5 game changers for your treasury
Business choice 2: Reform your long-term cash. Time for change.
Business change in a few words:
It is not a fact that things will get better if you change; it is a fact is that your business must change if you want to get better.
Your people must have ownership of the changing business vision and goals. They need to be enabled to accomplish it.
Company cultures are like country cultures. Do not try to change that. Try, instead, to work with what you’ve got.
Manage your cash in a broader perspective
In the previous article “Cash is King; business choice 1” I covered cash flow management as a tool to manage and control your business´. Now we will have a look at the broader perspective of managing cash flow; treasury management.
Some company´s main focus is to just manage cash, but there is a bit more to consider. Treasury management covers everything that helps manage and optimize short-term and long-term availability of money.
“It is not a fact that things will get better if you change; what is a fact is that your business must change if you want to get better.”
Treasury management is responsible for obtaining funding, do investments and receive investment money. In addition, also manage the company´s financial risks and as said, do day-to-day cash management. The post-recession economy will focus more than ever on this function as a whole.
Following below we discuss the things you should consider when you are analyzing and re-evaluating your treasury management strategy.
Reform your treasury strategy: what to consider?
To answer that question, let´s have a look at the three main areas of treasury management. This creates a better understanding of the components needed to determine the best treasury strategy for your company.
Efficiently run your day-to-day
Firstly, cash management. We have covered these details in a previous article. In summary this is all about cash coming in and going out, to ensure the right amount of cash on hand. The main focus is operational efficiency; the cash to fluently run the day-to-day operations.
Plan for unexpected events
Risk management is the second discipline of treasury management. Its main role is planning for unexpected events, which in most cases means unexpected cash going out. Risk management essentially plans for potential financial impact caused by three elements: a changing business environment, changes in the business operations, and changing technology.
So, in practice, what does this mean for your business? It means that you need to be on top of these three types of changes and therefore check and know when these elements change, which nowadays is more likely than ever. Operational controls can help monitor and analyze this.
Make things run fluently
Operational controls mean that the business and everything that operates within it - with the objective to meet your business goals - is regularly checked to make sure that things run fluently, and by doing that limit unexpected financial impact. Many of these checks can be automated and if they are well put in place, they are easy to meet from the operational control perspective.
“Company cultures are like country cultures. Do not try to change that. Try, instead, to work with what you’ve got.”
When changes arise like now during this crisis, companies need to be even more aware of how fluently thing are running, and the checks are more vital than in more stable times. Analyze if the right things are checked, it is never too late to alter things, even suble tweaking and just a little more attention to details within your company procedures can really make the difference now. Let your internal financial specialist do this of find assistance with your trusted accountant or controller.
Changes iN your business operations
The risk of financial impact caused by changes in your business operations does not have to be a high risk when circumstances are normal. But now massive changes around and in your business have occurred and will continue to occur in the near future, you may need change your focus towards new types of clients, differentiate in other markets, change your product and production process. Knowing that the risk is now high, you do not have to monitor the change, you are in the middle of it, riding the change…
Money in and out by borrowing and investing
The third discipline of treasury management is ´Corporate finance´. Its role is financing the company through borrowing and investing. Its role is therefore evaluating potential sources of funding and setting the overall financial strategy to meet the company goals. So, let´s see where you can obtain your money for your business.
Funding your business - where to get your money?
An important question for your company may very well be ´where can I get money to keep my business running, to survive and to pay my employees?´ Where to get money now you need it most, in a time when many companies need it most?
Top of mind when speaking of financing often is a business loan, possibly a personal loan, from banks or from online lenders. For these types of loans requirements are strict and include things like providing business plans, proof of revenue, possibly a business license, proof of assets and other debts. If your bank relation is in good standing, you most likely already have agreed with your banker on how you are going to handle your financing for the near and further future.
If your company is new in the capital market, in practice you may encounter some obstacles such as the requirement for your business to be operating for several years to qualify, now more then ever banks are wearier during these times of crisis.
Assess other sources of funding
Let´s have a look at some other sources of funding that may be less common for your business, but that could be useful now and possible continue to be useful in the near future when entering the post-corona economy. Maybe now the time is right to assess funding for your company and maybe some of it will become part of your treasury strategy.
Peer-to-peer lending
Sell company stocks privately
Evaluate leasing alternatives
Use crowdfunding
Seek funding with venture capitalists
Work with angel investors
Theses six sources of funding apply to companies in various stages of business maturity, from start-up, growth, established companies, all the way to mature companies.
1. Peer-to-peer lending
Common for start-ups and growth companies. Think of peer-to-peer lending as the precursor to crowdfunding, It is a system that allows anyone to invest money in your business through a online platform such as FundingCircle. You may need to pay an upfront fee to use the platform and fill out an application similar to what's expected in order to get a bank loan, though your funds will be available much faster. Your company takes out a loan from the matching peer company and agree to pay it back at the interest rate determined by the investor. Many platforms require a few years company history which may somewhat limit the lending options for start-ups.
