Right, thank you, Stephie. Good afternoon. And thank you for showing here. The first assumption, of course, that I’m going to make here in this presentation is that we’re going to have a post COVID-19 world. And I think we are, but the future is uncertain. So nobody really knows for sure. This whole webinar was really driven with the idea of that really simple question. How does the Treasury measure success? And I think the answer is, there should be some measures. And what we’re going to do here is we’re gonna talk about some measures, there are no real right answers to the idea of metrics, I’m going to suggest some, I’m sure you can come up with others, based on industry based on complexity of the company. But with any metric comes the idea that if you’re measuring the right thing, you can measure a lot of wrong things and come up with some answers. The question now is whether those answers mean anything. So I want to talk about today’s world, give you an idea of what I think a perfect Treasury model should be to give you some ideas about what you should be measuring. And then we’re going to go through some other ideas about how you can build a business case for change. So you come up with those right metrics. But let’s go right to the first poll. And again, using your app here. And this is a simple sort of agree, disagree. Do you actually have success measures in your Treasury function that are integrated into your corporation success metrics? Sort of, you know, yes, no, not sure are. Maybe you’re nobody who does not have a treasury function. So for answers there. Please take a moment to whip out your app and answer away. And, Steph, can you throw the answers up here? Or?
Stephie (speaker 2)
I will be? I’ll be announcing them right here. Okay. So far, we have some top answers. So the majority are saying they agree, right? So we have a majority who agree about 90%, disagree about 3%. And then I’m not sure about 7%.
Bruce: ( Speaker 1)
Okay. So I think it’s important to have some measures. But as I said before, when you’re having measures, it’s important to know what to measure. Now, in today’s Treasury, most Treasury departments and this is a very generic statement, because in 18 minutes, I don’t have time to dissect the secrets of the universe. In most treasuries, they’re really worried about the bottom part of this triangle. It’s more about cash accounting than it is cash management or risk management. And the difference is here that cash accounting is really transactional. And so transactions are easy to count, the idea of cash management and risk management more difficult. So sometimes you’re measuring the wrong things. Depending on where you are, and how mature your Treasury is, I would argue that you do need metrics at all levels. But the metric should be more skewed toward the top of the triangle. In other words, you should be doing more planning than processing. As we talked about the maturity of your Treasury, I’m borrowing here from an AFP survey that was done last year. They do these surveys about every three years about the strategic role of the Treasury. And as you can see from this result, there’s good news and bad news. The good news is you’re looking at 2020 versus 2017, that the number of strategic treasuries has almost doubled in the last three years. That’s good. Except the number of strategic treasuries is only like 20, a low percentage. So you’re saying wait a minute, in three years, I’m still dealing with less than then? Well, almost 20% of my treasuries are strategic, what happens to the rest of the Treasury? The Treasury has been in existence for years and years. And so here, you see the different definitions. And again, I won’t go into them. But what are the implications for 2022? If the Treasury is still stuck in what I’ll call a transactional world, measuring perhaps the wrong things. So if you’re going to move from the, let’s say, foundational or basic Treasury into a more strategic Treasury, in order to measure the right things, it helps if you have a model to really think about what the Treasury should look like in the future. Are you going to get there tomorrow? No. But again, it always helps to have a goal. And as you see here, you’ve got sort of four basic functions that really are integrated now. Not only are they integrated one to another, but they should be integrated. And these little double headed arrows that you see on the left and the right of this diagram are where the Treasury should be talking to and from the financial markets, and to and from the company. The Treasury can do this by itself. And the parts of Treasury that really need to be functional, and then really the function of well, are the five bullets on the end. So as you start looking at this model, it might give you some ideas about what a good metric should look like. And that leads into our second polling question about the future in a perfect Treasury, how should the Treasury measure his success? And again, here are some choices, obviously very broad, but I’d be interested in your opinions. So again, you whip out your app, and maybe try to suggest which of those attributes you might want to measure to have a successful Treasury. And, of course, as well, you know, something else?
Stephie (speaker 2)
Alright, so for a second poll here, if you can just put how should the Treasury measure its success? Alright. So again, if we look at the answers, we will see, we also have our 10 answers, the majority are actually seeing contribution to evidence is going to be the answer for how we should try to remember the rest of actually breakeven.
