Accrual Basis Conversion and QoE for a Landscape Design and Services Sale With a Tight Timeline

The Situation

The company was a premier landscape design and services firm serving high-end residential clients across Northern California, with two complementary lines of business: landscape architecture and design-build projects, and recurring maintenance and services contracts on the properties it built. The business was well run operationally, highly regarded by its clientele, and attractive to buyers.

The owners had engaged an investment banker and the sale process was already underway when the banker identified a problem. The financial reporting was not sufficient to support a transaction of the size the business commanded. Everything was on a cash basis. There was no margin visibility by project or contract. Every process in the finance function was manual. The banker knew that private equity buyers would not underwrite a deal on those books, and referred the company to Buxbaum with the process clock already running.

The Challenge

The timeline was the defining constraint. We were given four weeks to deliver what most sell-side preparations take several months to produce:

• Convert three years of cash-basis books to accrual basis, on a monthly basis, so that buyers could see revenue, cost, and margin in the periods the work was performed rather than the periods cash moved
• Establish revenue recognition for two distinct models: percent-complete design-build projects with deposits and progress billings, and recurring maintenance contracts billed on a schedule
• Build margin visibility by project, by contract, and between the design-build and maintenance lines, none of which existed
• Reconcile a balance sheet that had never carried accrual-basis receivables, unbilled work, deferred revenue, or accrued costs
• Produce a sell-side quality of earnings with normalized EBITDA, documented adjustments, and working capital analysis
• Do all of it in time for the banker to go to market on schedule, with numbers that would survive buyer diligence

What We Did

Cash-to-accrual conversion. Working from bank activity, invoicing, payroll, and project records, we rebuilt three years of monthly financials on an accrual basis. Design-build revenue was restated on a percent-complete basis with deposits and progress billings reclassified between deferred revenue and unbilled receivables. Maintenance contract revenue was aligned to the service periods it covered. Costs were matched to the projects and periods they belonged to, and the balance sheet was reconciled at each month-end.

Margin reporting. The conversion produced, for the first time, gross margin by project, by maintenance contract, and by line of business. That gave the banker a story to tell about the durability of the recurring revenue and the profitability of the project work, and gave buyers a basis to test both.

Sell-side quality of earnings. From the accrual financials we prepared the QoE: normalized EBITDA with owner compensation and nonrecurring adjustments fully documented, revenue and margin analysis by line and client, and a trailing twelve-month working capital analysis to frame the peg negotiation. The databook was built from the same ledger so the CIM, the QoE, and the data room tied to one set of records.

We delivered within the four weeks, and the process went to market on the banker’s schedule.

Interim transaction CFO. Once the company was in market, we stayed as the transaction CFO. We rolled the trailing twelve months forward each month so buyers were always looking at current results, updated the QoE as new periods closed, managed the data room and buyer request lists, and represented the finance function through diligence, so that the owners spent the process running the business rather than answering for its numbers.

Post-close transition. After the sale to private equity closed, we provided transition support to the new ownership: standing up the reporting the sponsor required, supporting the opening balance sheet and working capital true-up, and handing off a finance function that operated on accrual books and a monthly close for the first time in the company’s history.

Ongoing support. The relationship continued past transition. As the company has grown under private equity ownership and added multiple acquisitions to its platform, we have provided supplemental staffing on an as-needed basis, including accounting integration and reporting support for each acquired business.

The Result

A company that entered its sale process with cash-basis books and no margin visibility went to market four weeks later with three years of monthly accrual based financials, a documented sell-side QoE, and reporting that showed buyers exactly what they were acquiring. The sale to private equity closed, and the company has since become an acquisition platform in its own right.

The banker’s early call was the difference. Had the process launched on the original books, buyers would have discounted heavily for uncertainty or restated the earnings themselves, on their terms and their timeline.

Why It Matters

Service businesses with strong recurring revenue are among the most sought-after assets in the middle market, and they are also among the most likely to run on cash-basis books, because the owners never needed anything else. The gap between how the business is run and how a buyer needs to see it is usually discovered late, and the timeline rarely accommodates it.

Four weeks is not a comfortable amount of time to build three years of accrual financials and a QoE. It is enough, when the team knows exactly what a buyer will test and builds toward that standard from the first day. And the reporting built under that deadline became the foundation the company has operated on ever since.

If your business is heading toward a sale and the books were built for taxes rather than for buyers, let’s talk about what it would take to close that gap, and how quickly.