Top 10 Recent Books Corporate Treasurers Should Read for Real-Life Lessons
In today’s fast-paced finance and treasury landscape, staying informed and drawing insights from real-world events can help corporate treasurers navigate complexity and uncertainty. Beyond theoretical knowledge, the stories behind financial markets, corporate collapses, frauds, and innovations offer valuable lessons. These narratives not only inspire but also serve as cautionary tales for professionals in treasury and finance. Here’s a curated list of the top 10 Treasury management books, featuring gripping real-life accounts of financial revolutions, scandals, and innovations. Each book provides insights into risk management, corporate governance, market dynamics, and the evolving role of treasury in a rapidly changing world. 1. Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever 2. The Billionaire’s Apprentice: The Rise of The Indian-American Elite and The Fall of The Galleon Hedge Fund 3. Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street 4. Bad Blood: Secrets and Lies in a Silicon Valley Startup 5. Kleptopia: How Dirty Money is Conquering the World 6. The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution 7. The Bond King: How One Man Made a Market, Built an Empire, and Lost It All 8. Capitalism in America: A History 9. The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion 10. Money Men: A Hot Startup, A Billion Dollar Fraud, A Fight for the Truth Let’s Grow the List Together! These 10 books offer a wealth of real-life lessons that treasurers can apply to their daily roles—from managing risk and governance to understanding markets and innovation. But this is just a start. Have you come across any other real-life story-based books that offer treasury or finance lessons? We invite you to share your recommendations in the comments and help us build an even more comprehensive reading list for treasury professionals! By sharing this list, we hope to spark a dialogue within our treasury community. Feel free to suggest your favorite reads or comment on which of these books have had the biggest impact on your professional development. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in Treasury Management or those interested in learning more about various topics related to Treasury Management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice: JavaScript is required for this content.
Franklin
Variance Analysis: A Treasurer’s Guide to Improving the Cash Forecast
This article is written by Palm A cash flow forecast without variance analysis is like an employee operating without any feedback. Their opportunity to learn, grow, improve and iterate is forgone and they are blind to how well they are performing. Despite this, many treasurers choose not to expend their scarce resources running a regular and comprehensive variance analysis. Is it because they struggle to step off the metaphorical treadmill, which involves constantly updating and managing the cash forecast, without leaving time to look back over past performance? Or is it simply, that they don’t have the insight into the variances, and the visibility to be able to understand and take action to correct differences? TreasuryWhatever the reason may be, in this blog post we’ll explore its importance, discuss why businesses often miss out on its benefits, and introduce Palm, a tool that revolutionises variance analysis, giving it life and making daily variance analysis a valuable tool in the treasury toolkit. What is Variance Analysis? Variance analysis is a powerful financial analysis tool used to measure the difference between forecasted and actual financial performance. It involves both quantitative and qualitative assessments to provide a comprehensive understanding of financial discrepancies. Quantitative analysis focuses on the numerical differences, while qualitative analysis provides explanations and reasons behind these variances. Calculated as: For incoming amounts: Actual cash flow – Forecasted cash flow For outgoing amounts: Forecasted cash flow – Actual cash flow This ensures the variance is identified correctly as either positive or negative. If the forecasted income is lower than expected, this is a negative variance, whereas if forecasted costs are lower than expected, then this is a positive variance. By identifying and analysing these differences, we as treasurers can pinpoint areas for improvement, make adjustments, and enhance the effectiveness of the forecast. However, not all variances are created equally. A 100% variance in a small bank account or category may have little impact on the overall forecast, whereas a 5% deviation in the largest bank account could deem the forecast as unreliable. Therefore when doing this process, it is key to focus on correcting the differences that will have the largest impact. Why is Variance Analysis Important? The significance of variance analysis cannot be overstated. However, we find larger corporations often overlook variance analysis due to the complexity involved in preparing the forecast and having detailed knowledge of the underlying positions to take corrective action. And in doing so, are missing out on these key benefits: 1. Enhances Financial Accuracy Regular variance analysis ensures that financial forecasts are accurate and reliable. By comparing actual results with forecasts, businesses can identify deviations and adjust future predictions accordingly. This leads to more precise budgeting and financial planning. 2. Identifies Changes in the Business As much as treasurers try to stay in the loop, there can be situations when the treasurer is unaware of a significant change which impacts the cash forecast and until variance analysis is conducted, they do not understand the impact. A timely variance analysis can bridge these gaps and improve overall efficiency. 