By Gloria G. Palmer, CPA

Executive Advisor at 3PG Advisors and President at Source Expert Advisors

It is no secret that landscaping, turf care, tree care and other green industry companies are valuable.  Our business owners are constantly solicited by interested parties.  The rumor mill runs wild with talk of multiples and purchase prices and every software vendor and advisor preaches “Value Creation” (guilty as charged).

With so much focus on Value Creation, what about when it’s time to put all that value that’s been created to the test?  I like to use the terms Value Creation and Value Monetization to differentiate between the potential and the realizable.  And I’m here to tell you that when we stop arm-chair quarterbacking and throw a hat into the ring looking for someone to put real dollars on the line for a company, the strength of “back office” accounting, administration and finance is paramount to both establishing and preserving monetizable value.

No matter how you’ve been convinced your company will be valued, I think we can all agree it’s going to be largely based on its financial performance.  Guess whose entire profession centers around recording financial activity?  You guessed it, it’s the accountants.  They:

• Record financial activity
• Produce financial statements
• Ensure accuracy and financial compliance

What caliber of accountant do you have in charge of creating arguably the single most important piece of Value Monetization support you have?  Maybe none and we’re just running off our gut and hoping unmanaged, unadjusted QuickBooks vomit will do the trick.  Or maybe we have a CPA swoop in at tax time and we think they’re fixing everything.  Really?  Do you think books that might be right only once a year (with an eye towards minimizing taxable income!) will do your life’s work justice in a valuation?  I don’t think so.

Next on our list is administration.  Think about how functions like these play out at your company:

• Internal coordination and support for day-to-day operations
• Provide structure and guidance so activities are completed as intended
• Ensure continuity and follow-through by managing workflows, handoffs, and execution details.

A lot of value pitfalls in this area stem from either the owner doing too much or things not being done in compliance with rules and regulations the company is subject to.  

How much of the day to day is dependent on you the owner?  If you step out, can the people, process and technology of the company continue to execute results?  In the context of a company valuation, remember it’s the company that’s being valued, not you.  Too much “you” can take away value that otherwise could be attributed to the company.

The word “compliance” can make anyone cringe but when we talk Value Monetization, I don’t care how valuable your company otherwise is, if there’s too much regulatory risk I say that value isn’t “real” because it isn’t “realizable”.  I’ve seen dollars melt away or wire transfers not happen at all because someone thought they could skirt the rules or stayed oblivious to them altogether.  In our labor-based businesses this is especially apparent for wage, hour and immigration issues, but I’ve also seen things like sales tax, environmental and even zoning issues hold things up.

Finally finance.  When speaking about valuation in general, most of the time valuations are stated in terms of a base number, such as revenue or earnings, that is multiplied by another number, referred to as the “multiple”.  If accounting establishes the base number foundation for a valuation, and administration preserves that valuation’s reality, it is finance that holds a lot of the power to drive the valuation’s multiple.  Finance covers areas such as:

• Financial planning and analysis
• Decisions on how to use resources
• Strategic initiatives and direction

Let’s say we have two comparable companies with generally the same revenue and earnings metrics, but only one can clearly articulate and demonstrate plans for where the company is going and how it is going to get there.  Which would you rather invest in?  Same question, this time otherwise comparable companies but company one can show you an intentional history and forecast of vehicle, equipment, technology and infrastructure investments and company two is just reacting in real time with no plan.  Which company would you feel confident putting more of your money into?  

Creating value is a fantastic goal but building up potential value vs. actually being able to monetize it are two different games.  It’s time to build a back-office foundation in accounting, administration and finance that is as strong, professional and reliable as the work your crews do out in the field every day.