4 Essentials to Support an Effective Treasury Business Continuity Plan

Written by Sergio Garcia
July 5, 2024

The current economic landscape creates a necessity to build an effective treasury business continuity plan to navigate a complex economic landscape. Inflation remains stubbornly high, with the Consumer Price Index (CPI) reaching a staggering 8.6% in May 2024. This relentless rise in the cost of goods and services is squeezing corporate profit margins and putting a strain on cash flow.

In response, the Federal Reserve has taken a decisive stance. Their June meeting saw them maintain current interest rate levels in the range of 5.25% – 5.50% – the highest level since 2000. This move aims to curb inflation by making borrowing more expensive and encouraging businesses and consumers to spend less.

However, the Federal Reserve’s actions present a double-edged sword for corporate treasurers. While higher interest rates can offer some relief on cash held in interest-bearing accounts, they also significantly increase the cost of borrowing for capital expenditures, acquisitions, and other essential business activities. This creates a delicate balancing act for treasurers, who must navigate a complex economic landscape riddled with both inflationary pressures and elevated borrowing costs.

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Impact on Corporate Treasury Operations

These economic headwinds have a direct impact on corporate treasury operations. Let’s explore some key areas:

  • Cash Forecasting: Rising interest rates and inflation make accurate cash forecasting more critical than ever. Treasurers need to anticipate future cash flow fluctuations to ensure sufficient liquidity to meet obligations (e.g., payroll, supplier payments, debt repayments) and capitalize on opportunities (e.g., early payment discounts, strategic investments). However, manual forecasting processes, which often rely on spreadsheets and historical averages, can be time-consuming and prone to errors. These errors can lead to missed opportunities or cash flow shortfalls, hindering a company’s ability to meet its financial commitments.
  • Scenario Planning: The volatile economic environment requires treasurers to develop robust scenario plans. These plans should consider various economic possibilities, from continued inflation to potential recessions. Manual data analysis, however, makes it difficult to run simulations and quickly adapt to changing circumstances. Treasurers struggling with outdated information may miss critical warning signs or be slow to react to economic shifts, jeopardizing the company’s financial health.
  • Funding for Mergers and Acquisitions (M&A): Rising interest rates can significantly impact the cost of financing M&A deals. Treasurers need to assess their funding options and develop strategies to manage these costs. However, limited visibility into cash flow can hinder their ability to effectively evaluate financing alternatives. Without a clear understanding of their financial position, treasurers may miss out on favorable financing options or overpay for borrowed funds, impacting the overall profitability of the M&A transaction.
  • Cash Allocation: Effective cash allocation becomes paramount during economic uncertainty. Treasurers must strategically balance the need for liquidity with the goal of maximizing returns. Yet, outdated cash flow information hinders informed cash allocation decisions. Treasurers relying on manual processes may allocate cash too conservatively, missing out on potential investment opportunities, or conversely, allocate cash too aggressively, leaving the company vulnerable to cash flow shortfalls.

Data Accuracy Challenges

Many treasuries still rely on manual processes for data aggregation and reporting. This approach creates significant challenges:

  • Inaccuracy: Manual data entry is prone to errors. These errors can snowball through various reports, impacting the reliability of cash flow projections and financial decision-making. 
  • Timeliness: Manual data collection and consolidation are time-consuming, leading to outdated reports by the time they are available. This lack of real-time data hinders agility and proactive decision-making. Treasurers may miss out on critical opportunities to invest excess cash or hedge against potential risks due to reliance on outdated information.
  • Limited Insights: Manual processes are inefficient and cause treasurers to lose time on analysis. This makes it difficult to analyze trends and identify anomalies. Treasurers lack the insights needed to optimize cash flow, identify potential risks, and capitalize on opportunities. Without the ability to easily analyze historical cash flow trends, it’s difficult to predict future cash needs and proactively manage liquidity.