3. Facilitates Strategic Decision-Making Variance analysis provides valuable insights that inform strategic decision-making. Understanding the reasons behind financial variances can prevent such instances from occurring again in the future. Introducing Palm: Revolutionising Variance Analysis Palm has dedicated much time and energy to creating a variance analysis tool, designed to cut through the noise and direct your attention to areas where you can add the most value. Streamlined Focus When using Palm each day and working with your cash management and positioning, your attention will be directed to the Notable Activities section of the cash flow dashboard. This is where Palm highlights Palm highlights the variances you need to investigate. This targeted approach allows for quick identification and resolution of financial discrepancies. Easy Investigations Investigating variances has never been easier. With Palm, you can drill down from the cash flow into individual transactions and corresponding bank statements. This seamless integration simplifies the investigation process, enabling you to quickly identify the root cause of variances and take corrective action. Continuous Improvement Palm’s learning capabilities ensure continuous improvement of your forecasts. By feeding back insights from variance analysis into the predictive models, Palm helps train these models to become more accurate over time. This means you can transfer your knowledge and expertise into Palm, allowing it to benefit your team and future members too. Real-Time Variance Analysis for Proactive Decisions One of the key advantages of Palm is its ability to integrate variance analysis into the daily operations of the treasury team. Instead of being a retrospective process, variance analysis becomes an ongoing activity, providing real-time insights that drive proactive decision-making. Staying Ahead of Issues With real-time variance analysis, you can identify and address issues as they arise, rather than waiting until the end of the month. This proactive approach ensures that potential problems are resolved quickly, minimising their impact on the business. Improving Forecast Accuracy By continuously iterating and updating forecasts based on real-time variance analysis, Palm helps improve the accuracy of your financial predictions. This leads to more reliable forecasting and financial planning, enhancing overall financial performance. Empowering Your Team Palm’s intuitive interface and advanced features empower your team to take ownership of variance analysis. By making this critical process more accessible and manageable, Palm helps your team become more efficient and effective in their roles. The Palm Advantage Variance analysis is one of the many tools available in Palm that differentiates the system from incumbent providers. A platform designed by treasurers for treasurers, it is a joy to use, and can add value from day 1. Here are some of the key benefits of using Palm in your treasury: Advanced Predictive Models Palm’s predictive models, generate a cash flow forecast using your data, which continuously improves over time learning your business and your business insights. As you investigate and correct your variances, we replicate these changes in the future, if you want us to. User-Friendly Interface Palm’s user-friendly…
Bitcoin’s $66,000 Milestone: What It Means for Corporate Treasurers
The Bitcoin Boom Bitcoin has once again captured headlines, soaring to $66,000. This surge is largely attributed to increased investments in Bitcoin ETFs (exchange-traded funds), signaling growing institutional interest in cryptocurrencies. But what does this mean for corporate treasurers? Let’s dive in. Corporate Treasury: A Conservative Approach For most corporate treasurers, Bitcoin remains on the periphery. Their focus lies on three key factors: Bitcoin, with its notorious volatility, struggles to meet these criteria. Only a handful of companies, primarily in the tech sector like Tesla and MicroStrategy, have ventured to include Bitcoin in their balance sheets. The ETF Effect The rise of Bitcoin ETFs is a game-changer for institutional investors. These regulated instruments offer a more palatable entry point into the crypto market. However, for treasury portfolios, Bitcoin ETFs don’t significantly mitigate the underlying volatility risk. As a result, they’re unlikely to become a core component of corporate treasury strategies anytime soon. Ripple Effects on Risk Management While direct Bitcoin holdings are rare in corporate treasuries, the cryptocurrency’s price movements can have indirect effects. A Bitcoin surge might influence overall market volatility, particularly if a sharp correction follows. Treasurers with investments in broad-based ETFs or exposure to crypto-correlated sectors should stay alert to these potential ripple effects. Regulatory Hurdles Regulation remains a significant barrier to widespread corporate adoption of Bitcoin. While ETF approvals signal progress towards institutional acceptance, they don’t resolve the broader regulatory uncertainties in the crypto market. Treasury teams, known for their conservative approach, are unlikely to embrace an asset class still finding its footing in the legal landscape. Bitcoin as a Payment Method: A Treasury Perspective While Bitcoin may not be ready for prime time as a treasury asset, its potential as a payment method is gaining traction. As more businesses and consumers embrace crypto transactions, treasurers may need to consider Bitcoin’s role in their payment strategies. Potential Benefits: Challenges to Consider: The Bottom Line For most corporate treasurers, Bitcoin’s recent price surge is more of a spectator sport than a call to action. While the cryptocurrency continues to mature, corporate treasuries are likely to maintain their focus on traditional, stable assets that offer predictable returns and liquidity. Bitcoin’s potential as a payment method, especially for cross-border transactions, may be of growing interest. However, the associated risks—from volatility and liquidity challenges to regulatory concerns—still outweigh the benefits for most corporations. As the crypto landscape evolves, corporate treasurers will remain vigilant, waiting for increased stability before considering widespread adoption. In the meantime, Bitcoin’s journey from speculative asset to potential treasury tool continues, with each price milestone adding a new chapter to its story. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice: JavaScript is required for this content.
