How Treasury Management and Cash Management Help Businesses

How Treasury Management and Cash Management Help Businesses

November 15, 2023

Treasury management and cash management are often considered the same but are very different. Treasury management encompasses a company's funding and investment activities, and cash management is the day-to-day management of cash inflows and outflows. This article provides business owners insight into how treasury and cash management may be appropriate for their situation.

What is treasury management?

Often, business owners are familiar with treasury management software through a financial institution that helps them monitor their financial accounts, pay bills and employees, make loan payments, etc. This software helps monitor the inflow and outflow of cash but provides limited personal contact between the institution and the business owner.

Small to mid-sized businesses often require help optimizing their liquidity while mitigating their financial and operational risks. That's where treasury management provided by an individual or team can help. Treasury managers are financial decision-makers who help business owners keep an eye on their cash flow beyond accounting. Treasury managers may be financial professionals who have experience in investment management, have accounting knowledge, and take on the role of the business's financial planner.

Treasury manager advisors are strategic in short-term and long-term business planning, mergers, and acquisitions and may work alongside the business's accountant in an advisory role. Ultimately, they can help determine the company's funding and investment activities since they often have knowledge in these specific areas:

  • An understanding of financial markets
  • Experience with financial instruments and debt instruments
  • Banking relationships and bank covenants

How a treasury manager can help

For business owners, working with an experienced financial professional with an emphasis on business and treasury management experience may help them focus on daily operations while leaving the big-picture items to someone else. Working with a financial professional who takes on the role of treasury manager can help streamline a business's finances by:

  • Identifying and managing risks
  • Developing policies and procedures
  • Coordinating accountants and other specialists
  • Consulting with legal and tax professionals
  • Developing a long-term financial strategy
  • Determining an appropriate time for mergers, acquisitions, or a sale
  • Investing capital to accumulate more assets
  • Auditing expenses and monetary policies
  • Determining appropriate financial strategies
  • Helping pursue the business's financial confidence
  • Participating in short-term and long-term business planning
  • Mitigating cash management issues

Positive cash management is vital when it comes to growing and sustaining a company's stability. Cash management impacts how cash inflow and outflow occur and how the business grows through expansion, investments, mergers, or acquisitions. Cash management is essential for providing the financial resources for:

  • Purchasing materials
  • Paying suppliers
  • Covering operational expenses
  • Purchasing capital equipment
  • Making investments
  • Paying employees
  • Buying out a business partner
  • Buying back shares or paying dividends to shareholders

A treasury manager will also monitor key business areas that can positively or negatively impact a business's cash management:

Accounts receivable - Granting credit, billing, and collecting on services or products.

Accounts payable - Paying of suppliers, employees, and others.

Inventory management - Managing inventory so there is enough for immediate use, but not excess that ties up cash.

How cash management can help a business

Having too much cash or insufficient cash can be problematic for a business. For example, if a business doesn't have enough money, it will have to borrow, pay interest, or sell assets to generate the cash it needs.

Or, if a business has too much cash, it may miss investing opportunities to generate additional assets and earnings. Business owners can put their capital to work in these specific ways without sparking liquidity fears:

  • Facilitating investment opportunities
  • Take advantage of business expansion opportunities
  • Planning for capital expenditures
  • Providing strategies for financing at better terms
  • Pay off lenders
  • Buy-out a business partner

Why work with a financial professional for treasury and cash management?

Some financial professionals specialize in the unique needs of business owners by overseeing all parts of their business from a financial standpoint. They may also provide independent professional insights to help them thrive, save money, grow assets, and respond quickly to change.

Financial professionals know the laws and investment strategies that may help you make the most of your business profits. They can help you overcome cash management, tax, and other financial problems that may negatively impact your business.

As a fiduciary, financial professionals work toward developing strategies to help plan and fund future business initiatives. These initiatives may include buy-sell agreements, mergers, acquisitions, expansions, and other significant financial events the business may experience. Often, financial professionals have a network of insurance, legal, and tax professionals that help them implement appropriate strategies for the business and its owners as needed.

If business owners are looking for assistance in proper planning for their business, including treasury and cash management, working with a financial professional may be worth the consideration so they can pursue their goals and focus on what matters most.




Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Fresh Finance.

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