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Treasury Management

You are the owner of or are the CEO/CFO or Finance director in a small or medium-sized organization (“SME”), say, with annual revenues between EUR 100 and 500 million, that does not employ a treasurer or cash manager. You may have concluded that there is no room within or no need for your organization for such a specialized position. Alternatively, maybe not having worked with a treasury professional previously, you may feel uncomfortable or not fully appreciate what value such a professional may be able to add to your business. Said differently, what or how a treasurer looks at your business, your financials, your risks & opportunities, and the options available to you from a treasury management perspective to improve or manage all of these.

Treasury management is not seldomly perceived as this somewhat distinct area of ‘high finance’ specialists, coming up with all kinds of analytical risk & opportunity models and solutions, using complex (derivative) instruments the average Finance professional has never heard of, let alone understood, usually looking at least at three screens simultaneously and, certainly in the old days, yelling into two phone lines at the same time…. However, treasury professionals can, and may be expected to add value to a company at a much more ‘basic’ level, dealing with and helping to identify and pragmatically resolve day-to-day issues of each and every type or size of company.

Based on their expertise, treasury professionals may look at the financials (balance sheet, P&L statement, cash flow statement, etc.), business strategies and models or (financial) supply chains, of a company differently than CFO’s or other (Finance) representatives of a company do, considering other ratios and risk or opportunity propositions than others. Furthermore, these professionals will typically have a better understanding of how the financial counterparties of a company, such as banks, leasing, or factoring companies, or even rating agencies or PE investors, may look at these same financials and strategies to appreciate the position, proposals, or plans of these stakeholders better and pro-actively.

My Value Proposition

With extensive experience in a broad range of industry sectors and large, multi-national corporations (“MNC’s") over a 35 years’ career, I have now established my own consulting and interim management firm, targeting to support and provide consulting and interim treasury management services to SME’s in the Netherlands. I strongly believe that SME’s are fundamentally no different from much larger MNC’s, having to deal with principally the same issues & challenges, the same risks & opportunities, and the same financial concepts. The numbers may be different, the potential impact of managing these insufficiently, or worse, inaccurately can be the same or even bigger for SME’s than for large MNC’s that may have more leverage to compensate for such deficiencies elsewhere in their businesses.

My expertise covers different areas: corporate finance (funding of the company, including cost of capital determination, capital structuring, inter-company financing, and interest rate risk management), cash management, liquidity risk management, currency exposure management, working capital funding, including off-balance sheet financing options, commodity risk management, bank relationship management, treasury technology solutions, financial markets regulations, including Know-Your-Customer and specific reporting requirements abroad, trade finance and compliance, and other areas, as applicable.

I am typically not too supportive of performing generic “quick scans”: even though a number of the common treasury management issues, responsibilities, processes, and solutions may be comparable, I have learned to appreciate throughout my career that each business sector, and every company operating in it, is different in terms of, e.g., products, services & (financial) supply chains, markets & competitive positions, growth rates & opportunities, or organizational strengths & weaknesses, often instigating practically or tactically different issues & challenges and thus, driving sector- or company specific solutions. Moreover, I prefer to review client challenges holistically, i.e., not just looking at and resolving the symptoms, but taking a broader perspective by analyzing root causes in order to fundamentally add value to the client and for the longer term. I will provide two examples of this in the Differentiating Factor section of this site.        

The Differentiating Factor

Sometimes you can be tempted and instruct your consultant or interim treasurer to instantly work on the ‘quick wins’ or ‘low hanging fruit’, but, in my experience, fundamental improvements often generate more and lasting benefits. 

Example given, if analysis shows a company is typically paying a mark-up of 20 basis points on FX deals, it makes sense to re-negotiate this with the bank(s) or look for alternative partners or FX dealing solutions. However, a more fundamental and substantially more cost saving solution could include looking at the company’s financial supply chain, the pricing and/or invoicing currencies and terms of the company’s customers and/or suppliers, reviewing opportunities for natural hedging, and thus significantly limiting the company’s net currency exposure values and volumes of FX conversions over time, and as such, volatility to the company’s P&L statement due to FX. Not an immediate fix in most cases, but often providing more competitive advantages for a company in the long(er) run. Moreover, does the company truly understand the risk/reward equation of the bank(s) in FX dealing and if this is the area in which the company, in relative and absolute terms, pays the highest margins, i.e., in which the banks earn the highest income-to-risk, and what could be the value-adding (i.e., cost saving) versus the value-at-risk consequences of re-negotiating such mark-ups?

Another example: a factoring program, as actively marketed by banks or factoring companies, may be deemed an attractive funding solution by/for a company, but how does this impact, as relevant, its weighted average cost of capital, its return on net assets, its return on equity, the company’s balance sheet strength, or its earnings per share, and why would this be important to the company? And if it is, has all of this been considered adequately in the funding decision? Not only is it important to calculate the cost of extending payment terms to customers, or the cost savings of requesting these from suppliers, but it is at least as relevant to understand and analyze how this impacts the funding of these working capital items. Vice versa, how can an increase in (hopefully) matching, short term interest rates in the financial markets be absorbed by the company vis-à-vis its customers or suppliers?

Sometimes you can be tempted and instruct your consultant or interim treasurer to instantly work on the ‘quick wins’ or ‘low hanging fruit’, but, in my experience, fundamental improvements often generate more and lasting benefits. 

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