Management skills. We should not limit ourselves to
simply keeping the debits and the credits in balance to
produce a set of financial statements each month.
With all of this focus on cash, you may be wondering: What
is the difference between Cash Management and Treasury
Management? Any such confusion is understandable, since
there is so much overlap between the two pursuits. One
source states that, “Cash management refers to a broad area
of finance involving the collection, handling, and usage of
cash. It involves assessing market liquidity, cash flow, and
While broad in its application, Cash Management is specifically focused on cash flow and the forecasting of cash
requirements. In contrast, the Business Dictionary defined
Treasury Management as “the process of administering to
the financial assets and holdings of a business.” 3
Treasury Management’s focus on the “financial assets and
holdings” of a company is a much broader approach to financial management than just focusing on the cash. We could
say that Treasury Management is focused on the entire
balance sheet. Of course, cash flows through all categories
of assets, liabilities, and owners’ equity accounts. (In fact, I
often joke that all assets want to be cash when they grow
up.) Treasury Management manages cash by managing all
of the entity’s assets, holdings, and liabilities.
Treasury Management Objectives
We can better discuss the objectives of Treasury Management
by talking about the three primary types of objectives: conceptual, operational, and strategic.
Think of these objectives in terms of what we are trying to
accomplish. The conceptual objectives are closely aligned
with our expectations of Cash Management.
A company may be operating profitably, but if those profits
are not readily available (i.e., liquid) to fund ongoing operations, then the company’s growth (and possibly its viability)
may be seriously impacted.
Optimize the Flow of Cash Resources
Construction companies operate through four primary
cash flow cycles: the inventory and WIP cycle, the payables conversion cycle, the receivables conversion cycle,
and the overall cash conversion cycle. Both Cash and
Treasury Management seek to optimize the flow of cash
through these four cycles.
AT FIRST GLANCE, these primary cash flow cycles are
all about accounting; however, an observant treasury
manager quickly learns that these cycles cannot be managed without the cooperation of the operations side of
the business. Treasury Management (or accounting in
general, for that matter) typically does not initiate the
employment of labor on a project, the purchase of materials, contracting with subcontractors, or the billings to
owners for work performed. By the time these transactions reach us in Treasury Management, we are often
confined to reporting on what has already happened.
If we truly want to manage cash flow, we have to move
upstream closer to the source of the transaction by soliciting the cooperation of the operations side of the business, which includes business development, estimating,
and project management. We must be able to show the
operations staff how their actions and decisions impact
cash flow more than anything CFMs can do in Treasury
Management. (You probably weren’t taught that skill in
Establish & Maintain Access to Short- & Long-Term
Almost all companies need the availability of short- and
long-term financing options, and it is the duty of Treasury
Management to find appropriate resources and to negotiate
favorable terms that are compatible with the company’s needs
Manage Owner/Shareholder Relations
The vast majority of construction companies are privately
owned. While these owners are generally business savvy, they
may not be as capable or knowledgeable in areas of finance.
Treasury Management often must play a difficult role in advising and managing the company’s owners to make sure all
significant actions and decisions are in harmony with strategic
objectives and in the best long-term interests of the company.
You will have to GAIN MANAGEMENT’S TRUST in two
crucial areas: First, they must know and believe that your
actions and advice will always be focused on the long-term good of the company and its owners. Second, they
must see that you have a solid and current knowledge of
all aspects of Treasury Management. If these two conditions are not met, then owners may not heed your advice.
Manage Financial & Operational Risk
Risk is inherent in virtually all business ventures. Treasury
Management plays a key role in managing this risk by identifying and implementing strategies to avoid, mitigate, manage, transfer, or insure the various types of risk, whether
financial or operational.
[ part 1 ]