The role of the CFO has undergone a massive evolution over the past 25 years. Companies and leaders that shift their mindset to embrace the potential that the modern treasury can bring —enabled by the right technology—stand to unlock tremendous latent value.
Recently, our Managing Partner and Founder Laurence Tosi (L.T.) sat down with Ed Barrie, co-founder of WestCap portfolio company Treasury4, and NeuGroup CEO Joseph Neu for a conversation about the past, present and future of the corporate treasury. Here are some key insights for companies looking to tap treasury as a driver of value:
The emergence of the strategic CFO
A quarter century ago, the typical CFO focused largely on accounting and controllership responsibilities. This executive had transparency into the financial aspects of the business and the skillset to articulate what occurred in the past quarter or year.
As technology evolved, it enabled the rise of what L.T. calls the “strategic CFO.” This leader is expected to not only report what has already happened but also predict what comes next. They work with the CEO to make decisions, evaluate how capital resources are being used, strategize about how best to deploy cash and manage expenses, and forecast what’s around the corner for the business. L.T. noted that WestCap looks for forward-thinking CFOs that can play a strategic role in its portfolio companies. “A CFO can sometimes be the most valuable hire inside of a growth equity or a pre-IPO company, as much as the CEO.”
A treasury-first mindset
Throughout his career, L.T. has observed the dangers of neglecting the importance of the treasury. When he first joined companies, he observed some Boards and executive teams focused only on profit and loss statements without an equal focus on cashflow and cash management. Others failed to think strategically about where their cash was held and how they handled foreign exchange and interest rate risk. Further, others failed to deploy cash management strategies and programs.
Each time L.T. took the reins, he invested in the company’s treasury. His experience drove home the importance of a “treasury-first mindset” — one that takes seriously the impact of this function on business success. “It opened my eyes to the possibility of how treasury can be material,” he said. “With every business we invest in, one of the first things we look at is how we can make treasury more efficient and effective and how it can create sustainable value for the business.”
Treasury as a value creator
While Treasury is inherently a risk management function, it can create value. Money flows through an increasingly digitized world, and treasury can play a role in optimizing the flow of transactions and reducing costs within the framework of the company’s investment and risk management policies. By having greater control over data and more accurately predicting cash flows, treasurers can bring efficiency that drives value.
Treasury often faces a restrained budget because it’s often misconstrued as a cost center. But treasurers can advocate for investment in improved technology for the office of the CFO by pointing to examples of how their work benefits the business (e.g., explaining how interest income can allow the firm to hire more engineers). Joseph pointed out that, “There’s a “business case to invest in the resources you need for data and infrastructure to support this treasury-first mindset.”
An evolving field
Similar to the evolution of the CFO, the role of the treasurer is changing rapidly. Ed at Treasury4 made the case that arming treasurers with data from an array of touchpoints across the company is key to providing them with precision around cash flow forecasting and insights they can communicate to executive teams and Boards. That includes sources that have historically been outside of the treasury's purview, such as corporate credit card programs, merchant processing, procurement data or travel expenses. Technology can stitch together these and other datasets to enable a comprehensive financial picture and drive strategic contributions.
With the proliferation of real-time, 24/7 payments, Ed says treasurers have an even greater need for advanced tools that ingest data automatically in order to have visibility into financial dynamics, manage risk and make projections. That becomes acutely important when responding to events that can disrupt cash flow, such as a pandemic or extreme weather. “It’s all about data automation and an expansive view around how to look into the future,” Barrie said. “Treasury’s going to be a real-time function 10 years from now,” L.T. added. “Treasury will change to a higher-speed, data-driven secure transfer of money.”
Too many companies still have an outdated view of the treasury and the broader office of the CFO. They see it as a cost center and in the realm of “bean counters.” But enabled by the latest technology, this function can be a strategic partner that drives smart business decisions.
The above is provided as an illustrative example and designed to demonstrate the benefits to portfolio companies of partnering with us. The information is aimed at prospective portfolio companies and not intended to solicit investors, or an offer to purchase any securities. The experiences highlighted may not necessarily represent or be indicative of current, past or future results and experiences with portfolio companies.