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When Does Using Interim Treasury Resources Make Sense?

  • By Jon Scott
  • Published: 12/19/2017

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Many corporate events result in urgent requirements to establish or modify a functional treasury operation, quickly and effectively. Treasury may not have been a priority during the negotiation of the transaction, but once the close of the deal looms, the new finance team may become aware that establishing or bolstering the treasury function is an important requirement. The need for strong controls around liquidity and operational risk, and the management of financial exposure, are compelling reasons to act quickly.

Capable treasury staff can be hard to recruit and retain, especially in regions remote from significant commercial and financial centers. In reaction to urgent demand, there is likely to be a frustrating lead time in writing the necessary job descriptions, and organizing and completing a hiring exercise, not to mention notice periods and onboarding processes.

In today’s world of cost control and doing more with less, a corporate hiring freeze is not unusual, and using interim resources can be a way of continuing to operate and achieve change initiatives. Interim resources can not only provide strategic thinking, but also take ownership for decisions and deliver hands on operating capabilities, unfettered by the restrictions of independence or scope-limitation that define the role of many advisors.

Hiring interim resources provides the immediate benefit of putting qualified people on the ground, to establish a competent treasury team very swiftly. With the right partner, the team will be comprised of proven and experienced individuals who understand the essential requirements, and can get down to productive cash and risk management work.

In an acquisition

New ownership often leads to changes in the range of demands placed on treasury and the way it operates. These changes can be a result of the financial structure put in place to support the acquisition, the compliance and regulatory environment governing the business, or a change in the appetite for risk and accounting performance variability. The new requirements inevitably amplify the demands on the treasury team, and often lead to the need for additional staff or skillsets, as well as the use of more advanced or differently focused treasury management technology.

Treasury operational areas often heavily impacted by a change in ownership, especially when moving to a more highly leveraged, and possibly privately-owned environment include:

  • Cash management: Cash is king, especially to a new owner that, initially at least, tends to want to closely monitor the lifeblood of its new business. This is often exasperated during an acquisition, when cash balances are swept to minimal levels, and thus it is essential to have timely access to up-to-date cash position and outlook information. Initially, this typically involves a hands-on solution, combined with establishing appropriate reporting tools, to track liquidity in each location across the organization, and enable treasury to ensure there is adequate liquidity in each location to meet its commitments. This initial manually intensive approach is tailor-made for an interim resource, until a longer-term approach is implemented.

     

  • Cash forecasting: New owners are always eager to get as much forward-looking information as they can, so quickly establishing cash flow forecasting is often a high priority. Experienced interim resources are well suited to design and put in place this process as the transaction closes.

     

  • Risk management: A change in ownership often leads to a different risk profile, a new appetite towards financial risk, and variations in the objectives of managing the company’s exposures. It’s important for the company to quickly put in place a process to identify its likely future exposures, draw up a policy reflecting management’s risk appetite, and implement a structure and process to enable treasury to hedge the exposures. An interim resource with this expertise can quickly achieve these goals, execute the initial hedges, and transition the responsibility for the ongoing risk management program to the treasury team.

Business acquisitions tend not to be driven by the goal of creating a world-class treasury department, so treasury invariably needs to navigate a balancing act to rapidly deliver the required treasury performance within budgetary constraints and often shorter-term investment thresholds. Accordingly, an interim solution offers an attractive approach to implementing a solution quickly while avoiding longer-term cost commitments.

A practical, expeditious solution

Interim resources are a way to leverage highly experienced, skilled people to provide professional treasury services, especially as a first response to a staffing or organizational crisis following a corporate transaction. They provide a practical and flexible means of achieving urgent or critical capabilities or a sound platform upon which to build an appropriate, permanent organization over time—or indeed prove to be the preferred solution for the medium term.

Jon Scott is Managing Director, Global Treasury Operations, PMC Treasury.
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