Why You Should Treat Legal Entity And Other Non-Financial Data Like Financial Data
This article is written by Treasury4 No two organizational structures are equal. Every organization has a distinctive legal entity structure. This can include parent entities, subsidiaries, partnerships, limited liability companies, joint ventures, and other related entities. It’s critical for key players to get a centralized view of this information to understand how their organization is structured—and how the various entities and financial accounts relate to and interact with each other. But that’s often easier said than done—particularly as organizations grow and become more complex. In many organizations, entity information is stored in numerous spreadsheets—but these static documents aren’t well equipped to handle the dynamic nature of corporate structures. Today, we’ll examine why you should reframe the way you think about your entity data – and why looking at it in the same way you look at your financial data – can be a game changer for your organization. Let’s start with why it’s time to say goodbye to spreadsheet-based entity management. Why Spreadsheet Tracking Falls Short Organizations are constantly changing—new entities are formed or acquired, others are dissolved, and key personnel come and go. A static spreadsheet can struggle to keep up with these changes; it requires manual data entry—leading to inefficiencies, errors, outdated data, and gaps in information. So, what should you do instead? A Financial Approach to Legal Entity and other Non-Financial Data One of the best ways to keep track of your organizational structure is to think of it the same way you would your financial data—and employ a similar system that can track transactions, activities and balances, both current and historical. You have your ERP to keep track of your financial transactions and balances, compare historical data, and drive decision-making. Having a similar tool to maintain a complete (and evolving) picture for your non-financial data is just as important. Take compliance, for example. Compliance is a moving target. New regulations and reporting requirements are introduced regularly—and companies must adapt quickly. That means having systems in place that can track and manage compliance-related information, like tax identification numbers, registration renewals, filing deadlines, FBAR reporting and more. Without a structured database and reporting, it’s much more difficult to find and update necessary data. You need a standardized system that puts all the necessary data at your fingertips. That way, you can make sure you have all your ducks in a row to stay compliant. And compliance isn’t the only consideration. This fuller picture of your data also allows you to compare historical data points, relay critical information to key stakeholders, get clearer insights, and make more informed and strategic decisions. The question is what system should you use? How a modern, Entity-based TMS can help your Entity Management Process When you think of a TMS, you probably think of a tool that tracks your cash holdings and transactions. But Treasury4’s platform can help you with entity management, as well—and give you a dynamic, comprehensive picture of your entire organization. This not only allows treasurers to track financial data, but it also enables other departments, such as legal and tax, to access and manage the information they need. By keeping all this data in a single, central repository, organizations can ensure that all stakeholders have a clear, full view of the company’s health across the board. Centralizing non-financial data allows owners to update the data in a single location and stakeholders to be able to refer to and utilize that data with confidence. In today’s rapidly evolving business and technology landscape, it’s also important to consider what your data needs will look like down the line. Put simply, your TMS and entity management system should also be able to easily adapt to future changes. For example, carbon reporting and climate-related regulations are likely to become increasingly important in the years to come. Where will that information be maintained? You’ll need to be able to track these new requirements and integrate them into your compliance management processes. Another example: Data is already a driving force of business success—and it will only become more valuable as time goes on. The ability to ingest, process, and analyze data quickly will be a key competitive advantage. Machine learning and AI will play a vital role in the future of data collection and analysis. Leveraging these cutting-edge technologies will be critical in helping you gain meaningful insights, improve the accuracy and speed of your reporting, and identify emerging trends. But the effectiveness of these tools depends on the quality of the underlying data. By implementing a system that standardizes and consolidates data—both financial and non-financial—you can ensure you have a solid foundation for data-driven decision-making. Consolidate, Curate, and Understand your legal Entity and Non-Financial Data Treasury management is no longer just about tracking cash flows and managing bank accounts. It’s about gaining a 360-degree, centralized view of an organization’s overall structure and health, ensuring compliance, and leveraging data to drive strategic decisions. The companies that rise to the top will be those that embrace a comprehensive and collaborative approach that integrates cash management, entity management, and cutting-edge technology. If you’re still relying on spreadsheets to manage and track your corporate operations, it’s time to consider a change. Spreadsheets are limited in their ability to provide a comprehensive view of an organization. And spreadsheets lack the easy visibility needed to go back in time and answer historical questions about non-financial data. They are also prone to errors, difficult to update, and lack the collaborative features needed in today’s fast-paced, dynamic business environment. A modern entity management system like Entity4 is a much better alternative. By providing a 360-degree, centralized view of the organization, Entity4 allows companies to manage critical operational information across departments, gain deeper insights, and make more informed decisions. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice:…
Treasury for Non-Treasurers: Key insights from the 2nd of 9 articles to date – Is Treasury a Strategic Function?
