Interim Treasury Management: An Introduction

Interim treasury managers are almost invariably
dropped into new treasury operations, or are hired into existing treasuries
that are in a staffing crisis of some kind. The pressures and challenges are
intense, as the interim treasurer fulfils the critical role of securing and
managing cash and working capital in a time of often profound change. The key
tasks fulfilling immediate operational needs, research and development,
planning and design, and managing the related changes across the finance
organisation.  

What is  Interim Treasury Management?

An ‘interim treasurer’ is
exactly what the  title suggests – he or she fulfils the role of an
organisation’s corporate treasurer for a limited period of time. Very often,
interim treasurers are appointed to set up and manage treasury operations in
new, freestanding entities that have been created through corporate actions such
as spin-offs and demergers. Interim treasurers also have a role to play in
other kinds of green field treasury operation, and in helping out organisations
that have experienced a treasury management staffing crisis of some kind.

Many
of the observations, experiences and principles discussed here will have much
relevance for permanent treasurers, who are working in similar start-up
situations or who are employed in radically and rapidly-changing organisations.

As a general rule, there is little or no pre-existing
treasury infrastructure in place when an interim treasurer joins; but there are
usually immediate, urgent treasury management needs from Day One.

Recruiting an Interim Treasurer

Interim treasurers are often recruited
through small specialist companies, whose teams have the necessary treasury
management skills and experience as well as a sufficiently large network of
qualified and available professional treasurers to be able to identify a
suitable candidate or candidates quickly and effectively. There really is
virtually no room for error in this process, as the interim treasurer must ‘hit
the deck running’ with a high level of effectiveness and precision.

Accordingly, there is little or no substitute for authenticated senior
treasury experience and achievement as the key criteria for this appointment.
The intense time pressure and very narrow margins of error also require that
strong levels of mutual trust and effective inter-communication must be very
quickly established between the new corporate owners and senior management and
the interim treasurer if the arrangement is going to work well.

Private
equity investors usually have the connections to an appropriate specialist
treasury services company to get the appointment process urgently under way. They generally have good understanding of the general requirements and
importance of treasury management. What they tend to lack is skilled
treasurers on their own team, who can jump into the new company and run the
treasury function. Therefore they must delegate this responsibility to the
interim treasurer, to whatever extent is needed in a specific case, based on
the complementary skills and experience of the new management team – to whatever
extent it is in place.

Treasury is, of course, a highly specialised
business, even for many finance professionals who may have only limited direct
practical treasury experience or understanding.

In most practical
scenarios, there probably isn’t sufficient time to shop around for an interim
treasurer, or to go through a drawn-out formal bidding process. Consequently the
necessary level of mutual trust must be established very quickly and the
required action taken, with the specialist treasury company providing the
critical services and inputs.

Interim treasurers’ contracts are
typically open-ended and cancellable, since it is unlikely that the details
of the assignment can be accurately estimated at the beginning. It takes time
and effort before clarity can be established. In practice, interim
treasurers’ assignments tend to run for between four and 12 months,
depending on the specific circumstances.

Getting Started

The key to
a good start is to hold a treasury project kick-off meeting for all members of the management team. This meeting is tasked with
establishing the interim treasurer’s terms of reference and initial operating
priorities. It establishes how treasury will work together with other
departments. The way this happens and its effectiveness relies largely
on the interim treasurer’s expertise to recommend effective courses of action.
There may be limited scope to go much beyond setting initial priorities and an
appropriate control framework, so that treasury work can begin in a reasonably
structured environment.

The interim treasurer must get the new treasury
operation up and running smoothly and then, in time, hand over to a full-time
treasurer. Even these high-level steps alone can be difficult to plan, if the
terms of reference for a full time treasurer are not clear from Day One. It will
be necessary to research and analyse the details of the new corporate
organisation, and then to put in place a structure and plan that fulfil the
initial objectives.

The full-time treasurer should only be appointed once
there is sufficient information to compile a full professional profile of the
ideal person, draft an employment package and write a detailed job
description. At the same time, the first priority is to achieve
sufficient levels of understanding of the immediate treasury needs, typically
in cash management and funding, so that they can be properly fulfilled. The
new operation, if it is to survive and thrive, must generate sufficient
dependable liquidity to service outstanding debt, and to finance commercial
operations.   

Recommendations for Interim
Treasury Operations

These recommendations are for investors and senior
executives of organisations that are creating a green field treasury
department and are directly based on interim treasurers’ professional
assignments. They should help the new organisation to achieve its critical
treasury management objectives over the early weeks of the new operations,
reflecting the usual priorities of cash and liquidity management. 

Funding mechanism and obligations: It would be extremely valuable to
attach practical guidelines to the legal loan documentation. It is critical that new treasurers and finance directors clearly understand what is
needed to comply with loan covenants, and also important that they know how to operate the related facilities. Such documentation would ideally
include a base schedule of accounts payable and receivable (AP/AR) that are known at
the time of closing. It would help the interim treasurer to get an accelerated
picture of what action is most urgently needed for compliance and assured
liquidity.

Bank relationships: Interim treasurers’ mandates should
be flexible enough to enable them to set up banking relationships within the
constraints of existing loan agreements to achieve banking objectives cost
effectively and efficientl – for example in meeting the complex demands of
international business. A bank’s size and its membership of a lending group
does not necessarily mean that it can effectively deliver the full range of
services needed by the new entity. Accordingly, the interim treasurer needs
sufficient scope to identify the bank(s) best able to provide the
required services.

Ancillary functions: It is  probably worth
putting in place initial specialist outsourcing arrangements for core functions
that are not properly staffed at the start of the new organisation’s
operations. Examples include payroll, human resources (HR), technology and accounting. This
provision will help to facilitate easier understanding and operations in the
early stages, by reducing both effort and risk. In-house structures can of
course be put in place at a later stage. From the treasury perspective,
cash and financial risk will be much more effectively managed if the
enterprise’s core functions are being performed professionally from the start.

Treasury technology support: Spreadsheets might be flexible, but they
are not the most robust medium for supporting complex treasury operations. If
the original parent company in a spin-off or carve-out situation has a
reasonable working treasury management system (TMS), it may be possible and cost-effective to clone this solution for the
new treasury’s use. This approach can provide a secure
operational platform, enabling the interim treasurer to focus on his/her
priority duties of cash and financial risk management, rather than struggling
with data collection, validation and manipulation.

Conclusion

Interim treasury management is a challenging and interesting role, providing
essential financial services for new ventures at a time of great change and
stress. An interim treasurer needs to have had broad prior experience of treasury, be adaptable to new situations and have a strong personality in
order to succeed.  However, it is highly satisfying to look
back at the end of the assignment and review the accomplishments.  

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