Future-proofing your treasury function: how to secure long-term financial health

Treasury is a key finance function that is vital to the financial health and success of every business, large or small. It encompasses the management of funds and financial risks within an organisation. The primary goal of the treasury function is to ensure the business has sufficient funds to meet its daily operational needs while also contributing to the development of its long-term financial strategy and policies.

Large and multinational companies, such as those listed in the stock exchanges, typically have a dedicated team of treasury professionals spread across various regions and countries. This team operates as an integral part of the broader finance division. In small businesses and startups, treasury is not a standalone role. Instead, members of the finance team handle specific treasury activities as part of their regular duties. 

The treasury function in small businesses and startups

In a startup or small-medium enterprises (SME), the treasury function is typically integrated into the broader finance roles, rather than being a separate department. Below are some key activities which would fall under treasury activities:

1. Cash flow management

Ensuring there is enough cash to meet day-to-day operational expenses is essential. Monitoring cash inflows and outflows helps maintain liquidity and avoid cash shortages, ensuring the business can continue operating smoothly.

2. Fundraising

Assisting in securing initial funding from investors, venture capitalists, or loans is a critical task. Managing relationships with investors and providing them with regular financial updates is also important to maintain trust and transparency.

3. Financial planning & strategy

Developing financial forecasts and budgets guides the startup's growth. Supporting strategic decisions by providing financial insights and risk assessments helps in making informed choices that align with the company’s long-term goals.

4. Risk management

Identifying and managing financial risks, including currency fluctuations and interest rate changes, is crucial. Implementing strategies to mitigate these risks protects the start-up's financial health and ensures stability.

5. Compliance & regulation

Ensuring the startup complies with relevant financial regulations and reporting requirements is necessary to avoid legal issues. Keeping abreast of changes in financial laws and regulations that may affect the business helps maintain compliance and adapt to new rules.

6. Investment management

Overseeing the allocation of funds to various investments aims to maximise returns. Balancing the need for liquidity with the goal of achieving higher returns on excess cash ensures the business can grow while maintaining financial flexibility.

7. Banking relationships

Establishing and maintaining relationships with banks and financial institutions is vital for accessing financial services. Negotiating terms for banking services, loans, and credit facilities helps secure favourable conditions that benefit the start-up.

In SMEs, these treasury activities are often performed by the finance team, with the CFO and founders playing a key role in strategic financial decisions. As the business grows, these functions may evolve into a more structured treasury department.

How to know when you need a specialised treasury function

In the early stages of a business, treasury tasks are relatively simple, mainly involving managing cash and bank accounts. However, as the business grows, complexities emerge from expanding into new geographical areas, opening multiple bank accounts, managing foreign currency exposure, and securing funding sources along with managing investors relations and stakeholder management. 

These are the inflection points, when you need to start identifying and addressing any blind spots, including the recognition of the need to hire specialist treasury experts. 

Initially, a generalist finance team can manage these tasks, but as the business expands, the need for a dedicated treasury function or specialist expert becomes apparent. The specialised expert will handle the increased complexity and ensure the business's financial health and strategic growth.

Establishing a specialist treasury team goes beyond simply increasing headcount. This involves investing in the capabilities and infrastructure essential for supporting your organisation's growth and resilience. By identifying the indicators that signal the need for a dedicated treasury function and allowing sufficient time to find and hire the right personnel, you can alleviate additional workload pressures and safeguard the business's growth trajectory.

How to design a flexible treasury operating model

Designing a flexible treasury operating model involves several key steps to ensure it can adapt to changing business needs and market conditions. 

• Firstly, establish a strong foundational framework that includes standardised processes and robust internal controls. This provides a stable base upon which flexibility can be built. 

• Next, incorporate advanced technology solutions, such as automated cash management systems and data analytics tools, to enhance efficiency and enable real-time decision-making. 

• Regularly review and update these systems to stay ahead of technological advancements. 

• Foster a culture of continuous improvement by encouraging team members to identify areas for enhancement and by providing ongoing training opportunities. This helps to ensure the team is agile and can quickly respond to new challenges. 