2. Sell company stocks privately
Common for established businesses. Obtain funding for your business by giving up some of your ownership to shareholders is an option for more established businesses that have already shown financial success. Important to consider here is that this ownership transfer has to be allowed within your company policy and depends on what is agreed with the partners in your company.
If you are the only one deciding on the matter you should be aware that the investor should be a perfect match, both personal as well as from the business perspective.
3. Leasing instead of funding to buy
Common for start-ups, growth and established companies. I spoke about this in a previous article about short term cash, but it is also worth mentioning the here, because it does not only affect your short term but also your long-term capital allocation. In other words, if your company owns assets and equipment you should consider getting quotes to convert these assets into a lease. By doing this you tie up less money, while not effecting your business operations. After the lease ends, you may be able to purchase what you leased, which can be helpful if your financial situation has then changed and you still prefer ownership.
4. Use crowdfunding
Common for start-ups. Kickstarter and Indiegogo are examples of popular sites to fluently share your business idea with the world, having access to funding globally. On these sites you can set the amount of money you need and explain all about yourself and your business by sharing videos and presentations. This sounds easy, though my opinion slightly changed after speaking to several start-up entrepreneurs that have found it ´quite a long road´ and they eventually chose for angel investors to fund their project. Important to realize here is that you have to research the marketplace, create a decent marketing strategy, and create content to build understanding with the crowd, while at the same time creating value for this crowd.
All considered, crowdfunding may be an excellent resource for your business if you invest the necessary time in the process. Time is money here...literally.
“Your people must have ownership of the changing business vision and goals. They need to be enabled to accomplish it”.
5. Seek funding with venture capitalists
Common for growth companies. When money is required to grow right after initial ´seed funding´ you could consider venture capital. This type of funding provides large amounts, typically in the millions, in exchange for a part of the ownership in your business. This means we speak of ´investment capital´, not to be confused with a ´debt´ like a bank loan.
If your company expect to grow fast and is very likely to be very profitable in a short period of time - let´s say three to five years - then this funding may suit your company. In addition to a share of the ownership, in many cases some management control over your company is given to the venture capitalists. After receiving their return, you gain back full control and full ownership.
6. Finding Angel investors
Common for start-ups and growth companies. Angel investors are similar to venture capitalists: the receive ownership in your company for the funding they provide. The reason for angel investors to invest in a company is however entirely different. Where a venture capitalist wants to make money via fast growing profitable companies, angel investors usually want to help a business grow out of interest in the product or the service the company provides, or because certain individuals manage the company, or because the company provides benefits to the community.
You may find potential angel investors in local businesses or on websites like Gust, or maybe even in your existing network, so my advice here: share your business idea!
Possibly one or more of these types of funding matches your company in the phase your company is currently in. In that case you may incorporate it into your treasury strategy and start funding to come in according to your new strategy.
Digitilization – Monitor your financial strategy
This crisis provides triggers that initiate change and business transformation. Since digitalization is one of the important solutions to cope with the effects of the current crisis, your company is automatically pushed towards it. This push forward also including digitization of the financial functions within your company.
Spreadsheet or more advanced tools?
Systems that run ´treasury management´ from a spreadsheet may no longer be appropriate for the focused role that treasury and cash management and cash control has grown into. You should consider analyzing and start using tools that load the data into one source and provide accurate and complete treasury overviews instantly.
Predict business scenarios for your business
For continues forecasting and analyzing a range of business scenarios companies may now need more powerful analytical tools and bigger data sources as mentioned above. This is quite a game changer for many treasury operations, going from Excel to more ERP-like systems. To stay successful, companies must combine current functionalities with advanced analytical tools and consider integrated solutions to create one single place for treasury records like a treasury management system.
Game changer: the relevance of information and the level of detail
The type of information that is needed in the post-crisis era will for a large part be the same, but what will make this a game changer is that the data has become more relevant and the level of detail has increased. This means more detail that you want to analyze and manage to stay on top of your business´ treasury.
As mentioned earlier the information will need to be able to look ahead and predict, and more so than before, be easy to access by managers and executives. That is where digitalization steps in too.
Good to remember for your business
This article discusses the key elements to assess your financial strategy and move your treasury strategy into the future for your business. Reviewing how your company manages cash, risk and financing coupled with how your company applies digitalization, are key elements that are discussed here.
Analysing these treasury elements for your business will determine what strategic changes you want to implement for your company´s best Treasury Management.
Stay tuned for additional business choices to plan for a post-corona economy. If you have any questions, please feel free to reach out via LinkedIn or via my website.
Joris van der Heijden is Controller for a day. He provides guidance and implementation of financial and business control for European small-medium-sized businesses (SME) in Spain and The Netherlands.
