April 19, 2019
“I don’t have a crystal ball” is one of the all-time great cop-outs in life and business. If you’re the CFO of a modern company, though, you better get yourself one. The financial role has changed, especially with regard to treasury management, one of the CFO’s core duties. Modern finance exerts a host of new pressures on the CFO, many of which have to do with predicting the future. If you’re a CFO, are you keeping up with the changes wrought by modern finance? Let’s look at some of the issues now facing the CFO.
Treasury Management: A Brief Overview
Treasury management is an old discipline. The name itself conjures up images of medieval bankers unlocking massive wooden chests filled with gold doubloons. At its heart, treasury management is, and always was, about safeguarding a company’s money and ensuring that the business had enough funds to fulfil its obligations. This will never change. The specifics how to CFOs manage the treasury—and what’s expected of them in the process—have indeed evolved quite a lot in the last few years.
Treasury Management in the Modern Finance Era
The notion of modern finance refers to the impact of modern business on the financial function. Modern finance has to contend with the acceleration of business cycles and increased flexibility in business partnerships. For example, even just a decade ago, the financial aspects of developing a new product and bringing it to market were fairly simple. There was a development budget, likely spent internally on salaries and a few external vendors. Then, there was a contract with a manufacturing vendor and perhaps some logistical partners. The revenue cycle could be measured in years. Not that this was easy, but it was predictable and well-practiced. Things have changed.
Today, business operations are more fluid and faster-moving than before. Developing a new product might involve complex licensing deals, multiple design vendors and testing firms as well as the hiring and termination of contract employees. The manufacturing process might be global in nature and include multiple firms. Logistics, too, have grown more complex and fast-paced. The revenue period might be a matter of months before the product gets phased out and the cycle starts anew. The CFO must anticipate the financial needs of each step in the process and be prepared to fund whatever is required.
Assuming the business has multiple workstreams of this sort going on at any one moment, and that the revenue side of the equation is equally unpredictable, the CFO will be under a great deal of pressure to get things right. The pressure affects several distinct areas of the treasury management role, including:
- Cash management – Even in this dynamic environment, the CFO must be able to project cash flow accurately enough to finance business operations. This means forecasting revenue, expenses and debt service obligations along a multi-dimensional framework.
- Foreign exchange – International business, which is essentially inevitable today given global sourcing, create significant foreign exchange risk. The CFO has to integrate the best possible ForEx intelligence into the treasury management process.
- Risk management – The CFO is responsible for protecting the company’s financial assets from risk. To achieve this goal, he or she needs good data on the risk environment and the company’s financial risk profile.
Dealing Successfully with Modern Finance through Technology
The modernization of finance and the accompanying challenges to the CFO are being matched by improvements in financial management technology. As modern finance pushes the CFO to get a crystal ball to better manage the company’s treasury, today’s financial software can play that role. This is easier said than done, and it involves people and process as much as technology itself, but modern financial tools give the CFO deep insights into trends and events affecting the treasury role.
We work with CFOs on addressing the new pressures of modern finance using technology. To learn how we can help you put technology to work in your finance department, visit https://businesssoftwareeducationcenter.org
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