Bruce: ( Speaker 1)
Okay. Okay. It’s interesting, because I would not have guessed that one, even sort of, is earnings before interest, taxes, depreciation and amortization, which means that interest expense and even foreign exchange gains and losses don’t seem to be applicable. And I would argue that that is not correct. But we don’t have time to discuss that too well. I would like to suggest that we move to a model for the modern Treasury, and that Treasury become a strategic unit by shifting workload away from processing, and more toward planning or forecasting. And again, there’s a way to do that by becoming a little bit more proactive, and really working with the operating units. I mean, at the end of the day, Treasury has very little impact on operating cash flow, when you think about it, A/P A/R Sales. What can the Treasury do here? Not a lot. Treasury does not pick customers, Treasury does not pick vendors. In most cases, there’s obviously always exceptions. So when you’re dealing with or profit margin, price margins, or sales, operating cash flow is not something that’s under Treasury’s direct control, there is more control when you start dealing with foreign exchange or exposure to the markets, the upper part of that triangle that I showed you earlier. Treasury can impact cash flow. But I’m not sure it can impact even as you move to a modern Treasury, I think the kinds of metrics that you should be selecting are those that are really going to impact the cash flow statement. And that’s why I think the Treasury needs to really take charge of that statement. That’s not to say that you can’t support the operating units, especially when they start selling into exotic currencies, which increases the risk to the corporation. Maybe some suggestions could be helpful there. And again, I think the other thing that you should consider, of course, is that as you work with the operating units, how does that work on your own career approach? At the end of the day, as a treasury unit, working in the Treasury, what do you want to do going forward. So you want to be able to have metrics that lead to success. So on a personal level, perhaps you’re trying for that CFO, role, controller role, or even running a business unit. So working with someone on the other side of that desk is helpful, you help them, they help you. And that’s always good for everyone. Here is a little bit of a chart that you can use going forward to build a business case for the Treasury’s success. I talked a little bit about what I call the four flows model. And the flows I’m talking about here really are workflows, cash flows, accounting flows and information flows. And they work across different elements of the company, cash, debt investments, risk legal entities, so on and so forth. Obviously, I don’t have time to talk about the details here. But when you think about it, a lot of information has to transpire. Those are those double headed arrows that I showed you before. It’s not all about accounting flows, one of my favorite expressions is that perfectly accounting for your foreign exchange losses. It’s not a goal. The goal is to avoid the losses. And so you need information for that. And yes, accounting is important. So what’s more important? I can’t say that at the moment, this is why there is no perfect metric. So you have to have the accounting flows, the information flows, understanding the cash flows, especially, let’s say on an intercompany basis. And then there are workflows. I mean, I love it when people say, Well, everything reconciles. Yes, but there’s 58 reconciling entries. Why is that? Well, because the workflows aren’t really good, that’s part of the problem. That’s why you have to reconcile so much stuff, which is why you’re wasting corporate resources. Because the workflows are not done well. It depends on what flows where you are in this list here. Now, it helps if you have some modern tools, I mean, yes, you can chop down a tree with stone axes, it takes a lot longer, and you probably hurt yourself. So having a good modern piece of Treasury technology is important, how that interacts with all these other parts. Again, it’s important, and not to put in too much of a plug for HighRadius. But as you saw this morning, their cash flow forecasting, does something that shouldn’t be rocket scientists, which is, hey, let’s find out about our inflows and outflows by going to A/R and A/P. That’s not rocket scientist. But yet it’s very difficult to do if you aren’t measuring the right things.
So how do you change some of this stuff? How do you go from what I’ll call the traditional Treasury, which is really sort of mired in the bottom part of that triangle I showed you earlier, to get to the top part, how much liquidity is enough, how much risk is too much to build a business case for change, you really want to take a look at different areas within the company. And you can see those across the top, and perhaps come up with some benefits. The green ones are what I would call relatively easy to measure, and the orange ones are a little harder to measure. And again, all of the benefits that you get are not all in the Treasury. So you only think of Well, I’d only benefit my Treasury group, you’re going to be missing the benefits for the corporation. And the Treasury isn’t going to be as successful as you think it should be. Again, the stars are where different people benefit from different things. And as you might suspect, a lot of these things are really integrated. So that, for example, the business units are really the ones generating the effects of gains and losses. And let us Treasury is going out there and speculating on where he thinks foreign exchange rates are going to be, you’re trying to hedge something because you have exposures, the exposures are usually generated in the business units. Same thing with borrowing utilization, Treasury is not borrowing because it has nothing else to do, it’s borrowing because cash flows are insufficient, somewhere in the company. So if it can’t make cash flow, operating cash flow, you have to buy a cash flow, which is if you borrow, so you have to go back and forth and work together with other units in the company. So with all that, again, I know I’m doing this pretty quickly here. Here is what I call a starter kit. For Treasury metrics. Here’s a list of 10 of them here. Some of them are easy, some of them are hard, especially number 10. I don’t think any non Financial Corporation really does that. So it is an issue here where you’re going to have to come up with an understanding with your CFO and the business units, and perhaps even create a compensation plan that rewards people for generating, you know, Number Number four, for example. And then you have to ask the question, well, these are great. I mean, you can come up with lots of metrics, how can you measure this stuff? Does your TMS measure any of these things? Because if it doesn’t, then yeah, you could have a metric, but I wouldn’t spend, you know, tremendous amounts of effort doing this by hand, because you’re going to spend all your time measuring things and not enough time thinking about what do I do if it’s right, or if it’s wrong, you know, cash conversion cycle. As I was saying to one of the individuals here before, I mean, you think about it, that Titanic was able to see the iceberg. And they almost avoided it. But it didn’t, because their cycle times, the time to react was not fast enough. And so I don’t think anybody wants to end up like the Titanic. So you need a system that has faster cycle times, for example. Anyway, see, these are some starter kits, how you measure these and whether they’re right or not, is something you want to consider. And I also have one here and I won’t go through these because they’re too long. Here is how you can go about doing that and start measuring the right things. Here’s five things here on which the first one is relatively easy. rationalize your existing banking network. The last one here, serving as an internal consultant, is very difficult, because you’re up against a corporate culture that may be entrenched to do things the way they used to do. And, you know, I’m here at headquarters to help you. You know, what happens when you say that. So this is a very difficult thing to do. But, again, these are issues that you can take up and along the way, come up with some metrics that will make sense for your situation. So with that, now we’re into the question part about whether I can help you maybe come up with a metric that makes sense for you guys. Questions, Jeff.