The answer will be no surprise. What might be surprising, though, is how many are—or are not, depending on your experience. The detail is in the article. See the links below ⚡. In the meantime, enjoy the TL;DR and, let me know what you think! 🙂 Articles to date in the Treasury for Non-Treasurers series: Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to Treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below to get more information. Notice: JavaScript is required for this content.
Nicholas
AI as the CFO’s strategic ally
This article is written by Embat It is technology itself, or rather, its advances, that has allowed the CFO to make considerable role changes in recent years, focusing on a much more strategic position, that seeks to generate greater value in the most pertinent aspects of business decision making, and which is not (only) focused on “explaining” what has happened in the past. In many cases, it has been the financial department that has taken the first step towards the automation and digitisation of its tasks and processes within the organisation, through the adoption of different types of technology. This has allowed it to “anticipate” everything related to the “world” of data management. AI challenges for the CFO We are facing a new great challenge called Artificial Intelligence. In any of its variants, mainly due to the direct impact it has, both in relation to the tasks of the financial team and the rest of the company, it enables the conversion of data into strategic information for the business. The idea is that CFOs can “extend” duties, from a mainly descriptive work model (analysis of the past) to a predictive one (with a focus on the future), thus reinforcing their key role in decision making. To this end, technology in general and the use of Artificial Intelligence in particular, will allow organisations to perform a more efficient analysis of data, identifying patterns that facilitate the prediction of the company’s “future”, allowing them to optimise operations, as well as revenues and costs. CFO skills in the digital era We are only in the very early stages of change and, while no one can say what the definitive transformations will be, what is clear is that the transition is still a journey with new challenges for the CFO. Technology alone, however disruptive it may be, is never the complete solution. This is why it is necessary to have a team with the appropriate training and knowledge “transformation” (upskilling/reskilling) capabilities, as it will be fundamental to incorporate new roles and capabilities that did not exist until now, skills that go beyond the limits of the financial department, that impact the entire organisation. The integration of advanced technology solutions such as Embat, a comprehensive cloud-based treasury management platform, is at the forefront of this transformation; playing a crucial role for finance teams. Through the implementation of Google Cloud’s Generative AI in Embat’s automated accounting and bank reconciliation functionality, we were able to automate more than 90% of accounting entries, which translates into savings of up to 10 hours per week for finance teams and a significant reduction in accounting errors. This advancement turns accounting and bank reconciliation into strategic processes for the growth of medium and large companies. For the CFO, this means acquiring new skills in the analysis of large volumes of data in real time (not only financial), allowing for the identification of trends, opportunities, as well as risks inherent to the business, which otherwise could not be noticed in advance. This process will improve the company’s own decision making, where its input will tend to become increasingly relevant. In other words, the CFO’s “journey” will start with past analysis and move towards more accurate predictive and prescriptive scenarios. Change opportunities for the CFO In this way, the possibility of “anticipating the future”, considering the company’s own historical evolution as a basis, will facilitate the identification of business scenarios, adding feedback to the process over time, which will allow the CFO to move from offering a fixed image of the past to offering a dynamic and continuously moving image of what is to come. Of course, it must never be forgotten that the adoption of Artificial Intelligence itself must be assumed as such; something that is still a social process, where it must be considered that the speed of change on the part of people is much slower than that of the technology itself. Ultimately, Artificial Intelligence itself opens up a new and important opportunity for change for the CFO, which will allow him to move towards the development of a more predictive role, where his view of what is to come will reinforce his strategic role in business decision-making. Will AI significantly change the role of the CFO? Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice: JavaScript is required for this content.
