Treasury - Use of external resources and investment strategy

I am a relatively new CFO of small/medium sized and closely-held business. While not an expert, I think that the company’s treasury function may not be optimized.

I am considering hiring a consultant to review the company's treasury function and investment strategy/policy. I would appreciate any recommendations on such a consultant in the Columbus, OH area.

I think that cash flow forecasting should be handled internally. Historically, this analysis has not been a major area of strength or focus in the company. I think that reliable cash flow forecasting is a necessary core competency in order to optimize the company's treasury function. What is the best way to proceed in developing/improving the company's cash flow forecasting capabilities?

It might make sense to outsource certain aspects of the company's treasury function to outside experts. I am interested in the possibility of using an external professional manager to invest surplus cash. I would appreciate any opinions on the subject and any recommendations on high-credibility investment managers/firms for corporate accounts.

Also, I am interested in the possibility of replacing a strategy of purchasing specific investment vehicles with one that invests in “funds” whereby the investment strategy is professionally managed, the risk “pooled” and the investment strategy/maturity is well defined. What options exist for corporate accounts in this regard?

Answers

Ronald (Ron) Kerr Corporate Controller • November 2, 2010

My advise seems pretty straightforward, but is a starting point.
1. Garbage in Garbage out. It is vital to establish internal processes so that you can accurately establish forecasts which will drive the cash needs of the business. Systems can make the process easier, and subject to less errors. However, you must first work with the internal management team to establish an accurate means of forecasting revenue, expenditures, and other commitments.
2. The Board must approve an investment policy which will indicate the level of risk and types of investments. Then I would use a professional organization to manage investments using the investment policy as the basis of investment decisions. We used Union Bank's investment branch who did a good job for us.

I hope this helps.

Marc Faerber CFO • November 2, 2010

I have been outsourcing the Treasury function since 1994 with a group called Capital Advisors Group (www.capitaladvisors.com)and have had an excellent experience with them from the start. They started with the High Tech and Life Sciences companies but will work with any entity. They are very interactive and conservative in their investment strategy and do not have any of there own specific products to pitch like more banks offer. They completed protected all of their clients portfolios from the recent market meltdown. They will provide you with a company investment policy that fits your company specifics and satisfy your BOD concerns. They will rely on your ability to provide reliable cash flow projections while still being flexible to unexpected changes in the business. Good luck.

Scott Gunn CFO • November 4, 2010

I know that Mark Webster at Treasury Alliance Group (http://www.treasuryalliance.com/index.asp)does great work and he is very active in AFP and is a recognized thought leader in the arena of treasury management (including Investment Policies) and has happy clients.

If you want me to connect you with him just let me know.

Best regards,

Scott

Mark Lozano Treasury Manager • November 4, 2010

I've found that a dynamic Direct Method cash flow forecast has proven to be the key to maximizing our investment returns. Revenue and expenses are key inputs, but equally important is knowing when the receipts and disbursements will hit. Work closely with your collection and accounts payable groups.

John Kogan CEO/CFO • November 9, 2010

Brought to you by friend of Proformative David Levine of Bottomline Technologies:

For cashflow forecasting assistance, you will want to follow up with Strategic Treasurer. Not only do they have actual and extensive forecasting experience, they help many clients with the process and the tools necessary to achieve the level of accuracy and automation that is desired. Craig Jeffery teaches fundamental and advanced cashflow forecasting in several different settings. They seem familiar and experienced with all types of forecasting. Their site is www.strategictreasurer.com and they have a contact page with phone numbers. Bottomline Technologies has partnered with them on a number of webinars, whitepapers, and events and have found them very knowledgeable, helpful, and customer-focused.

David E Levine
Director, Product Marketing
Bottomline Technologies

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