Canadian entrepreneur overcomes tax burden

In these tough times, it isn’t uncommon for companies to trim down expenses. In health care centres, for example, one of the first areas to go is the onsite laundry facilities.

The successful, B2B Ecotex Healthcare Linen Service Inc. takes on a transfer of risk, as well as the capital investment from the hospitals to take a load off their responsibilities, as well as other risks, including cost of energy, fluctuating changes and any labor issues.  Established originally as a commercial business in 1958, Ecotex is privately owned and incorporated in Canada, although it now straddles operations on both sides of the border.

Headquartered in Abbotsford, B.C., Ecotex runs its Canadian production facilities and services the Lower Mainland, where it holds about a 25 per cent share in the market. Across the border along the I-5 Corridor, Ecotex services the area nearby with its facility in Tacoma, Seattle, where it has a 20 per cent market share. “We also have a facility in Albuquerque, New Mexico, where we have a market share of over 70 per cent,” tells Randy Bartsch, president of Ecotex.

Today, Ecotex Canada is wholly owned by Magnatex Equity Holdings. Magnatex Service Group uses leading-edge technology and management principles to transform the centuries-old service industry. Services include laundry and linen solution for acute-care hospitals, healthcare clinics and facilities that require linens, uniforms and reusable operating room textiles.
Like the ancient origins of the industry, this family-owned and operated company has deep roots. “There are three generations in this company,” tells Bartsch, who is also the son of the company founder Eldon Bartsch. In 1997, Ecotex sold its second division to Cintas. However, Cintas had no interest in the hospital linen operations, which ended up being a win-win for both parties. In 1982, Ecotex began its contract linen and laundry services.

Customers include the major acute healthcare facilities and hospitals in its three service areas, respectively. Small- to medium-sized community hospitals make up most of its clientele base, as well as long-term facilities and uniforms to medical centres.  On a daily basis, Ecotex processes an upwards of 16 to 17 trailer loads of laundry from its three services areas—“all of which are rinsed, washed, processed, packaged and prepared every 24 hours for our customers,” tells Bartsch.

Specialty service provider focused on niche market

Over the years, Ecotex has stayed true to its core business: providing contract healthcare linen and laundry service. “Because we’re solely focused on being a specialty service provider, a lot of time is spent on travelling abroad to identify best practices to take to our management team in our facilities, as well as make sure we’re using the best technology available to us; for those reasons we’re much more successful than many of the multinationals,” says Bartsch.

In the past year, the economic climate has presented plenty of challenges, but it has also been an opportunity for Ecotex to grow. “Largely this growth is because of the pressure on the hospitals to lower and contain costs, so as an outside contracted service provider, our cost structure and strategic approach has proved to be of interest among CEOs and CFOs,” says Bartsch. This  means the company is using less water and less energy at the front line or operational level. In fact, Ecotex’s Seattle plant has been using less water for the past five years. “Our production methods are among the best the world,” tells Bartsch.

U.S. tax laws proved to be tricky for business

In a recent news article, Bartsch explained how the U.S. tax laws presented a particular challenge to his company. “It was a challenge but, it was more like added complexity. Basically, because we are relatively small company, running it both countries we needed to make sure that we were in compliance not only with all operating laws in the U.S. but also those in Canada,” explains Bartsch.

“I think the thrust of the Globe and Mail article was that a lot of small, private businesses that are doing under $100 million per year often underestimate the fact that operating in different countries even though laws and rules are similar, they actually aren’t; it’s an extra complication,” says Bartsch.
But Ecotex made the strategic decision early on to capitalize on this challenge, later seeing its success story unfold. “As a private company, we’ve been more selective as to the markets we enter and how we approach them because we don’t have the pressures that publicly traded companies have in terms of earnings,” says Bartsch.

Even still, the cost of compliance hits them twice as hard. “Because we operate in both the U.S. and Canada, we must also report to both countries’ tax agencies, which not only doubles the cost of accounting and legal but also combines the cost when filing our taxes,” he says.

When asked if it has been worth having the business operated in both countries despite the several complications, Bartsch is quick to say yes. “It is for us. we’ve got some unique skills we’ve honed in Canada that are extremely valuable when we move into the markets in the U.S. because it’s a lower operating cost model. By exporting that intellectual property or knowledge into markets like Seattle, we can improve service and lower costs of production for the customer which adds value,” he says.

Changing value of loonie presents a challenge

With business in both countries, Ecotex has felt the impact of the changing value of the rising Canadian dollar. “The large-scale specialized production [equipment] we have is all manufactured, for the most part, in Europe or United States. Most of the textiles—the sheets, towels and uniforms—are not made in Canada; they denominated in U.S. dollars. So, with the dollar on the rise, we tend to have a natural edge in buying power for some of these inputs,” explains Bartsch. On the other side of the coin, however, the weakened U.S. dollar has been challenging especially when dealing with textiles. Despite being denominated in U.S. dollars, textiles are often coming from places in the world where their currency has strengthened, which increases the base dollar.

There are other internal challenges to consider as well. Generally speaking, the Canadian universal system is strained, with all healthcare costs on the rise. Because of this, hospitals have no choice but to look at ways to cut costs, limit services, get patients out faster and service providers like Ecotex are feeling the impact. “Our production volumes have fallen and the infrastructure we have invested on is based on stable production volumes, so we’ve seen pressure, especially in our market, in western Canada,” tells Bartsch.

Last month, the B.C. government announced it will inject more public dollars into its healthcare system. Most of those, however, dollars are consumed in non-stay patient care. “We’re seeing an actual decline in actual patient stays in the hospitals, this is measured by our production volumes fallen off,” tells Bartsch, adding this is the first indication of a decline in 20 years.

Future plans

While still moving forward, Ecotex has plans to expand its clientele base in the Vancouver area to meet short-term objectives. In the long term future, however, Ecotex is identifying other service areas to target its business particularly, along the western coast of United States.
“Because we operate in an environment where there is a lot of pressure on operators and hospitals—so both the customers and suppliers—they are feeling a cost burden and this is especially true at a time when the U.S. is considering a healthcare reform,” explains Bartsch. “Within this dire environment, there’s a lot of opportunity for us because we have an operating structure and a business system that is more efficient and economical,” explains Bartsch.