Blog de FP&AFinancial Planning & Analysis¨Cash is king¨ The importance of having a healthy treasury

¨Cash is king¨ The importance of having a healthy treasury

“Cash is King…”, this expression is often used in the stock market world, venture capital, and in business in general and expresses how our cash flow ends up being, at the end of the day, a key resource to keep our company alive.

In this years of Pandemic I listened to it more than ever, both in my participation in Creatribe as an accelerator, in BlueDraft with reference to data analysis and, mainly in Plika, with projects related to Financial Planning & Analysis (FP&A).

Why was and is the term “Cash is King” so repetitive?

Probably because there was no other area more affected by the COVID crisis than the treasury.

The box, which became the main focus of organizations, gives us a warning reminding us that it should never have abandoned that position of importance.

“The box is to a company what water is to a garden. There is no chance for our plants to grow and survive if we don’t take care of this resource and prioritize how to distribute it.»

So, «Cash is King» resurfaces with each crisis, but it is essential for every company to keep it in mind in times of prosperity as well, since it allows us to focus on one of our main drivers for growth.

What effects does the pandemic have on Cash Flow in 2022?

The treasury is suffering and will suffer the drastic changes that are affecting, to a greater or lesser extent, the different functional areas of the companies, in addition to being affected by a series of external factors. Among them, I highlight the following:

  • People and Talent Retention

We are going to have to protect the current talent in the company, but it is also the case that the turnover percentages observed in the second half of 2020 and the projections for the first half of 2021 will lead to allocating many financial resources to replace or recruit new people, in order to guarantee the continuity of the activity.

We will also allocate many resources to modernize our relationship with the work teams, in order to be flexible to the new regulations.

These changes will require an extraordinary injection of money to induce new technologies that allow integration, linkage and efficiency in our work teams.

  • Purchasing

In general, all functional areas related to suppliers will be affected. Observing difficulties related to finances and revisions of pre-existing agreements to COVID.

With regard to financial service providers, opportunities have also been found to improve cash flow, both in the new service offerings of traditional banks, but also of Fintech and other alternative financing providers.

For this, we must ensure the provision of services with all our suppliers.

  • Regulatory complications

Attention should be paid to the volume of contracts that can be frustrated by rupture clauses or force majeure, seen to a large extent, in the aviation, tourism in general, entertainment and gastronomy industries.

The first thing we should do is check the liquidity. We must know if the company requires higher levels of cash or working capital.

We will also have to analyze the management of foreign exchange risk.

The expected volatility in exchange rates will surely affect current hedging strategies.

Also, to the margins, the supply chain or the clients, and it will introduce a variability in the income statement that we must know and anticipate.

Managing a Cash Flow in 2022 is more complex. Why?

Greater degrees of revision will be necessary, and perhaps a change of direction in the middle of the exercise, diverting resources to another destination.

The complexity of the current situation may require different levels of assignment of functions to the main processes that the Caja manages, which must be foreseen so that it does not slow down the payment approval circuits or collection management.

On the other hand, we must be aware that our financing strategy may be affected, both ordinary financing with suppliers, customers and banks, as well as extraordinary or unusual financing, such as the placement of debt in the market.

We are going to have to consider to what extent current debt levels are sustainable or not, and whether the business is capable of generating enough cash to meet the interest on the debt.

If it were not, it would be necessary to analyze what alternatives exist to reschedule the amortization of capital, negotiate grace periods or refinance current bank liabilities.

How can technology help manage Cash Flow in this context?

The most important thing is to ask ourselves how to start. For this, it is a priority to make a good diagnosis, which is quick and concise, of what we must do.

Today we have FP&A tools that allow us to update Cash Flow forecasts.

In turn, they contemplate multiple scenarios within a sensitivity analysis of the main macro variables and of the business itself.

With this, we have a starting point to work and implement a plan with actions that generate liquidity with our current resources.

It must also consider the various aid measures announced that the Government could offer in terms of deferring payments and cost savings, and that will define the financing strategy that is appropriate to the new reality of the business.

Finally, we will carry out the appropriate internal and external communication plans.

This will allow us to establish reinforced monitoring and control mechanisms for our treasury and to update and provide feedback on our strategy, as events unfold.

For all the steps, I also invite you to read my previous article on the challenges of projecting our businesses in Latam.

In conclusion…

We all want this crisis to end as soon as possible and that the plans that governments promote have positive effects as quickly as possible.

Then it will be time to reflect on the lessons learned, both in bad times, as well as when things are going well.

Marketing Manager y Content Creator en Plika

Head Office

Buenos Aires, Argentina.


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