Senior ExecutiveTreasury Management

How Treasury Steps into the Strategic Limelight

By June 30, 2022No Comments

Rising rates and a looming recession provide treasury with an opportunity to elevate its profile and and become a leader in board-level conversations.

Tough economic conditions have historically highlighted the critical role treasury plays as the champion of corporate liquidity. This happened during 2008-09 and will likely happen again if credit and cash flows begin to contract.

This is not new territory for treasurers, many of whom have already evolved to serve new and broader constituents, becoming more strategic, consultative and less transactional in nature.

Treasurers are getting more involved in M&A transactions. They orchestrate the capital structure, and are working more closely with business partners on issues such as liquidity structures, legal entity setup and taxes. Yet, at many organizations, treasury is still pigeonholed as a back-office function.

Now is the time for all treasuries to become active members in senior-level discussions, so it’s imperative that they rev up efforts to develop strategic capabilities to better assist the C-suite. “Sometimes you have to step out and take on more responsibilities, talk to the CFO, find out how you can help and let them know you’re there,” said one treasurer at the in-person spring meeting of NeuGroup for Retail Treasury.

Five Steps to Creating a Strategic Capability

In conversations with dozens of NeuGroup members, most recently at the retail meeting in Minneapolis, treasurers shared important action items that can help the function develop into a true business partner and produce greater insight to support strategic decisions.

1. Grab a seat at the table. At some organizations, treasury is already involved in supporting board-level decisions. At many, however, that is not the case. Treasury should not wait to be invited. Instead, it should ask to participate in board discussions, which is different from providing data and analysis for the CFO’s presentation. Instead, it means being present and engaged in the conversations, explaining the business implications and sharing scenario analysis of the effects of higher rates, reduced inflow of cash, and the potential deterioration in AR quality.

2. Dismantle silos. There’s typically a natural tension between treasury and FP&A because both build a cash flow forecast but in different ways. FP&A usually takes a more high-level approach by pulling information from existing data sources like the ERP, whereas treasury takes a more granular approach with the objective of ensuring liquidity. To increase its sphere of influence, treasury should collaborate with FP&A to sync the forecasts, or at least spot and understand any discrepancies, to inform decision-making.

  • In an effort spearheaded by treasury to improve forecast accuracy at one member’s company, the treasury team has a quarterly meeting with the CFO and the FP&A team to align treasury’s cash- forecasts with FP&As longer-term forecasts, which the member said are more P&L-focused.

3. Determine the service-delivery model. Treasuries need to define a clear operating model vision: One approach is to adopt a generalist mindset, using rotations through other finance functions to build broader expertise. Another is to opt for a specialist model and develop deep subject matter expertise to support other parts of the finance function and the business. Both can work, but to work well it’s important treasurers make a conscious decision and drive their culture by recruiting the right talent, providing necessary training and establishing clear roles and responsibilities as well as a career path.

4. Speak the language of the business. Treasurers should put a stronger emphasis on developing soft skills such as storytelling and influencing. It’s one thing to understand a complex transaction and another to translate it to someone else in terms senior and business leaders can understand. To develop this fluency, treasury should engage with business unit leaders and understand their main pain points, e.g., tightening margins, and then provide context and narrative around data and analyses.

  • “As you shift to pushing more soft skills, it gets into, how do we avoid just telling people what we know? How do we influence and shape the next generation of treasury? It isn’t always easy, especially in a hybrid environment,” one member said.

5. Widen the path into treasury. Because few colleges offer treasury-specific tracks, treasury has traditionally hired junior staff from banks, recent finance majors and promoted internally. As the scope of the role expands, communication, critical thinking and intellectual curiosity are becoming core job requirements. Like other parts of finance, treasury should look beyond finance and business majors or practitioners and hire staff with nontraditional backgrounds, e.g., liberal arts, data analytics and technology. It should also expand its talent pool by offering remote or hybrid positions.

  • Finally, hiring managers should add some marketing “zing” to job posts, job fairs presentations and interviews, to highlight the exciting aspects of the role, e.g., working with business partners, predicting cash flows and getting engaged in designing the company’s capital structure.

A recession and spiking rates, combined with extreme market volatility, are tall challenges for finance organizations. However, they are also an opportunity to demonstrate the value finance and treasury can add to steer the company forward.

Justin Jones

Author Justin Jones

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