most growing firms, the asset-based approach undervalues the business. It is also rare for a firm to sell real estate assets as part of a sale or M&A, although that could happen. 

So Which Approach is Right for You?

In reality, most valuations for A&E firms blend the income and market-based approaches. This gives a balanced view, grounded in your financial performance, but informed by market conditions.

A good valuation will adjust for your firm’s unique traits: size, structure, leadership, growth potential, and risk. It will also consider whether you're valuing a controlling interest (majority ownership) or a minority share, which can affect the final value significantly. 

Understanding how your firm will be evaluated gives you power: the power to plan, to prepare, and to improve the metrics that matter. 

Part 4: What Drives Higher Firm Value

Understanding your firm’s value is important, but knowing how to increase it is even more powerful.

Valuation isn’t based on revenue or headcount alone. As we briefly mentioned above, two firms of the same size or with identical revenue can have wildly different values, depending on how they’re run, what their margins look like, and how reliant they are on their founders. The firms that command higher valuations and generate more long-term wealth for their owners are those that are consistently profitable, scalable, and resilient. Meaning they have the systems and processes in place to grow and perform at a high level, regardless of any individual contributor, with a track record of strong financial performance. 

Here are the core drivers of higher firm value in the A&E industry:

1. Profitability and Consistent Earnings

This is the foundation of firm value. Strong EBITDA margins (typically 15–25% or higher) show that your firm not only brings in revenue, but does so efficiently. You should be regularly benchmarking your firm's performance against industry best practices. Increasing revenue without increasing profit won't maximize your firm's value. 

• Buyers and partners pay for earnings, not just activity or revenue.

• Consistent profitability over time makes your firm more predictable, and therefore more valuable.

• The average profit margin found in the BQE Benchmarking Reports for AE firms is in the 15-20% range. To maximize your firm's value, you want to exceed that benchmark. 

Valuation tip:
Firms with stronger profit margins on a consistent basis often receive higher EBITDA multiples, multiplying your value even further. As reported earlier, the average AE firm value/EBITDA ratio in the 2025 Zweig Report was 4.28, but if you can show financial records that prove you outperform industry averages for multiple years, you can significantly increase your multiple and sell your firm for a higher price. 

2. Recurring Work and Backlog

Predictable, contracted work (backlog) provides confidence in future cash flow, especially if any of that backlog is guaranteed. Firms with a healthy pipeline of ongoing projects and loyal, repeat clients are seen as lower risk and thus command higher valuations.

• Backlog reduces uncertainty in income-based valuations.

• Recurring work shows client satisfaction and reduces marketing dependency.

According to Zweig Group, high-backlog firms tend to outperform others in long-term valuations by a significant margin.

3. Leadership Beyond the Founders

If your firm can’t operate without you, it’s hard to scale and harder to sell. Buyers look for firms with a second layer of leadership: project managers, directors, or principals who can step in and run operations when a founding partner steps aside.

• Strong internal leaders support succession planning.

• A defined organizational structure with a talented team builds confidence.

• A strong and diverse leadership team reduces key-person risk, a major concern in valuation models.

Internal equity transitions are more successful, and more valuable, when leadership is distributed. If you want to maximize your business' value, start developing the next generation of leaders now. Keeping tight control could actually be negatively affecting your financial return from your business.  

4. Scalable Systems and Processes

Firms with defined workflows, documented procedures, and integrated software systems are easier to grow and easier to transfer. Tools that help streamline operations, assist with project management, and manage firm finances are just as important for valuations as those that help your team deliver the work. Investing in firm management software might be one of the best returns on investment an architecture or engineering firm can make. And yet, over 40% of firms don't have firm management software, instead relying on spreadsheets or manual data tracking. If you want to increase the value of your business and outperform your peers, look to invest in a firm management platform. 

• Systems enable consistency, reduce overhead, and make onboarding new talent easier.

• They signal operational maturity, which increases buyer confidence.

• Project management software helps make your entire team more productive.

• Firm Management Software gives leadership the data they need to make better business decisions.

Valuators often assign higher goodwill to firms that demonstrate scalable operations and have the systems, processes, and tools in place that are ready to scale. For example, having a strong firm management platform can contribute to better processes, higher profitability, and higher valuations.

5. Financial Clarity and Clean Books

Disorganized or inconsistent financials make valuation difficult and lower buyer confidence. Firms with clean, well-maintained books, easily generated historical reports, and quick access to up-to-date financials are seen as more credible and lower risk.

• Regular reporting, transparent time tracking, and consistent invoicing practices are essential.

• Financial accuracy makes internal transitions and external deals smoother.

• Historic data and financial reports lower risk. 

Having integrated firm management software with live data tracking and automated reporting can set your firm apart. Working with an accountant or consultant to prepare clean financials can increase valuation readiness dramatically.

