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Setting Up Treasury at High-Growth Companies: Informed Insights from Chatham Financial

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March 26, 2019

By Antony Michels

Signs that it’s time to appoint a treasurer and how to balance human talent with new technology. 

Spring's arrival brings talk of rebirth, growth and renewal. So what better time to discuss high-growth companies that need to start or expand treasury departments to keep growing? iTreasurer recently sat down with Chatham Financial managing director Amol Dhargalkar, who advises corporations on risk management and other issues, to hear what growing companies need to consider. The interview has been condensed and edited for length and clarity.

iTreasurer: How do you know when you need to appoint a treasurer or build a treasury department distinct from whatever you have as a start-up or a company that's fairly young? 

Amol Dhargalkar: On the financial risk management side of things, once you start getting to the place where as a company you have outside bank debt in some shape or form, that starts to be a pretty clear point at which if there wasn't a treasury function there should be, particularly if that debt comes along with any form of covenants. The impact of missing debt payments or not meeting debt covenants is quite severe relative to the impact of not having made a supplier payment exactly on time or a PO having been missed or something along those lines.

Another trigger for high-growth companies is that once the business goes sufficiently international, you're starting to manage lots of cash all over the world. And even before the FX risk concerns associated with going international surface, concerns come up about all the work associated with opening up bank accounts and having banking relationships globally to help support your international growth. That can be much more than what is possible to be done by somebody who's wearing so many different hats and getting pulled in so many different directions.

There are some other very obvious triggers. If you're aiming to prep for an IPO of some sort or a capital event where you have publicly traded equity, that pretty much necessitates having a treasury function staffed up and working full time.

Q: Do companies in need of a treasurer usually hire from outside or appoint someone who's already on the team? 

AD: In high-growth companies, it tends to be someone who is already on the team, maybe acting in a controller type of responsibility, starting to take on some of those treasury responsibilities just because somebody needs to do them. And perhaps that person ends up being the one to be the treasurer, and other times the firm might go out and hire a seasoned or experienced treasury professional to take on that role. It tends to be somebody who's already within the team because the work of the job needs to be done far earlier than the job itself becomes open.

Q: When building treasury, how do you weigh hiring people versus putting technology systems in place? 

AD: People first tends to be the place to go at the beginning, having individuals either hired into the role or essentially take on that mantle of treasurer or treasury is almost always the first priority. The progression then is you leverage free tools that are out there by bank portals for the most part. Then almost every firm has an ERP at some point, so see if you can leverage the ERP or you can eventually move to a third-party technology platform.

Q: But hasn't the pressure to transform and adopt digital technology changed the equation for treasury? 

AD: We work with about 2,000 companies a year; we have yet to meet a company that has been able to fully automate all of treasury to the point where they don't have any treasury professionals and it runs on autopilot. We have literally never heard that goal. The goals that we have heard are, "What we want our treasury team to be doing is spending time on strategic matters rather than repeated tasks that involve just clicking a few buttons." Every treasury team, whether they are mature or in their infancy, really does try to focus on getting rid of those manual tasks. So there's a strong desire to move from process-oriented work to more high-value strategic work, spending more time thinking about capital structure and different ways of financing yourself, thinking about how M&A might impact treasury, thinking about FX risk.

But don't assume that technology is the answer to all of life's problems. We see that as an assumption that's built into everything from high-growth companies to mature companies—that all we need is technology. And in some cases, that's absolutely true and in other cases it's actually much more about the process than it is about the technology being a solution. If a company is unwilling to change its process, there's no tool that can match every process that's out there. So I think our biggest advice would be make sure you think about what your objectives are and think through the full spectrum of available tools, whether it's technology, people, process to achieve those objectives.

Q: Ok, but when should a company invest in a sophisticated treasury management system? 

AD: It depends on the nature of the business and the forces that are impacting that business. If you have a lot of subsidiaries and a lot of bank accounts, you might feel the need for one system to rule them all much sooner than someone else. If you are a company that's been impacted negatively and positively by FX volatility, that might drive things more, but a lot of that might come down to what stage of growth are you in. So even if you're high growth but about to go public, you might be thinking to yourself, "Well, I want to show some greater stability in earnings, we've got to put in place an FX hedging program."

We've seen a lot of companies that actually go down the path of risk management systems before cash management systems. Other times, if the company is actually high growth but primarily domestic, they might not see that need for quite a long time and might be able to run off of bank portals or Excel for years, well into even maturity stage. As I'm sure you know, there are a lot of mature companies that don't have a TMS.

Q: In terms of treasury policies and procedures, where does that stand in the order of priorities when you're building a treasury from scratch? 

AD: I can tell you stories of mature companies that are doing quite well that are still working on policies and procedures within treasury, so that might be the answer to your question. And it's not that they're not important, they happen in due time, but it's not like the day you have an official treasurer that treasurer knows exactly what the business is going to look like five years in the future, 10 years in the future, exactly what the team is going to look like, exactly what the systems are that they're going to use, where they're going to focus their time and energy. So the reality is that policies and procedures definitely don't happen on day one. But they will happen over time as the need arises.

And for most companies it becomes clear that they have a need for those policies and procedures. Some are very proactive, and others come to that realization the day a key person leaves the organization. Then everyone realizes, "Oh we probably should, in the next two weeks, have this person write down everything that he or she has been doing to make sure we now have procedures at least, if not policies."

Policies, to be fair, are a little bit different. Policies are when you get to the point where treasury is presenting to the board around cash on hand, capital structure risk; usually policies will come up at the time that the board is there from an oversight function, they're going to want to see and approve policies that provide limited discretion to the managers of the company.

Q: What would you tell a young company setting up a treasury to do or avoiding doing? 

AD: I might have some counterintuitive advice on this: I say embrace the culture that is the growing company and recognize that there are a number of things that absolutely need to be done. Treasury does not have room for mistakes. You don't get to say, "Oops, I wired out a million dollars instead of one hundred thousand dollars," or, "Oops, we have an overdraft." And so obviously keep those standards very high. But, frankly, embrace the high-growth culture, and the reality is that what your treasury team looks like today is probably not what it will look like tomorrow.

To the extent they are looking to hire individuals, look for individuals who have not just the professional experience of having worked in mature organizations but perhaps also those who have worked in growing organizations who understand that priorities can change very quickly, and needs can change quickly and sometimes even roles can change very quickly based on organizational needs. 


 Amol Dhargalkar  Amol Dhargalkar
Managing Director

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