In our last article, we talked about financial risks, and why it is important for businesses to manage them.
The management of financial risks and liquidity issues is the core responsibility of the treasury function. It is absolutely crucial for any company, and of particular importance as your business expands and grows. Failing to manage a company’s financial risks properly can cause the premature death of promising start-ups.
Sadly, the treasury function is usually undertaken as a sub-function of the finance department. Far too often, treasury functions are executed on an ad hoc basis, with little concern over cash flow or market expectations.
But as your business grows, there is an ever greater and pressing need to segregate your business’s cash management function from your organisation’s finance function.
Let us explain.
When your business starts out, your organisation’s finance function may not need to be especially sophisticated. In the early months or years, the finance function for many companies is the same thing as their book keeping function – that is, the recording of your company’s financial transactions.
But the person who keys in your company’s sales numbers and records your expenses may not be the same person responsible for your company’s cash management function.
And rightly so.
Your business may have seen drastic fluctuations in revenues and costs as a result of volatility in exogenous factors such as exchange rates and commodity prices. These wild swings in the market have seen many firms suffer, especially the 1997-1998 Asian Financial Crisis and the years following the Sub-prime crisis of 2007-2008. Such fluctuations can wipe off your business’s sales profit margins.
Segregating your organisation’s cash management function from its finance function has thus become increasingly important in recent years.
Hence, the responsibility for mitigating the financial and liquidity risks arising from market fluctuations should lie with your business’s cash management function (AKA the Treasury function).
Different businesses organise this Treasury function differently. It could be delegated to a single person or an entire department. In any event, if you are in charge of the management of the business (for example, the Chief Executive Officer), or a company director, you should conscientiously consider whether your organisation has adequately covered itself in terms of its financial and liquidity risks.
In the next article, we will look at what a well organised and executed treasury function can do for your business.
Candoer Pte Ltd helps businesses with their marketing, productivity, compliance and cost savings strategies.
We also work closely with our partners at Wrike to implement collaboration solutions suitable for your needs.
Candoer Services Pte Ltd provides corporate secretarial, book keeping and tax filing services for Singapore based SMEs.
For further enquiries, please email us at:
jiekai.candoer@gmail.com or weekiang.candoer@gmail.com