Streamlining Treasury operations – UNHCR’s move towards integrated financial and treasury management solutions
This article is written by EuroFinance UNHCR, the UN Refugee Agency, has undergone a technological transformation to enhance its integrations for financial and treasury management systems. This approach aims to streamline treasury operations and use financial technologies for banking connectivity to improve global liquidity and currency management, together with increased efficiency of aid distribution to millions of refugees and forcibly displaced people worldwide. The integration of new systems and the adaptation to UNHCR-specific processes have been central to this change. UNHCR was honoured with the Technology Transformation Award for its exceptional advancements in Treasury and financial technology, demonstrating its commitment to modernising integrations for Treasury operations together with banking connectivity to reach the financial ecosystems worldwide. The need for technological enhancement Operating across 135 countries, UNHCR requires an integrated treasury management system to meet its operational banking requirements. Carmen Hett, UNHCR’s treasurer, highlighted the reasoning behind this transformation: “The scale and complexity of our operations have outgrown our legacy systems. We needed a robust solution to manage our treasury and banking operations more effectively.” In September 2023, UNHCR implemented significant upgrades to its treasury management and also introduced a banking connectivity infrastructure. The new systems were integrated with UNHCR’s cloud-based Enterprise Resource Planning (ERP) system and UNHCR’s Digital Hub of Treasury Solutions (DHoTS), ensuring a seamless flow of core treasury management and with interdependencies across the organisation. According to Hikaru Kozuki, assistant treasurer, “automation has significantly reduced manual intervention, improved traceability, and accountability for reporting.” The integration of systems together with the adoption of automation is crucial for managing liquidity, foreign exchange, and investments. Kozuki noted, “Automation of foreign exchange and investment transactions ensures we have the most accurate information and data available to inform our decision-making. This capability is vital for managing a diverse currency portfolio across global markets and for selecting investment instruments”. Improving reporting and transparency The modernisation also enhanced UNHCR’s real-time reporting capabilities, together with predictability for adaptive decision making. Hett explained, “We now have integrated and automated reports available that significantly reduce the time and effort required for report generation, providing baseline data and information for further introducing advanced tools and algorithms to analyse vast amounts of data, and predict outcomes more accurately.” One of the key benefits of the new systems is the holistic integration of traceability across treasury functions and its embedded processes. This transformation has led to significant improvements. The integrated treasury management systems are connected to the general ledger in UNHCR’s cloud-based system, ensuring that all accounting entries, payment files, and bank account information are consistently messaged and seamless reported across platforms. Automated data feeds provide a comprehensive view of cash positions and financial performance together with integrated reporting Collaboration and future-readiness The successful implementation of these new treasury technologies was supported by strong collaboration between UNHCR’s internal teams and external specialised treasury consultants. Kozuki emphasised that real-time reporting has improved transparency and oversight, which is crucial for maintaining accountability, mitigating fraud, adhering to compliance requirements and being able to report to all UNHCR stakeholders. This project underscored the importance of scalability and future-readiness. By upgrading from a legacy system to an integrated, automated treasury management solution, UNHCR is better equipped to handle future challenges and continue its mission efficiently and effectively. UNHCR’s holistic approach to modernising Treasury and banking operations has set a new standard in the non-profit sector. The EuroFinance award recognises their successful integration of advanced financial systems, setting a benchmark for excellence in Treasury management. Also Read Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below. Notice: JavaScript is required for this content.
