How the lack of a business partner triggered a cashflow struggle
Patrick Bourke knew he was getting in over his head when he purchased his business, but he ignored his instincts. What ensued was a major battle in keeping a healthy cashflow.
Bourke is the owner and managing director of Southern Cross Protection, which is the largest security patrol company in Australia, although it hasn’t always had that name.
The company was founded as the Australian Watching Company in the wake of the First World War. In 1992 it was acquired by Chubb, which also purchased Metropolitan Night Patrol Services.
The two companies were renamed as a combined entity, Chubb Security Patrols.In July 2008, Chubb divested CSP through a management buyout.
Bourke became majority shareholder of the newly-named Southern Cross Protection.
“I joined [as managing director] when we were still owned by Chubb in 2006 and then we put the business up for sale in 2007,” Bourke says.
“Over the time I was working there, I became quite fond of the business and the people that worked in it. Although it was part of Chubb, it still felt like a small business.”
“It had its own unique culture that people identified with… They didn’t see themselves as part of the bigger business.”
“We made significant improvements over the time. I was involved in terms of financial results, and I knew there was further scope. I saw it as an opportunity to make a quid.”
Bourke purchased the business for around $6 million. While he doesn’t regret the move, he admits he would have done things differently.
“There are two things that stand out to me. One would be we undercapitalised the business,” he says.
“We didn’t have enough money or access to enough funding to do the things we wanted to do. The second one, which is tied to the first, was taking it on myself, rather than with a partner.”
“Not giving anyone a chance to challenge my thinking, and taking on all the risk myself as well, led to not having the capacity to cope when we needed it.”
Bourke says he thought about purchasing the company with a partner, but he simply couldn’t find one.
“I did think about doing it with a partner but I couldn’t get one at the last minute. The whole global financial crisis was really biting at the end of 2007 and 2008,” he says.
“As we got closer to closing a deal, I knew that was a mistake but I’d already done the hard yards.”
Without a partner to lean on, Bourke decided to call in a few favours in order to keep the company afloat.
“We relied very heavily on Chubb – as our previous owners – and our previous sister company, and some of our large customers,” he says.
“We had heart to heart conversations and said, ‘This is how tight we are for cash. We need you to be generous with your payments to us’.”
“They were generous with their credit terms. It was really on the strength of some personal relationships and we were fortunate they did support us.”
After struggling to get funding from local banks, SCP approached banks overseas and managed to secure a modest line of credit from a French bank.
“We also approached the tax office about introducing an instalment payment scheme for us, even before we incurred much debt, and the tax office was very accommodating,” he says.
“We increased our rates, stopped serving unprofitable customers almost immediately, and we were ruthless with our costs.”
“Anything that could be deferred for six or 12 months was deferred.”
Bourke says it wasn’t until the beginning of 2010 that things started to improve.
“After about four months, we started to focus on getting new customers. As soon as we got to a breaking-even point, we hit the market and went looking for new customers,” he says.
Since Bourke purchased the company, the workforce has increased from 400 staff to about 550. With 6,000 customers nationwide, it expects to turn over around $50 million this financial year.
But Bourke says he has learnt a valuable lesson.
“Get external people to check your thoughts. Seek counsel and listen to it,” he says.
“It’s one thing to take a calculated risk but it’s another thing to just say ‘It’s going to be alright’ on strength of character or strength of effort.”
“We had a couple of lucky events but if it had fallen the other way, we wouldn’t have made it. Don’t rely on luck.”