Many small businesses are owner-managed and their financial management is handled by the owner or a family member. This is not always the best move as, firstly, money and emotion rarely mix well and, secondly, if the business is to succeed and grow, its financial management needs to operate under a clear and transparent set of systems. These are best managed by an individual or group of individuals with the relevant expertise.
The management of business funds
Treasury management involves just that – the management of business funds. This has become increasingly important in today’s volatile business market and an organisation’s treasurer is most often tasked with the management of business finances as well as putting in place policies and procedures to ensure a compliant and effective financial system.
Treasury activities range from helping businesses to invest in foreign markets to ensuring employee payments. The chief treasurer of a business is usually the Chief Financial Officer or, in the case of small businesses, a financial institution or bank can take care of the responsibility for a set fee. While it’s always important to read the fine print and know exactly how money is spent without your business, a good treasury management firm can help you to effectively manage financial processes and come up the right investment plan for your business.
A 2008 survey into corporate treasuries showed the key functions of the treasury to be:
- Cash management e.g. planning, cash flow management, and banking
- Liquidity management, liquid control, and reporting
- Management of interest, currency, and commodity risks
- Procurement of finance and financial investments e.g. capital management
- Corporate finance e.g. credit leasing.
Reasons to establish a treasury system
There are a number of reasons for businesses to have an established treasury system. These include…
Transparency: Book keeping records are an essential part of effective treasury management. These records will allow for a transparent picture of the money within the business and what it is used for. These provide a history of the business’ dealings and can help to prevent theft, fraud, and tax problems.
Making the most of your business’ money: A good treasury management service, such as a bank or financial institution, should help you to make the most of your business’ money while still maintaining its liquidity (the speed of which an asset can be turned into cash).
For example, if your business has generated a lot of profit, you’re not going to want the cash to be sitting in a bank at what are often very minimal interest rates. Depending on your business’ financial needs, treasury management can involve investing cash assets in areas such as foreign currency exchanges markets, securities markets, and bond markets to make sure the value growth is as high as possible.
In our uncertain world, it’s important to create as much certainty within business structures as possible. While family members might seem connected and committed at the early stages of a business, things change over time. In order to succeed, a business should operate as an entity separate to its stakeholders and run according to established and transparent systems.
This starts with a financial management plan that makes good financial sense. This will help your business to fulfil its assurance obligations to employees and stakeholders alike.