6. Brand and Reputation

While harder to quantify, your firm’s reputation matters. A strong brand in a focused niche, backed by client testimonials, industry recognition, or award-winning work, adds intangible value that buyers recognize.

• Goodwill can make up 30–70% of a firm’s value.

• Reputation attracts both clients and future leaders. Both of which are essential to long-term value.

• Repeat clients, a well-defined area of expertise, and premium pricing can further increase your value. 

The Bottom Line

You don’t need to overhaul your entire business overnight. But focusing on a few key areas like profit margins, team development, backlog, and operational systems can increase your firm’s valuation significantly over time. Start using tools like the Firm Maturity Index, Financial Benchmarks, and Valuation Calculators to identify the areas to work on and make small incremental changes to work towards a higher valuation. 

Think of it like a building: your valuation is built on the foundation you lay today. Strengthen the structure, remove weak links, and design a business that will stand strong for years to come.

Part 5: Common Mistakes in Valuing A&E Firms

Valuation can be complex, so it’s easy to get wrong if you’re using the wrong inputs, assumptions, or approach. Unfortunately, many firm owners fall into common traps that either undervalue what they’ve built or create unrealistic expectations about what their firm is worth.

Understanding these missteps can help you avoid costly errors and take a more strategic, informed approach to firm valuation. It's also important to point out that although we set out to build a formulaic valuation tool, it does not replace the nuances of a customized valuation. Don't rely solely on calculators and formulas to be an accurate reflection of firm value, especially if you are entering into negotiations. 

Mistake #1: Relying on Book Value Alone

Book value (assets minus liabilities) is easy to calculate, but it doesn’t reflect the true worth of a professional services firm.

Why it’s a problem:

• Book value ignores intangible assets like client relationships, brand strength, backlog, and leadership talent.

• It undervalues firms that are profitable and well-positioned for growth.

• It can be misleadingly low for firms that don’t own significant physical assets (which is common in A&E).

Better approach: Use income-based and market-based valuation methods that reflect your firm’s true earning potential. Or get a comprehensive valuation done by an experienced professional in this field. 

Mistake #2: Using One-Size-Fits-All Multiples

While valuation multiples (like value/EBITDA or value/NSR) are helpful benchmarks, they’re not precise formulas. Especially when you only look at one of them. 

Why it’s a problem:

• Multiples vary significantly based on profitability, risk, size, location, and market conditions.

• Applying a generic multiple from a peer firm or industry average without context can lead to inflated or deflated values.

• Multiples should be a starting point, not the final word.

Better approach: Use multiple valuation methods and adjust based on your firm’s unique profile and performance.

Mistake #3: Ignoring Future Earnings and Backlog

A firm’s current revenue is important, but it’s the predictability of future earnings that really drives value.

Why it’s a problem:

• Even if current revenue is strong, a lack of backlog can hurt your valuation.

• Firms with weak pipelines or inconsistent earnings look riskier to buyers or investors.

Better approach: Highlight your firm’s backlog, client retention rate, and history of repeat business. These demonstrate stability and future value.

Mistake #4: Overlooking Leadership and Talent Risks

If your firm can’t run without you, or a few key people, its value takes a hit. Too many firms lack the leadership team in place to minimize the risk of any one person leaving. 

Why it’s a problem:

• High “key-person dependency” increases buyer risk and reduces transferability.

• Firms without succession plans or a second layer of leadership are harder to sell or scale.

• If most of the value is tied up in your personal relationships, then when you step away the value crashes. You need the business to have a high value without you. 

Better approach: Develop and empower internal leaders. A firm with a strong management team is always worth more. Meanwhile, build a predictable and repeatable marketing and business development system that brings in work consistently. 

Mistake #5: Failing to Plan Early for Ownership Transitions

Many firm owners only think about valuation when they’re close to being ready to exit. By then, it’s often too late to make meaningful improvements. It is never too soon to start planning for transitions. 

Why it’s a problem:

• Waiting limits your options and compresses your timeline.

• You may miss the opportunity to grow value before a transition.

• You may not have the right people in place to take over leadership or buy you out of the business through an internal transition. 

Better approach: Start planning your exit or ownership transition at least 5 years in advance, if not much further. This gives you time to strengthen operations, maximize profitability, identify and train new leaders, and improve the business valuation metrics.

Mistake #6: Underestimating the Value of Clean Financials

Inaccurate or messy books make it harder for valuators and buyers to trust your numbers. Disconnected or manually updated excel sheets and financials that are blurred between business and personal finances make matters worse. 

Why it’s a problem:

• Red flags in your financials reduce confidence and perceived value.

• Inconsistent reporting can delay transitions or create disputes during ownership changes.

Better approach: Maintain clear, consistent financial reporting. Invest in systems that track time, expenses, revenue, and utilization in a standardized way with accurate up to date data.

The Takeaway

Firm valuation is too important to be left to guesswork or generic formulas. By avoiding these common mistakes and approaching valuation strategically, you’ll be better positioned to understand your firm’s true worth—and to grow that value over time.

