It's been nearly 20 years, but Ashley Cooper is still haunted by the day his company nearly went under. It was a Friday morning in the mid-1990s, and his business's bank account was empty. In a matter of hours he'd have to make a $270,000 payroll.
The chief executive officer and president of Paladin Security Ltd., a Vancouver-based security firm, had no clue what he would do. He couldn't ask the bank for money, and no one else would give him that kind of cash on such short notice. As soon as those cheques were cashed, the company would have a massive overdraft and could, potentially, have to close its doors.
Mr. Cooper remembers, clearly, sweating the night before. "I didn't sleep on Thursday," he says. "We never had a deposit of that size before and if we didn't make payroll it wasn't going to be pretty."
When he arrived at work that morning, he was certain that the end was near. But by some incredible stroke of luck, when the mail came that afternoon, just a couple of hours before payroll was to be issued, he received a number of outstanding cheques from clients that totalled more than $270,000.
He ran as fast as he could to the bank. "It was our biggest deposit ever at that time," he says. "Sometimes there's a great white light that shines on people."
That was a defining moment for his company, which his brother had started in 1978. Mr. Cooper bought it from him in 1988, and at the time, Paladin, which now has $200-million in annual revenue, was growing at about 50 per cent a year. Mr. Cooper figured cheques would just roll in; he didn't think that he would have to watch his spending, too.
Mr. Cooper's potentially costly cash-flow mistake is one made by many businesses big and small. Poor cash flow management, most experts say, is what kills companies, especially growing ones that need to spend upfront. Paladin was in a mess because it paid security guards and other staff before it was paid by clients. When incoming cheques are late, company bank accounts are strained.
Looking back, Mr. Cooper freely admits that he didn't pay nearly as much attention to his company's cash flow as he should have. He would invoice long after a contract ended and would follow up on late payments when he had time. This situation, however, scared him straight.
"You're running a company and think you're growing and profitable, and you are, but then you have this fright because you suddenly realize that cash flow is as important, or more important, than these other things," he says.
The following Monday, he started making changes. The first task was to speed up the invoicing process. Then, 30 days later, if he hadn't been paid, he would call his clients and ask when the money was coming. "We used to just wait for a cheque to come and maybe someone would call accounts payable after 60 days," he says.
Part of the solution was training his customers to pay on time. If no one follows up, they think they can get away with paying late, he says. The cheques started coming more regularly.
Another issue was the bank. While he had a line of credit, it wasn't large enough to cover payroll. He didn't want to ask for an increase because his annual review was coming up. "I felt like we couldn't continue to go back to the bank every time we grew," he says.
He learned later that if he had had more regular financial reviews and better communication with his branch, the bank might have been able to help him. If companies show the bank only their revenue at the start of the year, which is what he did, then the line of credit will be based on that amount. He was growing so quickly, though, that the numbers he submitted quickly became out of date.
He began meeting with his bankers more frequently and updated them on his company's progress. When they saw how fast Paladin was growing, they felt more comfortable lending him more money. "They became partners with us," he says.
Another problem was that Mr. Cooper was doing most of the financials himself and, he says, he didn't always want to focus on numbers. He felt the best use of his time was building his brand, finding clients and growing the business. He eventually hired a chief financial officer, which allowed someone else to pay more attention to cash flow and let him focus on growing the company.
Once Mr. Cooper realized just how important cash flow was to the growth of his business, he was never faced with an issue like this again. "It was a tremendous learning experience," he says. "It all comes down to discipline."
Now, with 6,000 employees, the company is one of the largest security firms in Canada and is still growing. Cash flow management will always be important, he says, but he's confident he will never get that close to missing payroll. If only because he never wants to experience the same dread he felt on that sleepless Thursday night.
"I certainly still think about it," he says. "It's not far out of my mind. You can never forget where you came from, and that includes the good and the bad."