Need some advice on server migration

Question

Hey, I'm new to the community and need some input from Microsoft experts on a challenge I'm facing. I run a small MSP shops working with small businesses, and I have a new client that's a landscaping business that's been around since the '80s and has gotten by with piecing together IT solutions for a while. So there's a lot about their infrastructure that needs updating and moving to more reliable solutions. I'm just not 100% sure what the best path forward is and would like input from experts - that's where you guys come in.

So the company is landscaping/fencing company with about 50 employees but only about 15-20 need IT for their jobs; most are field staff. They have 2 servers that are very old. The primary server is running Windows Server 2012, which is obviously a problem since that OS was sunset last year. Historically it was used as an Exchange and file share server, as well as hosting a client/server accounting program and a client/server fence estimating system. The other server was set up with a SQL server and hosts another client/server bidding system. The company purchased Microsoft 365 a few years ago and moved all their files into OneDrive/Sharepoint off the file server, but they left the server as the domain controller for all their workstations. So users still have a local account and a separate M365 account. So they still use the servers for local authentication and accessing these legacy client/server applications.

All of these legacy applications have cloud service versions, but the company wants to wait as long as possible to switch because of fear of migration and added costs. So my directive is to keep the current system running as is for now.

So I have some questions for you all about direction:

1. Should I go ahead and migrate away from the local domain controller to using M365 accounts? If so, how do I do that with as little disruption as possible?
2. What should I do with the servers? They're both getting old - one is a Dell T430 and the other is a Dell T140 and obviously running outdated software (Windows Server 2012 and 2016 respectively). I could upgrade to Windows Server 2022 I suppose, but I also wondered if it's just time to go the virtualization route. I have more experience on the Linux side but browsing online it seems like there's good resources for migrating physical servers to Azure with Microsoft. But it's hard to tell about cost/benefit. I for sure think both these servers could possibly be combined together serving these legacy apps for as long as their manufacturers support the client/server versions. Eventually all have indicated they will force users to their cloud versions.

I think that's it. I welcome any input or feedback and advice. Thanks in advance.

Stephen