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For small environments like yours we will typically put a RDS/Terminal server in our datacenter.   It offers build in disaster recovery, business continuity, and offsite backups, etc.

We leverage TSPRINT and TSSCAN to allow local scanners and to bring some sanity to printing.

The core infrastructure is managed and monitored, the servers are replicated every 5 minutes to standby hardware both onsite and offsite (out of state for DR)  etc.     A lot of good things happen that small offices just don't have the budget for.   Small offices having local servers is going the way of the dinosaur.   It just is too expensive to do it right.

As long as the internet circuit at the client site is low latency and decent - we have no problems whatsoever.

Photoshop or Autocad type apps present some challenges that we have to address with something a little more advanced like Citrix.

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I'm curious why you are so opposed to the point of view that managed services are a fit for this case?  You start off your participation in this thread by stating that you are a network engineer/admin and that "experts" over-engineer the shit out of anything.

As a network engineer/admin what exactly is it about a simple ADDS upgrade/install and some other sound and standard recommendations that you find "over-engineered"?  

As a fellow network engineer (well, not most of the time these days but I'll give myself the benefit of a doubt) I am struggling to understand how you could find the recommended solutions to be anything more than trivial at best....

It is a straightforward, easily supported, and responsible way to scope out a design for even a 5 user small business system.  It can scale or remain of very limited size with feature-sets that offer the business a great deal of flexibility regardless of size.  It also represents a best-practices and security posture that will meet and generally exceed virtually any standard applied to small business with regards to their information and data protection and availability responsibilities.

There is no logical and responsible argument that justifies the low-cost and/or minimum-effort approach when the subject is a business with all the risks, rewards, liabilities, legal obligations, and responsibilities that are inherent in their operation.

It is a smart business owner that wants to invest in the most capable solutions and a professional services provider to maintain them.  The investment can be depreciated and the services put to expenses and best of all, the business owners can worry less about computers and data and focus that effort on the successful delivery of products and services.

Amateurs argue about saving some money by deploying simple and low cost consumer/personal solutions for business.  Professionals argue about investing appropriately in secure, reliable platforms and the profesional services that get IT out of the businesses way so they can focus on their core operations.

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Believe it or not I agree with everything you said. The problem is I live in reality and most of the time these businesses can't or won't afford to spend what we have to offer. I'm justifying what they are willing to spend, not what we think they need. Then (whoever) can focus on what type of security to put on it. No where did I think the OP infer he needed "managed services" but maybe I'm worng? The main point was an active directory server. And in no way did I argue against good security.  If you are as good as I think you are then you are aware that owners willing to put in the right infrastructure are few and far between. Depreciation means spending a large sum up front for years of tax breaks. How many 5 person business's do you think are willing to do that? I will give them the best options for the amount they are willing to spend. Some are willing to walk away if not done right. My apologies if it seems I'm anti AD as that is not my intention when stating over-engineering.

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Let's put it this way, for the OPs business I could provide remote monitoring everything, patch management, a full security stack (including full UTM, and next-gen EPP), a fully cloud managed network, managed print services, workstation and server backup and DR with an RTO of 8 hours, and RPO of 24 hours with a 24/7 NOC and business hours Help Desk for around $770/month and for about $1200/month we'll include the server hardware as part of the agreement with replacement every 5 years.

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Sure, but you won't tell him that your "24/7 NOC" is actually in India, will you?

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Sure, but you won't tell him that your "24/7 NOC" is actually in India, will you?

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What is the smallest server we could go with running server essentials if the server was a domain controller only?

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A domain controller can run on a potato.

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You could buy a craptastic desktop box and install server essentials on it.

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Do you have a recommendation on something that would last 5 years?