Critical Milestones for Engineering Firm Owners
A Strategic Timeline for Succession Planning & Wealth Transition
The start of the new year is the perfect time to review any upcoming milestones in 2026. If you have children, this might include the funding of a 529 or the age of termination for their UGMA and UTMA accounts. Depending on your age, a series of catch-up contributions become an important part of your retirement and distribution planning. But, these important milestones apply to everyone. As a firm owner, your considerations don’t stop there and many times start a decade before most people begin to dig deep into their financial planning.
Succession Planning Timeline: “The Rule of 15”
Most engineering firm transitions take 10-15 years to execute well. You are likely already beginning the process subconsciously or even intentionally, just maybe not formally.
Years 1-5: Planning, valuation, documentation, successor identification
Years 5-10: Leadership transition, client relationship handoff, phased equity transfer
Years 10-15: Final equity sale, advisor role, complete exit
The Critical Decade: Ages 45-55
Working backwards from the Rule of 15, these are the years when succession planning should begin. Beyond this already? You are not alone, fortunately the next best time to start is now.
At a business level, start by establishing a formal business valuation baseline that can be refreshed every three years. Couple this valuation with the creation of a preliminary succession timeline and identify potential successors. Values will play a critical role in this discussion. Explore installment sales, ESOP options, or phased buyouts to minimize tax impact. Though, based on these conversations many folks also find themselves exploring an external sale.
Personally, this is the time to begin coordinating your investment and wealth distribution strategy beyond salary and partnership distributions. If you have highly appreciated investments, this process can take longer that you expect (depending on your tax budget). Here is also where those same catch-up contributions come into play. Catch-up contributions start at age 50, and continue to ramp up over the next decade and accelerate after 60. Simultaneously, if you have a family, college funding is likely reaching its peak years.
At minimum, be able to answer: “If something happened to me tomorrow, what happens to my business equity?"
Key Coordination Points
Estate Planning
Update buy-sell agreements as ownership changes
Review beneficiary designations after business exit
Consider life insurance for estate liquidity during transition years
Distribution Planning
Ages 60-73 are often the lowest income years after a sale and can offer an opportune tax window (post-exit, pre-RMD). Consider Roth conversions, harvesting capital gains, and charitable contributions through a Donor Advised Fund. If possible, look to spread your business sale over three to five years to avoid tax spike, then begin Roth conversions in the time period before Required Minimum Distributions (RMDs) begin. Some additional considerations include:
Exiting at age 55-58: Bridge 7-12 years before claiming SS
Exiting at age 60-62: Consider delaying SS to age 67-70 using business proceeds
And finally, don't miss Medicare enrollment when you lose group coverage.
Other Common Mistakes:
- Starting too late
- Assuming junior partners can afford full buyout without planning
- Not diversifying wealth outside of business until too late
- Missing tax optimization windows (Roth conversions, spreading income)
- Forgetting healthcare bridge planning (age 60-65 gap)
The Hoeven Wealth Approach:
+ Start succession conversations at age 45-50
+ Coordinate business exit with Social Security, Medicare, RMD strategies
+ Tax-efficient equity extraction over 10+ years
+ Build diversified portfolio while still owning business
+ Align personal values with business legacy
Just like every project is unique, every owner's situation is unique. Let's build your tailored timeline together. Hoeven Wealth specializes in helping engineering firm owners navigate the complex intersection of business succession, retirement planning, and wealth transition. We've seen what works and what doesn't.
Disclosure:
The information presented in this article is intended for general educational purposes and should not be interpreted as individualized financial, investment, tax, or legal advice. Any hypothetical examples, scenarios, or illustrative anecdotes are used strictly to demonstrate financial planning concepts and do not reflect all client results. Because each person’s financial situation is unique, the strategies or ideas discussed may not be appropriate for your circumstances. As an investment adviser representative of a registered investment adviser, we act in a fiduciary capacity and provide advice tailored to each client’s objectives only after adequate understanding of the client’s situation . Before making any financial decisions, please consult with your adviser or another qualified professional.