• Lastly, maintain open lines of communication with other business units to align treasury activities with overall corporate strategy and to anticipate and respond to changes in the business environment.  In all the above, effective change management is crucial for maintaining resilience in the treasury function. Once the foundational elements are properly established, change can be managed from a solid starting point, and systems and processes can be adjusted as needed. From this stable base, you can explore ways to improve or innovate. 

By combining these elements, a treasury operating model can remain both resilient, adaptable, scale effectively and withstand market fluctuations.

The key areas to think about as you scale and future-proof your treasury function

1. Adopt technology and automation: utilise advanced treasury management systems (TMS) and automation tools to streamline operations and improve efficiency

2. Enhance data analytics: invest in data analytics to gain better insights into cash flow, liquidity, and financial risks, facilitating more informed decision-making

3. Strengthen cybersecurity: implement strong cybersecurity measures to protect financial data and transactions from cyber threats

4. Develop talent: provide ongoing training and development for treasury staff to keep pace with evolving financial practices and technologies

5. Diversify funding sources: secure multiple funding sources to ensure liquidity and financial flexibility in different market conditions

6. Implement robust risk management: establish comprehensive risk management frameworks to identify, assess and mitigate financial risks

7. Ensure compliance: stay updated on regulatory changes and ensure compliance to avoid legal and financial penalties

8. Foster strategic partnerships: build strong relationships with banks, financial institutions, and fintech companies to leverage external expertise and resources

9. Plan for contingencies: develop contingency plans to manage unexpected financial disruptions and ensure business continuity

10. Monitor market trends: stay informed about market trends and economic indicators to anticipate changes and adjust strategies accordingly

Pay attention to future trends

Several trends are shaping the future of the treasury function, transforming it into a more strategic and dynamic part of the organisation.

1. The increasing adoption of advanced technologies, such as artificial intelligence, blockchain, and robotic process automation, is streamlining treasury operations and enhancing data accuracy and decision-making capabilities. 

2. The growing emphasis on real-time data and analytics is enabling treasurers to make more informed and agile financial decisions. 

3. The rise of environmental, social, and governance (ESG) criteria is pushing treasury functions to incorporate sustainable and ethical considerations into their financial strategies. 

4. The shift towards greater regulatory scrutiny and compliance requirements is necessitating more robust risk management practices. 

5. The trend towards globalisation is making treasury operations more complex, requiring advanced skills in managing multiple currencies, cross-border transactions, and diverse regulatory environments.

Conclusion

Building a treasury team is not merely about increasing headcount. It's about strategically investing in the capabilities and infrastructure necessary to support your organisation's growth and resilience. Recognising the signs that indicate the need for a dedicated treasury function and allocating sufficient time to source or hire the right talent is crucial. 

This proactive approach not only alleviates additional workload but also safeguards the business's growth and stability. By future-proofing the treasury with advanced technologies, robust risk management practices, and a strong compliance framework, organisations can navigate market fluctuations and regulatory changes more effectively.

Moreover, developing a treasury team involves fostering a culture of continuous improvement and innovation. This includes leveraging data analytics to enhance decision-making processes, automating routine tasks to increase efficiency, and staying abreast of industry trends to remain competitive. Ensuring the treasury function is adaptable and forward-thinking will enable the organisation to respond swiftly to emerging challenges and opportunities, ultimately securing long-term success and financial health.

Further resources for treasury professionals and key association website are as follows: 

Association of corporate treasurer (UK): https://www.treasurers.org

The European Association of Corporate Treasurers: https://www.eact.eu

About the author – Catherine Hermanto

Director Consultant (T Plus+)

Catherine is an advisor with a proven track record in leading strategic transformations in treasury and finance functions and driving operational excellence for various organisations. She provides expertise as a project advisor in building treasury and finance functions, specialist treasury expertise as well as fractional finance advising.

Her recent focus has been on delivering complex treasury restructuring for large banks, building robust finance and treasury functions, developing future roadmaps, and managing changes and risks within these areas. She has extensive experiences in the oil and gas, insurance, insurance, and banking sectors. She has over 15 years of experience and is a qualified chartered accountant (CA) as well as member of Association of Corporate Treasurers (ACT).