Moving Into Maintenance

This was in 1996 when many of Schatz’ clients were pleased with his services and eager for tips to keep their freshly installed landscapes thriving. Because Schatz didn’t know much about maintaining landscapes – only creating them – he recommended other contractors in the Bunnell, Fla.-area, where his business, Austin Management Group, was located.

"I had a recurring client base that continually asked me to do its maintenance work because they couldn’t find anyone else in the area who could do it right," Schatz explained. Eventually, these requests pulled him into the maintenance business.

While adding and initially growing the division had its challenges, Schatz realized, like many contractors, that expanding into maintenance was his future. "From a business standpoint, I learned that maintenance, particularly in a slower economy, was money you could count on," Schatz said.

MAINTENANCE MATTERS. There are many reasons maintenance can be a viable addition to a company’s service repertoire.

Maintenance provides regular cash flow, balancing out a company’s income, pointed out Ted Tecza, president, Tecza Environmental Group, Elgin, Ill., who started offering maintenance services in 1982. "Sure, construction checks are big, but they come in less frequently than maintenance checks, which are small but come in regularly enough to cover overhead on a weekly basis," he said. "We send out our first maintenance bills two to three weeks before we start the work, so we start billing in mid-March even though we don’t fully begin our services until April. This way, money is coming in before we start the job because the first 10 weeks of the year use up almost 46 percent of the labor budget."

The service also provides stability, according to Tecza, who has clients sign two- to three-year maintenance agreements. "I don’t have to reinvent or resell the entire maintenance business every year like I have to with design/build," he said, pointing out that only 2 to 3 percent of his maintenance accounts are annual contracts.

Schatz agreed, adding that design/build growth comes in peaks and valleys, while maintenance growth provides a more stable revenue base.

Stephen Williams, owner, Stephen Williams Landscaping, Berkeley, Calif., said maintenance services create less overhead for his company. Williams, who does about 50 percent maintenance and 50 percent installation, said more client contact time exists in design/build, increasing labor overhead.

Tecza agreed, noting that despite financing for initial maintenance equipment purchases, 97 percent of maintenance costs are labor-related and only 3 percent are materials.

And during an economic slowdown, maintenance clients won’t disappear as quickly as design/build clients will, said Tecza, speaking from first-hand experience after battling two economic down swings – the late 1980s and the early 1990s.

While maintenance has its good points, it also can challenge contractors. "I would say the hardest part about maintenance is grasping that every client is different," Williams said. "They each have their own ways they want things, and it takes about six months for a new employee to settle in. Sometimes it drives you nuts, but it’s their property, their money and their decision. Almost all problems that result here stem from confusion in communication. To deal with this, we created a connection between our clients and our crew leaders through client preference sheets so that clients’ needs are understood and never forgotten."

INITIAL INVESTMENTS. Once a company’s maintenance service is established, it runs itself pretty easily, Williams remarked. Contractors must map out their maintenance business plans carefully and develop a strong relationship with their bankers for growth support.

Once Tecza decided he wanted to concentrate on maintenance expansion, he created a three-year plan and presented it to his accountant. "I showed him the investment I needed to make in the next few years and explained how I didn’t want to grow too quickly to outgrow my cash," he said. "I wanted to grow aggressively, but control growth based on my financing. Then I presented my plan and said this is the money I need. I negotiated my financing on a three-year basis."

The banker is present to help verify a contractor’s cash flow, Tecza said. The more information a contractor provides him or her, the better.

"Bankers want to be informed," Tecza said. "Once you get your numbers in line and know what your cash flow needs are and the depreciation costs on your equipment are going to be, you go into the banker, tell him what you want to do and ask him if he wants to be a part of it. Bankers want to be a part of something that is well planned. If you show that you have thought it out, there’s no need to fear rejection."

Bankers are much like the other vendors with which contractors do business, Tecza explained. "There’s no need to be intimidated by a banker – he’s just like your fertilizer supplier," he said. "If a fertilizer supplier doesn’t offer a good price and a good service, then you find someone else who does. If a banker isn’t on your team and won’t give you what you need, then find someone else who will."

Keeping a banker informed of a maintenance division’s growth can help ensure future financing as well. Tecza sends his banker quarterly or semiannual financial statements to keep him or her informed of the business’ status. This way, a banker is also more likely to respond when a contractor has questions or problems, Tecza said.

Unlike Tecza, Schatz didn’t borrow money to finance his maintenance division start-up. Instead, he expanded his working capital to afford the extra expenses, such as additional crews, which cost approximately $30,000 up front.

SEPARATE BUT EQUAL. Many contractors prefer to separate installation and maintenance divisions to appease employees and more efficiently manage each segment.

In the beginning, Williams tried to cross-train his employees in both installation and maintenance. "Sometimes we hit resistance – employees preferred one over the other," he said. "Most resisted maintenance because it is repetitive and constant while installation is intense and creative. They are quite different jobs, and you need to get employees on board before trying."

"Installation employees typically detest maintenance because it can be really boring and routine," echoed Chuck Twist, co-owner, TNT Lawn & Landscape Management, Stillwater, Okla., who has been offering maintenance for 14 years. "I think this is because once a guy is used to doing installation work, he gets used to the day-to-day variety, such as planting shrubs, laying bricks or using rocks in a landscape, whereas mowing is the same day after day after day."

Because installation and maintenance are two separate services requiring different employee mentalities, many contractors who start out offering them both end up separating them soon after expansion, like Tecza.

Besides catering to employee preferences, the difficulty in floating these employees between both divisions for Tecza was that when one division thrived, the other suffered. "I used to mow two to three days a week with my construction crews," Tecza said. "But when I got busy with construction, maintenance suffered and vice versa. When I did discover that I was threatening my relationships with clients, I had to separate the divisions or stop offering one of the services. Creating two divisions with full-time, self-sufficient support was the answer."

Separate maintenance and installation divisions also allow for clean-cut management because each division has its own set of books, Schatz said. "This separation also allowed us to pursue external contractors so we didn’t look like we were involved in doing business with the competition," he added.

Separate divisions also eased labor tracking. "We noticed a big decrease in labor costs once we separated these divisions," Tecza said. "Tracking becomes easier, too, because you’re not figuring out how many hours one crew did maintenance and then how many hours they did design/build. Once tracking became easier, so did accurate scheduling."

Having a dedicated maintenance workforce even allowed Tecza to spinoff add-on work, such as replanting jobs, and pick up an additional one-third in maintenance volume. "If we do $1.8 million in maintenance, we’ll reach $2.4 million with add-on sales," Tecza said. "This has become part of the overall construction budget, but it’s something that’s direct sales off of maintenance that we budget annually."

And adding this work meant tacking on additional crews. "Once you schedule your maintenance crews on a weekly basis, you don’t have the extra half-hour to give to the job for them to plant a tree," Tecza said. "You’ll pay overtime and it’ll kill you. Instead, we came up with a separate crew for this type of work."