Originally appeared in June 2003 issue of Greenhouse Grower
Leveraging Land

Baucom’s Nursery looks beyond its core business to maximize opportunities and returns.

by DELILAH ONOFREY
Group Editor
delilah@greenhousegrower.com

Baucom’s Nursery’s strong footprint in the Southeast is an asset in serving customers, as well as expanding opportunities and optimizing options for the family business. Ranked No. 8 on our Top 100 Growers list, Baucom’s serves three distinct markets from three major production facilities.

While the original facility and headquarters in Charlotte, NC, serves the Carolinas and Virginia, the newest facility near Charleston, SC, serves the coastal corridor. The Mt. Dora, FL, location, built in the 1980s, was originally intended to serve the Carolinas, but now 80% of its production serves a market of its own in Florida. Collectively the nurseries produce about 70% floriculture crops, but the Charlotte and Mt. Dora facilities grow more woody ornamentals than Charleston. All three facilities have room to expand.

Over the next six to 10 years, the family will be rebuilding the 1970s-era facilities in Charlotte and converting part of the 300 acres to residential development. Side businesses in construction and real estate are an important part of the family’s diversification plan.

“In farming, you make a living off your business and your land and hope the nest egg appreciates,” says president and CEO Gary Baucom. “Through agricultural activities, we have well over a thousand acres. Good gracious. What’s this land for? What’s the best use for it? In Charlotte, we invested in land years ago that’s contiguous on a major thoroughfare. The best use is not greenhouse or nursery stock if it sells for $100,000 an acre. You’re better off finding another piece of land further out for production.”

In many ways, the family business has come full circle but on a much bigger scale. Baucom’s father, the late Amon Baucom, started in the landscape business with a wheelbarrow and a shovel, landscaping yards. His business evolved to include site grading and later opening seven retail garden centers with landscape installation crews. The family decided to buy land to grow nursery stock to supply its retail and landscaping needs. Starting with ball and burlap outdoors, the Baucoms soon built a few wooden greenhouses for flowering crops.
By the 1970s, they noticed a much larger customer base emerging for plant material – supermarkets and mass market retailers like Woolworth, Woolco, and Kmart.

“My brother Chip and I asked ourselves where the future was – in landscaping, retailing, grading, or plant growing,” Baucom says. “We decided it was growing plant material for the big box folks and in the economies of scale selling large volumes. We discontinued retail and landscape and focused on building this place up to concentrate on wholesale growing for mass users. We’ve always liked the independent garden centers, too, and value them as 10% to 20% of our base, but we need the big boxes for quantities and economies of scale.”

Today, Baucom’s serves the nation’s largest retailers in lawn and garden – The Home Depot, Lowe’s, Kmart, and Wal-Mart – as well as regional chains and supermarkets. The family’s roots tie in well with their real estate ventures. “We’re fortunate to have had the years of exposure to the real estate development industry and site work, so we’re comfortable in all those arenas,” Baucom says. “It’s been a good diversification move. We grow plants to supply ourselves and gear up crews to do all that. We can either pay other people or do it ourselves and it’s something we grew up doing.”

Family Matters
A mix of family and nonfamily members run Baucom’s Nursery. Three general managers at the three facilities report to Gary. Brother Chip is executive vice president but more involved in the nonfloriculture business divisions. The siblings have children who are in the business and some who are still in school.

While their two sisters aren’t directly involved, brother-in-law Wes Livingston is vice president of sales and marketing and three sales managers report to him. Livingston started at the nursery as an intern from Clemson University and worked his way up through the ranks.
Another family member runs Baucom’s bark plant growing media company, Tarheel Bark Co. In addition to supplying the nurseries’ needs, the company packages and ships hundreds of loads to retailers.

“When you understand the ins and outs of a family business, it’s an interesting phenomenon,” Baucom says. “There are so many strengths but also weaknesses. If you dwell too much on family, you don’t give other people chances and limit your potential by keeping yourself in a box. You need outside expertise and different perspectives. It motivates me to see the next generation is working hard, but I’m just as proud of our other management people.”

Outside Expertise
Baucom also seeks the advice of experts to guide him through a more complex business. These include an attorney, a certified public accountant, and investment banker Mark Arizmendi from Northwest Capital Partners.

“They’re a great board of advisors for a mid-level business,” Baucom says. “In addition to succession planning, we’ve been through the deaths of my father and mother. It’s a costly challenge with how much you lose and have to pay. You need very good advice to continue to plan and update consistently. My father was in the horticulture business but always thought as a business person. He said you can hire growers and horticulturists, but you’ve got to be a business person. I truly enjoyed growing crops, but you don’t always get to choose what you spend your time on.”

Arizmendi observes that most growing operations have grown as a labor of love. “Growing crops has been the center of focus for most of the industry participants,” he says. “As the large retailers have come to dominate the distribution channels, cost containment, margin enhancement, and marketing have become increasingly important. It requires increasing financial vigilance on the part of the growers and a focus on the bottom line. How do we maximize cash flow from operations to pay for new opportunities? The establishment of rigorous financial metrics to enhance cash flow, return on investment, and ultimately business value, and the use of technology to potentially brand and differentiate products are the real opportunities for the future.”

One area is instituting an accounting system that flows from cash basis reporting to accrual reporting as seamlessly as possible. Cash-based accounting is preferred by most growers, because it offers advantages, like not having to pay tax on inventory, but investors and bankers prefer the accrual system. In addition to being involved in real estate transactions, Arizmendi has helped Baucom’s recapitalize its debt structure and optimize cash flow through inventory projections.

Arizmendi also advises Baucom’s to consider “Net Present Value” in its business decisions. “Establish a desired rate of return, ascertain the required investment, and discount the future cash flows when choosing the project that provides the greatest level of net present value,” he explains. “This may lead to different investment decisions, whether it is on which crops to grow or what to do with land or other assets. Not every decision can be made using this metric, as there are other reasons business decisions are made, whether it be the continuity of a historic enterprise or just something that feels right to the grower. However, at least considering net present value helps provide some discipline to financial and business decision making.”

He adds real estate development opportunities are exciting for growers on the edge or in the middle of fast-growing metropolitan areas. “A number of growers hope to sell their properties to a developer, but there are occasions when the grower can take an active approach to the development process and enhance prospective returns,” Arizmendi says. “There are business structures and strategies that can help alleviate the tax burden of being a developer rather than a one-time seller. Given the resources and talent, this can result in higher profits for the original landowner. With the legacy that many growers have as landowners in the community, an active horticulture distribution business can add tremendous aesthetic value and history to a new development, as well as provide another avenue to derive profit. I’ve seen the Baucom family actively develop hundreds of acres of real estate and build the net worth of the family enterprise significantly.” GG