Jeff (Speaker 3)
I answered the first serve. And you can see if there was free cash or not on the survey. Well, I had.
I had to keep dad here wasn’t on your clothes or your service. That’s a very important measure, or is that for you hearing companies do they don’t care about?
Bruce: ( Speaker 1)
Well, I’ve be honest, I used a survey done by a professor at Georgia Tech. Three years ago, he took a look at all the 10 K’s for the 425 companies, the s&p nonfinancial Oh, I’m sorry, they forgot about that. There was a survey that was done by a professor at Georgia Tech. He looked at all the 10 Ks for the s&p, non financial companies. Only one in four companies talked about free cash flow. So I think, you know, the answer to the question is I think it’s quite important. But a lot of companies do not, a lot of companies are so P&L oriented, that cash flow is just not on the radar. And I think that that is I think that’s a bad president. I suspect and I asked him this question, I suspect that the more highly leveraged companies are more cash flow sensitive. And when I call the low, the low leverage companies do I mean, does Apple care about cash flow? I’ll be honest, it probably does. But it’s not at number one on its Hit Parade, and has so much cash. But other non tech companies, heavily capitalized companies, I think that they should consider it more than they do. Being perfectly cynical. I think people don’t care about cash flow, because they’re not rewarded for it. It’s maybe a radical statement, but you get what you pay for these days. If it’s not my bonus plan, I don’t care. So maybe that’s But to answer your first question I, if I didn’t put it out there as probably an oversight on my part. Yes, sir.
He talked about the KPIs. You talked about KPIs and what they should be measuring. And this is a very good starter kit. What about the actual tool to capture those KPIs? And it might be as simple as a spreadsheet? Or is there more out there?
Bruce: ( Speaker 1)
I’m a big believer in treasury management systems. But I think treasury management systems still have a way to go. treasury management systems started off as sort of transaction processors, and they had to move more to what I call liquidity engines. And so in other words, they need to spend more time forecasting and planning and less time processing. And today, TMS will forecast if you put in the right information. And that’s part of the problem is the information is not there in AP AR. And there’s other engines also, I mean, if you have tremendous amounts of investments, I mean, if you’re a company that generates a lot of positive cash flow, when you have a lot of money invested, how do you get those investments? Cash Flow is the maturity of those investments. How do you bring that into a forecast? Most TMS ‘s are not that good at that. Same thing with when you have stock buyback plans. Most teams as I know don’t really have any kind of equity engine that talks about treasury stock or the inflows and outflows and what it takes. So there’s still a lot of spreadsheets. Most of the companies that I’ve seen that have TMS are still highly dependent on spreadsheets. And I think the reason for that is twofold. One is I’m not sure the users are that familiar with the capabilities of their own TMS. It is Number two, as I was mentioning before, I don’t think the TMS is there yet in the sophistication of their forecasting modules. So
Bruce: ( Speaker 1)
Yes, I would, I would argue strongly that you need a TMS the same way you need an
ERP system. ERP systems are based on accrual accounting. Well, where is the cash flow engine that you need? And not only that, but you need something that will give you the information. I don’t want to say today. But think about an earpiece system every 30 days. What do you do next week? You go into an earpiece system and are not going to give that information. So a TMS will give you information faster, and it will give you more information about your cache. Because it First of all, if nothing else, it does it from the bottom up. And that gives you that granularity that you need to make some decisions. There are some as I mentioned before, there are some weaknesses. But without that, I would not solely depend on an earpiece system by itself. Other questions?
Stephie (speaker 2)
All right. That was great. Thank you so much, Bruce. Yes. Appreciate it.