Every finance team in every company manages treasury tasks. This is a fact of life. Companies have bank accounts, cash inflows and outflows, debt and/or investments, multiple currencies, and/or any intercompany transfers – so they have treasury operations to manage.
These operations tend to start off fairly simple – the accounting team can easily manage a few intercompany transfers, some currency exchanges, and cash flow tracking and reporting. However, as companies grow, things become very complex, very quickly. Growth means more banks across more geographies, more currencies to manage, more accounts to balance, and much more time needed to track and control cash flows.
The entire operation becomes very difficult with the increasing complexity and all the other, non-treasury tasks that are on the team’s plate. In addition, beyond control, the goal of every finance team within large organizations should also be to make optimal cash decisions and manage the company’s liquidity efficiently.
That’s why large organizations have a Treasury Department. The time and resources needed to be in control of cash flows and optimize liquidity warrants a dedicated team within the finance department. This raises the question: How do you know it’s the right time to hire a treasurer and start building a treasury team?
5 Signs It’s Time to Hire a Treasurer
The need for a treasurer depends on the type of complexity the financing team is dealing with. But generally speaking, the following are indicators you should consider when evaluating whether your team needs a treasurer.
- You Have a Vast Cash Footprint
When companies manage over a dozen accounts in multiple banks and currencies, things start to get messy. It’s like juggling balls in the air, a few balls are fine but any additional ball makes the task more and more difficult, and increases the risk of dropping some balls. At this point, the team needs to dedicate time on a daily basis to track all the accounts and analyze inflows and outflows. A treasury team will take care of this, to ensure full control and avoid potential risks.
- You Have a High Volume of Inflows and/or Outflows
The higher the volume and variety of cash inflows and outflows, the more tedious it becomes to understand main cash drivers and ensure full control. Again, this starts off easy – tracking tens or hundreds of transactions is not too bad, but when this number increases to many thousands, someone (the treasury team) needs to keep track of these inflows and outflows.
- You’re Using Debt and Credit Lines.
Credit is great. It enables companies to finance their growth and working capital in an efficient manner. It can also be quite expensive. The higher the amount of credit a company uses, the higher the incentive to manage it proactively to reduce interest payments. Whether it’s choosing the best facility of the ones available, or timing credit withdrawals and repayments to reduce credit utilization, once debt is significant enough, there’s an easy ROI for proactive credit management.
- You Have a Large Investment Portfolio
While having a lot of cash on the balance sheet can hardly be considered a problem, the more available cash a company has, the higher the incentive to “put that cash to work” and generate interest income. In today’s interest environment, every $1M invested, even in a liquid money market account, can easily generate $50K interest per year.
Optimizing investments requires first and foremost to identify the amount of operational cash needed, both present and future needs, and then to make the most of the residual cash. Thus, there’s a need for proactive management of all operational accounts, benchmarking interest rates and choosing the right time horizon that supports present and future cash needs.
- You Rely on Manual and Error-prone Processes
Lack of automation and reliance on manual processes greatly contribute to cash flow management complexity; an automated cash flow management platform that streamlines banks and ERP data connectivity, automates reporting, creates proactive alerts and treasury policies and enables easy and smart cash flow forecasting, could potentially delay the need for a inhouse treasurer significantly.
Alternatively, the same solution can be extremely helpful to newly appointed treasurers in improving their effectiveness and efficiency, and help them hit the ground running when entering a new and challenging role. In both instances, treasury automation can be highly beneficial to mid-sized companies struggling with rapidly increasing cash flow complexity.
What Now?
As companies grow, managing treasury tasks becomes increasingly complex, which calls for dedicated Treasury departments. The need and right timing for hiring a treasurer is determined by several indicators, such as the number of bank accounts and currencies, transaction volume, utilization of debt and credit lines, and management of an investment portfolio. Manual processes break as these challenges amplify, highlighting the need for automation in treasury management. Implementing an automated cash flow management platform can streamline operations, and delay the need for a treasurer (or enhance the treasurer’s effectiveness) but one thing is certain – treasury becomes an increasingly important and strategic part of the financial management of a company.
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