Part 6: Planning for the Future

Valuation is a strategic lens for looking ahead. Whether you plan to sell your firm, transition ownership to employees, or continue leading it for the long haul, understanding what drives value gives you the power to shape your future on your terms.

Unfortunately, many firm owners wait until a major event forces their hand. Be it retirement, health issues, a surprise offer, or a key partner leaving. At that point, you’re reacting instead of leading. But when you plan early, you give yourself time to align your firm’s operations, financials, and team with the future you want to build.

Start With a Valuation Baseline

If you’ve never had a formal valuation done, now’s the time. Start with a formulaic evaluation and then consider engaging an expert who can do a more comprehensive deep dive into your firm. Even a rough estimate can help you:

• See where your firm stands relative to industry benchmarks

• Identify opportunities to increase value before a transition

• Have informed conversations with partners, successors, or consultants

You don’t need to wait for a major liquidity event to justify a valuation. In fact, the firms that build the most transferable value are the ones that treat valuation as a regular business health check, not a one-time exercise. To maximize the long-term value of your business and the return on your investment in its growth, you might want to consider making a firm valuation an annual occurrence. 

Use Valuation to Guide Strategic Planning

Once you know what your firm is worth, use that information to shape your decisions about:

• Profit targets: What level of profitability would increase your value most?

• Hiring: Are you developing internal leaders who could take over?

• Growth: Should you invest in marketing, business development, or new service lines to increase your pipeline and thus your value?

• Systems and Processes: Are the right things in place to scale the firm and maintain the quality and profitability of projects?

• Equity distribution: How should ownership be structured over time?

Valuation is also a critical part of estate planning and retirement strategy. For many firm owners, the business represents the single largest asset in their portfolio. Treating it that way means giving it the attention and strategic planning it deserves so it can generate wealth for you as the owner.

Revisit Your Valuation Over Time

Markets change. So do your firm’s financials, leadership team, and goals. That’s why it’s important to revisit your firm’s valuation every 3 years or so to give you a solid baseline of what your firm is worth. Other events that may trigger the need for a valuation:

• There’s a significant shift in revenue or profitability

• You take on new partners or restructure ownership

• You’re preparing for an internal sale, ESOP, or external acquisition

• You enter negotiations for a merger or acquisition. 

Regular valuations help you track your progress and ensure your firm is moving in the right direction for your long-term financial strength. You have to think beyond design quality and awards, and remind yourself to build the business fundamentals to reward you and maintain your team over the long term. 

Get Help from the Right Advisors

You don’t have to figure this all out alone. A good CPA, valuation expert, or business consultant, especially one with A&E industry experience, can help you:

• Interpret your valuation metrics

• Develop a strategy for increasing value

• Facilitate transitions or succession plans

• Identify risks or inefficiencies that may reduce your firm’s worth

The most valuable firms aren’t just led by great architects or engineers; they’re supported by strong advisors who know how to turn business performance into enduring value. Value is rarely correlated to design quality, but is always correlated to operational efficiency. 

A Valuation-Ready Firm Is a Future-Ready Firm

Whether you're three years from retirement or thirty, planning for your firm's future starts with understanding what it’s worth today and what it could be worth tomorrow. Valuation helps you build a firm that’s not only creatively and technically excellent but operationally strong, financially healthy, and truly transferable.

That’s how you turn your business into an asset that rewards you for the work you’ve put in, long after the last project is delivered.

Conclusion: Build a Business That’s Worth Something

Your firm is more than a collection of projects. It’s a reflection of your leadership, your relationships, your brand, the team you built, and your shared values. But it’s also something more: a financial asset. And like any asset, it can grow in value, be transferred, and provide long-term rewards if you manage it with that goal in mind.

Valuation isn’t just for the moment you’re ready to sell. It’s a powerful tool for planning, benchmarking, and aligning your firm’s operations with your future goals. Whether you’re preparing for a leadership transition, setting up an ESOP, or simply trying to run a smarter business, knowing what your firm is worth and what drives that value puts you in control.

Throughout this comprehensive guide to firm valuation, we’ve explored the foundations of valuation for architecture and engineering firms:

• Why it matters and the reasons to conduct a valuation. 

• How valuations work

• The different approaches and methods of conducting a valuation

• What drives higher business value

• The common mistakes to avoid

• And how to use valuation to help plan for the future

But perhaps the most important takeaway is this: you don’t have to wait for an exit to start thinking like an owner. You already are one (or maybe you are in the process of becoming one). And the choices you make today about your people, your systems, and your financial discipline will determine what your firm is worth tomorrow.

Whether you're early in your journey or eyeing the next chapter, treat your firm like the asset it is. Build it with purpose. Manage it with clarity. And when the time comes to pass the torch, whether to a buyer, a team member, or the next generation, you’ll know you’ve created something truly valuable.