Treasury for Non-Treasurers: Crossing the Chasm (Part II)
Introduction In “Treasury as a Strategic Function”, we explained why Treasury matters to you, the Non-Treasurers. Later articles discussed how operational and strategic treasuries in the chasm offer limited value. Real value-add comes from strategic treasuries that have crossed the chasm. The previous article mentioned that amounts, cultures, and contexts push treasuries into the chasm. When you and treasury want to take action, you can’t change the underlying business cashflow amounts – they are what they are. Culture and context, on the other hand, can be changed. This article will show how treasuries emerge from the chasm by doing precisely that. This solution may seem unconventional – it’s rarely mentioned in standard articles and textbooks – but as the problem isn’t financial, neither is the solution. The issue stems from people in and outside of treasury, so change must focus on them. Note for non-Treasurers: As an organisation insider, you can request and support treasury’s evolution into a strategic function valuable to everyone, especially during crises. But, understanding the relevant context and cultural elements is crucial for formulating practical next steps. For suppliers, it’s similar; your products and services are tools for operational and tactical treasuries, often sold on price. However, when offered with appropriate technical and soft know-how relevant to each specific client, they become solutions for treasuries that are or want to be more sophisticated. These are sold on value, not price. These benefits underscore why mastering ‘soft skills’ like culture and context change is vital for all of you. Types of treasuries Let’s revisit the different types of treasuries before exploring them in more depth. While Figure 2 shows each treasury type in a distinct quadrant, all types except the basic treasury build upon each other. They progress layer-by-layer through operational and tactical levels until the function reaches its pinnacle in a few companies like IATA and GE Capital: those with a value-adding, external-oriented organisation. See Figure 3. Figure 2 highlights the challenge faced by tactical treasuries. As the saying goes, “A servant cannot serve two masters.” These treasuries have conflicting priorities and will never match the effectiveness of a strategic treasury. Crossing the chasm brings clarity to the purpose of treasury and, therefore, to its ability to effectively deliver material value to the organisation. Bridging the chasm methods In this section, we’ll explore examples of three different methods for bridging the treasury chasm. Detailed information is provided in the appendices for those interested in the general frameworks applicable to any organisation. Method 1: Out of sight, out of mind This method was the first I encountered in my professional career, though I didn’t realise it followed a successful standard framework at that time. While working for IBM Europe, we faced a challenge: some subsidiaries were borrowing while others were lending, but not to each other. This inefficiency cost the company money and exposed the group to material risks if one of the cash-holding banks were to fail. However, IBM’s decentralised structure meant the head office couldn’t force subsidiaries to lend to each other. Our solution? Create a function with a different culture in a new context: To change the context, we: To change the culture, we: The internal bank started with lending and borrowing only. Voluntary participation meant subsidiaries saw it as an opportunity, not a threat. Even in the first year, they gave 95% of their business to the new entity. The function grew rapidly, taking over customer financing activities and delivering improved services. It became a successful value-adding, company-oriented function. I learnt a crucial lesson later on, which I now pass on to you: implementing and creating a new culture isn’t enough. It must be nurtured until firmly embedded both inside and outside the function. In IBM’s case, this wasn’t fully achieved, partly due to Lou Gerstner’s top-to-bottom restructuring in the 1990s. As a result, the function arguably went back into the chasm. It was better than before but didn’t reach its full potential. The general framework for Method 1 is in Appendix 1 of the Treasury for Non-Treasurers (Appendices) article. Method 2: Leadership led To keep the article concise, I’ll provide fewer details for this and the following method. The underlying principle in all methods is the same: change the culture to an external focus. While Method 1 creates a new environment with a voluntary focus on external customers, Method 2 establishes an environment where delivering what’s wanted externally is mandatory. Method 2 is straightforward: 2. Senior staff lacking the necessary technical skills or attitudes are replaced with people with the right skills and mentality. 3. Junior staff must adapt quickly or move on. Example: The ABB Merger When Asea and Brown Boveri merged in 1987, CEO Percy Barnevik aimed to create a “federation of national companies” supported by global “free-standing service centres”. He sought staff with “exceptionally open minds… who don’t passively accept it when somebody says ‘you can’t do that’” (Harvard Business Review). One of these free-standing service centres was a new financial services function. This structural and cultural shift shocked the previous Swedish and Swiss company cultures. Many employees lost their jobs and were replaced. New hires in treasury and financial services brought a banking mentality, serving both internal and external customers. Having worked with their financial services division in Asia from 1995 to 2000, I observed that their treasury centres (internal banks) were often indistinguishable from external banks. The transformation succeeded. ABB’s Treasury was considered world-class until the early 2000s when they faced a company-wide black swan event. They still maintain an impressive treasury function today. It’s literally that simple. For the general framework of Method 2, see Appendix 2 in the Treasury for Non-Treasurers (Appendices) article. Method 3: Treasury-led This third method is more niche. While I haven’t seen it used in treasuries, I include it here as it could be appropriate in certain circumstances and potentially deliver more value than the other methods if implemented successfully. This method applies to companies that allocate time to employees…
