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Treasurers at the Helm - From Backroom to the Board Room

Treasurers used to rely on their accounting and finance departments to provide the numbers to forecast cash flow requirements and generally accept these as given to determine their cash flow forecasts, liquidity requirements and risk. Today's treasurer needs to be a Corporate Finance expert to ensure the figures provided are in fact reasonable and to ensure cash flow forecasts are accurate and complete. In fact, as the crisis bites deeper, they also need to assist their senior management team in identifying near-liquid assets that may be converted, as well as support the organization in identifying out of the box opportunities to tap into further lines of credit, and present the company to creditors and would be creditors in a professional and successful manner. Finally, as financial markets continue their roller coaster ride, and even respectable financial institutions are at risk of default, existing financial risk management responsibilities have become essential to corporate survival.

As witnessed first hand when advising distressed investment and holding companies, treasurers have had a tough time adjusting to the new realities of reduced liquidity, limited availability of lines of financing, and critical downtrends in operational performance. Quite a few times I have sat opposite executive teams where the Treasurer has been the least vocal and inspiring member of that team, presenting endless reams of unreliable cash flow forecasts as a basis for our work to try and bring some reality to the issue.

Whereas in the past sales, and therefore revenues and cash surpluses, were generally easy to predict and used to often exceed established budgets and forecasts, there is substantial doubt around such "blue sky" forecasts in the current environment.

Faced with spiralling shortfalls in operational surpluses and a concurrent dramatic unwillingness for financiers to come to the table, what are some of the things Treasurers need to do to rise to the challenge?

The more successful examples I have seen are where treasurers have been able to infuse realism into the cash flow forecasts, to ensure a clear and reliable picture emerges of the financial situation today and going forward. Recent examples where this was not the case include the US automotive companies, some of which had to return to the government for further hand outs or are now claiming they may go bankrupt, a sure sign that their initial burn rates were not accurately calculated. Such a scenario does not inspire confidence as we have seen.

For this reason it is absolutely required is that treasurers take an active role in coordinating the different inputs from departments and functions across the organization, to ensure inputs are realistic and if anything, on the prudent side.

This allows for the effective identification of cash shortfalls as well as surpluses, and where a need exists to tap into existing lines of financing or approach additional financiers.

To do this, treasurers need to start raising tough questions both within and outside their area of responsibility, around some of the established and existing operational practices. For example, is it necessary to duplicate certain overheads across different parts of the organization if cash can be saved quickly by setting up Shared Service Centres instead? An internal question may be, for example, whether repayments of certain term loans could be timed differently, or a moratorium obtained, while the organization is still in good financial health.

Besides accuracy prudence and realism, time is off the essence in putting together a clear treasury driven strategy for survival, which will be incorporated in a plan with the aforementioned cash flows that may be presented to existing and targeted financiers. In the current environment every day counts to ensure the organization still has a position from which to bargain. The plan should also include recent valuations of key assets to ensure a demonstrated and reliable collateral picture exists for financiers to provide financing against. Also included should be commentary on hidden value and off balance sheet liabilities, amongst others, to ensure the plan is comprehensive and realistic.

Again, successful examples I have seen are where the treasurer drives the timely collation of such a "Corporate Finance" style plan, where necessary supported by professional advisors, which will give external financiers confidence that the organization has its finger on the financial pulse and is being realistic in its forecasts and expectations.

Treasurers need to see the current malaise as an opportunity to step up to the plate. It's no longer possible to passively accept representations from the executive management team as a driver of cash flow forecasts. Instead it's time to develop a more Corporate Finance focussed approach to ensure the organization exists tomorrow.