Treasury and Cash Management

Treasury Management: The Best Defense is a Good Offense

Most organizations do not see their Treasury Department, if they have one at all, as a critical strategic partner until a crisis arises. However, uncertainty can occur suddenly and without a clear endpoint. For example, a key vendor may go out of business, new legislation could make raw material prices skyrocket, banks could freeze the flow of funds, or multiple customers may close operations overnight as the result of pandemic. When operations are running smoothly and cash flow is consistently positive, treasury management is crucial for reviewing, pressure-testing and consistently improving the ability of your company to withstand uncertain times.

Waiting for a crisis to act can allow operations to slowly succumb to external pressures and prevent you from quickly addressing them. Worse, the company could be completely blindsided and handcuffed in its response because the strengths and weaknesses of the current system are not well known.

Other times, the cause of a cash crunch will go unnoticed for a time, only to suddenly become an impediment to the business. Examples of this range from simply not having enough cash in certain accounts because of transfer limits being too low for current disbursement levels, to signers on the accounts being outdated (e.g., due to retirements) preventing certain transactions occurring without them.

That noted, knowing the strengths and weaknesses of your treasury team, their processes and controls and the structure of the treasury system is immediately critical.

Core Functions and Treasury Management Teams

Depending on the size of your company, the nature of its cash flows and liquidity necessitate various treasury department structures. However, companies typically do not change the team’s functions or structure without an exogenous shock.

Often in small companies, the CFO may also function as the Treasurer. In this case, as they tend to monitor end-of-day balances and act as the primary contact for their banks, the analytical or strategic functions of larger treasury teams are not required as the focus remains primarily on a simpler use of banking systems and internal cash processes.

In mid-sized companies, it is typical to still see one-person teams. The single Treasurer will support the FP&A and accounting teams with cash activity and reconciliations. However, these Treasurers will also become responsible for many more complicated transactions on an ad hoc basis – from managing debt agreements and covenant reporting to commercial bank fee negotiations, standby letters of credit, vendor term changes and leasing.

In larger companies, a diverse treasury team with more targeted skillsets is standard. Individual expertise silos, such as in hedging or structuring debt, are not uncommon alongside the team that focuses on transaction specific requirements and daily liquidity movements. These diverse teams usually have both domestic and international components. At this level, teams may also be actively involved in managing corporate insurance programs, assisting with M&A transactions, reviewing collection efforts, managing pension and other funds, or supporting board and investor relations. Regardless of the number of accounts, the number of financial partners or the level of staffing commitments, the Treasurer’s primary role is to safeguard a stable source of funds by working as a risk manager over investments, debt and cash allocation.

To ensure that the Treasury department continues to move in lockstep with the company, a periodic review of the processes and controls should be performed.

Reviewing Treasury Management and Operations

When looking at the treasury operations performed within the company, it is helpful to gauge effectiveness against key metrics (e.g., lowering risk, improving cash management, reducing interest expense and other costs). The goals of these metrics should be to protect the company from potential fraud, to improve the agility of Treasury to respond to cash needs and crises and limit the need to borrow to cover operating cash flow but for identified transactions.

For some companies, the functions of the Treasury department may not have been reviewed in some time. Typically, an overall review of the system will begin with a review of general cash management processes – from disbursements and automations to reviewing fees and credits. This should also include a detailed review of the account structure, activity flows, designated signers and approval limits as part of a consolidated risk management assessment. Many cash management improvements will likely reduce the overall cost structure, thereby improving the company’s cash flow and net debt position.

Alternatively, the treasury team may have functioning systems in place. They may have performed detailed treasury management reviews recently, and the core functions of treasury may be producing positive cash flow for the company. In these situations, the Treasurer should then act as more of a strategic partner to improve the company’s strategic and decision analyses. They can become a cash-focused internal consultant with a toolkit of experience and solutions to partner with the CFO. The results of the treasury reviews will highlight on which areas to focus on first, achieving maximum immediate benefits.

An Organizational Partner

Long term, the ideal role of the Treasury Department is to act as both a Banking Partner and as a Strategic Partner to the organization – while also handling the day-to-day treasury functions. That typically involves the responsibilities listed below.

Regardless of the current situation of your company, now is always the best time to initiate a review of treasury processes. An immediate review of treasury processes and controls would highlight both where certain improvements should be made straightaway – from a risk management or cash flow perspective – as well as other enhancements to plan and budget for in the longer term.

Leveraging Treasury Management to Your Advantage

If a good defense is your best offense, Treasury can be one of your best executive team players. If you’d like to bring in third-party support, then contact 8020 Consulting to explore our team of treasury management consultants.

You can also learn more about our suite of services custom-fit to these economic times by downloading the resource below:

business stabilization and contingency planning

About the Author

Danelle is an accomplished financial executive with over 20 years of diverse strategic, financial and operational experience across industries including consumer products, pharmaceuticals and healthcare, manufacturing, hospitality and entertainment. Her focus has been to combine the day-to-day management of finance, accounting and treasury departments with various transactions / strategic initiatives including capital raises, debt refinancing, due diligence and asset sales. She has led the redesign of management and accounting systems, overseen financial restatements and developed new financial reporting and financial modeling. Danelle has taken direct CFO roles at two early stage CPG companies and with 8020 Consulting, Treasurer for Bolthouse Farms. Other consulting roles have included companies of varying size and industry, from being Controller of a $100 million specialty biopharmaceutical development company to Director of Reporting & Consolidations for an $8 billion hospitality company. An alumnus of PwC and FTI Consulting, Danelle holds an M.B.A. from the Fuqua School of Business, Duke University and a BA in Economics from the University of California, Los Angeles.

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