The Hidden Costs of Not Having a Treasurer: A Risky Oversight

In the realm of corporate finance, the treasury function is often viewed as a cost center, primarily because the salaries of treasurers and treasury teams represent a direct expense on the company’s financial statements. Unlike profit-generating departments, a treasury does not directly contribute to the company’s bottom line. However, this perspective overlooks a crucial aspect: the hidden costs and risks associated with not having a dedicated treasurer or treasury team. Neglecting these critical financial functions can lead to significant financial instability and missed opportunities, ultimately costing the company far more than the salaries of a competent treasury team.

The Role of a Treasurer

A treasurer’s role is multifaceted, encompassing cash management, risk management (particularly foreign exchange and interest rate risks), debt capital market activities, and cash flow forecasting. Each of these functions is vital to the financial health and stability of a company.

1. Cash Management:

   Effective cash management ensures that a company has sufficient liquidity to meet its obligations and capitalize on investment opportunities. Without a dedicated treasurer, companies may face inefficient cash utilization, higher borrowing costs, and even liquidity crises.

2. Risk Management:

   Managing foreign exchange (FX) and interest rate risks is crucial for companies engaged in international trade or those with significant debt. A treasurer identifies and mitigates these risks, protecting the company from volatile market conditions. Without this expertise, companies are exposed to unpredictable financial swings that can erode profits and destabilize operations.

3. Debt Capital Markets:

   Accessing and managing debt is a complex task that requires expertise in financial instruments and market conditions. Treasurers negotiate favorable terms, manage interest expenses, and ensure compliance with covenants. Without this, companies might incur higher costs of capital and face difficulties in funding growth initiatives.

4. Cash Flow Forecasting:

   Accurate cash flow forecasting enables better financial planning and decision-making. A treasurer uses sophisticated models to predict future cash flows, helping the company to anticipate and prepare for financial needs. Without this foresight, companies might experience cash shortages or miss out on investment opportunities due to poor planning.

The Costs of Not Having a Treasurer

1. Increased Financial Risks

   Without a dedicated treasury function, companies are vulnerable to financial risks such as currency fluctuations and interest rate changes. These risks can lead to unexpected losses, impacting profitability and shareholder value.

2. Higher Borrowing Costs

   Inefficient cash management and lack of expertise in debt markets can result in higher borrowing costs. Companies may face unfavorable loan terms and higher interest rates, increasing their cost of capital and reducing profitability.

3. Liquidity Crises

   Poor cash management can lead to liquidity shortages, where a company cannot meet its short-term obligations. This can result in missed payments, damaged supplier relationships, and even insolvency in severe cases.

4. Missed Investment Opportunities:**

   Without accurate cash flow forecasting and effective capital allocation, companies might miss out on strategic investment opportunities. This can hinder growth and competitive positioning in the market.

5. Operational Inefficiencies:

   A lack of focus on cash management can lead to operational inefficiencies, such as excess cash sitting idle or insufficient funds for critical operations. This misallocation of resources can affect overall business performance.

Insights from Treasury Experts

We thought it would be valuable to get perspectives from Treasury professional, Patrick Kunz, who is also Treasury masterminds board member

Patrick Kunz, CEO and Founder of Pecunia BV Treasury and Finance, Comments

Treasury Departments are (should) always be costs centers. That doesn’t mean they can add to the bottom line of a company. Not via extra profit but definitely by costs savings.

A great treasurer has minimised bank (transactions) costs, has the FX exposure hedged at minimal costs and optimised his cash (investments). Therefore a treasurer is often a positive business case to a company

Even for smaller companies a fractional or part-time treasurer or treasurer-as-a-service can add value at limited costs. In a majority of my assignment I realised at least some costs savings, in several of mine if realised costs savings that could have bought a small treasury team!

Conclusion

While the cost of maintaining a treasury team is apparent on the surface, the hidden costs of not having one can be far more detrimental. Companies without a dedicated treasurer or treasury function expose themselves to significant financial risks, higher borrowing costs, potential liquidity crises, and missed growth opportunities. Investing in a skilled treasury team is not just about managing costs; it is about safeguarding the company’s financial stability and ensuring long-term success. In the complex and dynamic world of corporate finance, the value of a treasurer is immeasurable, and their role is indispensable.

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