Becca Gomez supports ROG+ Partners with business valuation analysis and M&A services. She examines financial statements, conducts economic research, develops valuation models, and prepares written reports. Before joining ROG+ Partners, Becca held previous positions at Stanley Ventures as a Venture Capital Analyst Intern and at PTC as a Corporate Development Intern. Becca graduated from Tufts University in May of 2023 with a B.S. in Quantitative Economics and a minor in Entrepreneurship.
The Affordability Gap: When a Firm’s Success Outgrows Its Succession Plan
June 17, 2026
Ironically, some of the architecture and engineering (“A/E”) firms having the hardest time transitioning ownership are also among the best-performing firms in the market. That isn’t a coincidence. Among the hundreds of firms we’ve assisted with ownership transitions, we frequently see the same pattern: the factors that create value can also make that value more difficult to transfer.
As successful firms grow, ownership interests increase in value. Retiring owners need more liquidity. The next generation must commit more capital. And when several senior owners approach retirement at roughly the same time, the amount of value to be transferred from one generation to the next may become too large to manage.
These firms’ owners have created real value, and they are entitled to recapture this value when they retire. Yet the next generation often struggles to finance the purchase. This is the affordability gap – the growing disconnect between a firm’s value and what the next generation can reasonably afford.
The Prevalence of the Affordability Gap
Two factors can compound the affordability gap. The first is valuation growth outpacing shareholder growth. Many of our A/E clients have seen their equity value triple over the last decade, primarily due to growth in revenue and earnings. But in many cases, those firms have not expanded their shareholder ranks at the same pace, nor have they made fundamental changes to their ownership programs to encourage and facilitate investment.
The result is that an increasing amount of ownership value becomes concentrated in a relatively small group of long-tenured shareholders. This is why an ownership-transition model created for a $10 million firm may not work for a $30 million firm, particularly if the ownership structure remains largely unchanged.
The second factor is timing. Many firms are approaching a period in which multiple senior owners are expected to retire within a relatively short window. Because those owners often hold a significant share of the firm’s equity, a substantial amount of value must be transferred at roughly the same time.
How to Address the Affordability Gap
Firms that navigate this challenge successfully tend to take deliberate steps to broaden ownership participation, create demand for ownership, and make stock investment more accessible. What these approaches share is that none of them change the value of the stock – only the firm’s ability to transfer it as that value grows.
- Creating Demand for Ownership
Firms often underestimate the extent to which ownership demand is influenced by communication. Employees who do not understand what an ownership investment has historically returned, or what the company’s strategic trajectory suggests it could provide in future returns, have little reason to commit their own capital to buy in. Successful firms treat their stock the way any company treats an investment opportunity: they communicate performance, articulate the long-term vision, and remind employees what ownership has meant for prior generations. When the value proposition is visible, demand often follows. - Lowering the Barrier to Entry
Even motivated buyers can struggle to finance a meaningful ownership stake. Some firms address this through company-sponsored financing that allows future owners to repay their investment gradually through compensation or distributions – often through a payroll deduction, with the expectation that bonuses and/or distributions will offset the payments over time. Because these arrangements reduce the need for a traditional bank loan, they are less likely to affect a buyer’s credit rating or personal borrowing capacity. - Incentivizing Ownership Participation
Some firms also encourage ownership participation through equity-based incentive programs. One approach is to use stock as a component of annual bonus compensation. For selected employees, a portion of a bonus can be delivered in shares rather than cash, helping conserve the firm’s cash flow while simultaneously expanding ownership participation. These programs are typically structured with sufficient cash to cover the employee’s tax liability, ensuring that ownership remains a benefit rather than a burden. - Expanding the Ownership Base Over Time
Firms can continuously expand ownership participation rather than waiting until a large block of stock must be transferred all at once. Selling smaller amounts of stock from treasury to more employees over time broadens ownership, reduces concentration risk, and creates a larger pool of potential buyers when senior owners eventually retire. This also allows new owners to start small and gradually increase their ownership interests.
We are often asked what an optimal number of shareholders should be. While not a one-size-fits-all, a good starting point is to have one shareholder per 8-10 full-time equivalent employees.
When an ESOP Makes Sense
For some firms, the scale of the ownership-transfer challenge eventually exceeds what a traditional internal transition can support. In those situations, an employee stock ownership plan (“ESOP”) can effectively replace a small group of individual buyers with a single trust that purchases stock for the benefit of all qualified employees, funded through the company’s cash flows.
An ESOP can provide liquidity to retiring owners, broaden ownership participation, and offer meaningful tax advantages. Of course, an ESOP is not the right solution for every firm, but it can be an effective tool when the amount of ownership value to be transferred has outgrown the firm’s existing internal ownership structure, and management prefers to remain independent.
Conclusion
The affordability gap is one of the unintended consequences of a firm’s success. What once felt like a manageable ownership transition plan can become increasingly difficult to execute if it does not evolve alongside the business.
The earlier a firm begins to expand ownership participation and plan for future transfers, the more options it preserves. Because firms that struggle with significant ownership transfers rarely run out of solutions, they simply run out of time to implement them.
