Will SMEs Benefit from Treasury Expertise After COVID?

As a company grows, life can get far more complicated. If you have received investment, you will need detailed and transparent reporting to shareholders. As staff numbers grow you will need to consider appointing an HR manager or even setting up an HR department. The admin and paperwork will grow exponentially, with new legal requirements including declaring a Modern Slavery statement and publishing gender pay comparisons.

And, once you get very big, you might even need to think about setting up a treasury function.

In fact, the last statement is entirely false. A treasury function can benefit businesses of all sizes and can be absolutely invaluable when market conditions get turbulent. While it is true that business growth introduces new considerations and complexities, managing the finances effectively (the responsibility of a treasury function) is vital for everyone from brand-new start-ups to global giants like Apple.

Why treasury is beneficial

A quick definition of treasury management demonstrates why it is a universal requirement:

“Treasury management involves the management of money and financial risks in a business. Its priority is to ensure the business has the money it needs to manage its day-to-day business obligations, while also helping develop its long-term financial strategy and policies.”

This includes arranging to finance, and ensuring cash is where it needs to be within the business to operate effectively. There is also a requirement to monitor and assess market conditions (e.g. changes in regulations, fluctuating foreign exchange rates and movement in interest rates) and determine how these will impact the business, as well as develop a long-term financial strategy.

This is obviously a requirement for all businesses. The question is, who looks after these responsibilities? Are they looked after by the Financial Director a member of the finance team, or by a dedicated treasury professional?

In start-ups and small businesses, it will frequently be staff in the finance team that will carry out specific treasury activities as part of their day-to-day responsibilities. And if expert advice is required, then the services of an external treasury professional may be called upon. For larger concerns, an in-house treasury professional or team is an essential requirement. It can be difficult to determine exactly when a dedicated treasury resource becomes essential, but the difficulties faced by many companies, regardless of size, during the COVID pandemic have certainly highlighted the value of having specialist in-house treasury expertise.

Crisis management

Devising a financial plan is tricky at the best of times, but in times of economic turmoil, a steady hand is certainly required.

Painful lessons were learned from the banking crisis, which plunged the world’s financial markets into free fall.

The NatWest Business Hub reported on the changing role of the treasury as a result: “As a function, the treasury has changed considerably in the years since the financial crisis, with its strategic importance gaining prominence in response to the challenges of disruptive change. Organisations have more to comply with in terms of both governance and new international accounting standards, while the changing nature of risk management means that companies have had to adopt more conservative treasury policies and procedures.”

The impact of COVID

The enhanced checks implemented as a result of the banking crash of 2007/08 have been tested to their maximum with the imposition of lockdowns across the globe. Never has the treasury function been so important.

The most pressing issue has been liquidity. Treasury expert Paul Byrne told  Eleanor Hill, Editor, at treasury-management.com  that at the start of the lockdown, he was contacted for assistance by two CFOs – one from a regional airline and one from a specialist lender – and treasurers from nine different firms, all public companies.

Byrne said that “Eight out of the 11 people had sized their liquidity buffers based on the output of their board-approved ‘severe liquidity extreme scenarios’ and were already breaching these. In six instances their cash inflows had all but stopped, as a direct result of the shuttering of non-essential businesses, closing of international borders, debt moratoriums, unemployment spiking and so forth.”

Despite the initial panic, the actions of treasury professionals, along with supportive government policies, have staved off (up to now at least) a calamitous crash.

Hill noted that these unusual and challenging times were, “A time for pooling collective knowledge. For sharing best practices and experiences. For relying on business partners to pull out all the stops.”

Hill’s observation that strength comes from pooling knowledge makes perfect sense. The experience gained during the financial crisis means that treasury professionals are collectively well-placed to play a stabilising role during the COVID crisis.

This knowledge is just as crucial for start-ups and SMEs as it is for global brands. The financial decisions being made by companies of all sizes will determine whether they survive the pandemic, and how well they will be able to rebuild once some sense of normality returns.

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Guy Middleton is an Associate Director in the Treasury Division at Harvey John.

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