How SAAS companies get burned by exchange rates
This article is a contribution from one of our content partners, Bound We 💜 finance teams from tech companies We spend a lot of time here at Bound talking with finance teams from venture-backed tech companies. Like most of the work conversations you probably have, our conversations follow a general outline like this: “Hey, Where you calling in from in the world?” [insert your favourite location]. Oh cool, my cousin lived there for a few years. She always said nice things. …… Wait for it…… here comes the obligatory weather comment… “Well, you’ve got better weather than us right now. I’d switch [weather-related complaint] for your [generic weather compliment that is, at best, loosely accurate].” Then the conversation turns to foreign cash flows–which some people might find boring, but we get pretty excited about here at Bound. After all, this is what we do. Why these finance teams talk about Bound Finance teams at growth-stage tech companies use Bound’s app to take foreign cash flows that normally bounce around with exchange rates and make them more stable and predictable. Classic use-cases for using Bound: Companies with these use-cases, use Bound’s technology to make these foreign cash flow streams more stable and predictable almost overnight. How exchange rates can hurt SAAS companies 🔥 One situation that comes up a lot with SAAS companies is the headache of foreign revenue contracts. Here’s an example of how exchange rates can potentially burn saas companies with a lot of international customers. THE SETUP Let’s pretend we’re a UK-based SAAS company with European customers. We report our finances in GBP. This is a fictional example roughly based on 2022 and 2023, but also includes simulated exchange rates into the future. We invoice monthly in arrears and recognize revenue evenly over the contract. THE SALE We sign a new contract with a new customer. Yeah! European customers don’t like paying in GBP, so we price European customers in EUR. The new contract is worth EUR 25,000/month for 24 months–EUR 600,000 total. Let’s pretend we sign the contract in Jan of 2023. The GBP/EUR exchange rate is about 1.125 at the time of contract signing. That’s roughly where the rate was for the first half of 2023. We’ll expect GBP 22,223.80 per month in revenue. Based on that rate, the sales team just booked GBP 533,371.26 . Nice work team! THE FIRST INVOICE 30 days later, we invoice the customer EUR 25,000 and record our GBP 22,223.80 in revenue. Of course, over the course of the month the exchange rate didn’t stay perfectly stable. We’ll pretend the GBP/EUR rate moved a little. Let’s say it’s now 1.127. Not a big deal, GBP 22,178.85. Whatever. GBP 44.95 isn’t a big deal. I can just write down our revenue a little, take a small currency loss or maybe I’ll just shrug this off. THE PAINFUL GBP RALLY But now let’s run a GBP-strengthening scenario for the remaining 23-months. At the time of writing, in early December 2023, GBP/EUR is up to 1.17. (This is mostly the true story of GBP/EUR over 2023) I’ve also thrown historic GBP/EUR data into a statistical rate simulator and told it to run a realistic GBP-strengthening scenario. Let’s see how our company does here for the rest of the year. So, that GBP 44.95 problem in the first month, that we brushed past, ended up being a GBP 63,525.13 problem over the course of the contract. That figure is harder to ignore, especially when you figure we have 50 customers with similar contracts. If the same scenario with all 50 of our European customers, we’re looking at currency losses or revenue write downs in the ballpark of GBP 3,000,000. And remember, currency losses aren’t just paper losses. This has a real impact to our GBP cash flow. THE MESSY RENEWAL One last problem. The renewal. The rate at renewal time was all the way up to 1.19. The customer is happy and wants to renew at EUR 25,000/month for another 24 months. Seems great, but that’s only going to be GBP 504,201.68 at this new exchange rate. So, I need to fight for a 6% price increase just to stay steady with the figures from our last contract or I realize revenue contraction from a happy customer. ;( Again, multiply that by 50 European customers and I’ve got a material renewal problem to deal with. We love this sh*t, so you don’t have to 😉 These are the types of problems that Bound helps SAAS-companies deal with. Reach out to see if you can make your foreign cash flows more stable and predictable. Recommended Reading Join our Treasury Community Treasury Masterminds is a community of professionals working in treasury management or those interested in learning more about various topics related to treasury management, including cash management, foreign exchange management, and payments. To register and connect with Treasury professionals, click [HERE] or fill out the form below.