The 4 Modern Essentials of an Effective Treasury Business Continuity Plan

Modern treasury management software empowers treasurers to overcome these challenges by automating critical treasury operations. We’ve previously explained modern tech that enables treasury automation for enhanced reporting and forecasting. Now let’s focus on how treasury automation can ensure business continuity in a volatile economic environment:

1. More Accurate Cash Forecasting with APIs

Modern treasury tech leverages APIs to integrate data from various sources, including bank accounts, ERP systems, and more, enabling more accurate cash flow projections. This level of detail and accuracy allows treasurers to confidently plan for future cash needs and make informed decisions about investments, debt financing, and other financial activities.

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2. Streamlined Scenario Planning

Modern treasury tech allows treasurers to create diverse scenarios and quickly analyze their potential impact on cash flow. Treasurers can model the effects of different economic possibilities, such as future interest rate cuts, supply chain disruption, or acquisitions. This proactive approach allows you to adapt your strategies and make informed decisions based on changing economic circumstances. 

3. Data-Driven Insights for Funding M&A Activity

Automated data collection and reporting provide treasurers with a clear picture of their financial position, including available cash reserves and existing debt obligations. This allows for a more informed evaluation of funding options for M&A deals. Treasurers can compare different financing structures, such as bank loans, bond issuance, or asset sales, and choose the most cost-effective option based on their current financial health and risk tolerance. Additionally, real-time cash flow visibility enables treasurers to better manage their cash flow post-merger, ensuring smooth integration of the acquired company and avoiding disruptions.

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4. Strategic Cash Allocation

A modern treasury platform centralizes cash flow data, allowing treasurers to monitor real-time balances and identify optimization opportunities. They can then allocate cash strategically, balancing liquidity needs with investment opportunities to maximize returns. For example, a modern treasury solution can help you identify excess cash sitting idle in bank accounts. This information allows the treasurer to invest the surplus funds in short-term securities to earn a higher return, optimizing the company’s overall cash flow management.

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Why Trovata is a Powerful Foundation for an Effective Treasury Business Continuity Plan 

Trovata’s next-gen treasury tech offers a comprehensive solution for automating corporate treasury operations:

Cloud-Native: Trovata’s cloud-native platform differs from cloud-based TMS. Cloud native means we’re a modern platform built for the cloud and offers superior capabilities:

  • Scalability: Cloud-native apps can easily handle fluctuating workloads without compromising performance or stability.
  • Flexibility: These solutions can be quickly updated, customized, and expanded to meet evolving business needs.
  • Security: Built-in security features like encryption and access controls ensure that sensitive financial data remains protected at all times.
  • Unlimited Data Storage: As your organization grows adding new accounts and banks to the mix, cloud-native solutions can seamlessly scale with your rate of growth. This equips you with the ability to easily integrate new data and process all of your bank data at rapid speed.

User-Friendly: Trovata is built for treasurers. Our intuitive user interface allows even non-technical users to navigate the system easily. This ensures a smooth transition to automated workflows and minimizes disruption for the treasury team.

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Advanced Data Integration: Trovata seamlessly integrates with existing ERP and banking systems, automatically pulling data and eliminating manual data entry errors. This ensures data accuracy and real-time insights. Treasurers can trust the information they’re working with, leading to more confident decision-making.

Advanced Analytics and Reporting: Trovata provides robust reporting capabilities with customizable dashboards. Treasurers can easily visualize trends, identify risks, and make strategic decisions based on data-driven insights. For instance, treasurers can create dashboards to track key metrics such as daily cash flow by entity, bank fees, and much more. This level of visibility empowers you to proactively manage potential risks and identify opportunities to optimize financial operations.

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Security: Trovata is SOC I and SOC II compliant, meaning we prioritize the highest levels of data security. Your financial data is protected with industry-leading security measures, ensuring peace of mind.

treasury business continuity plan

In today’s volatile economic climate, business continuity hinges on a resilient treasury function. By automating treasury operations with Trovata, you can ensure accurate cash forecasting, develop robust scenario plans, make data-driven decisions about M&A financing, and strategically allocate cash. This proactive approach empowers treasurers to navigate economic uncertainty and position your organization for success in any market condition. To learn how Trovata can transform your operations and power an effective treasury business continuity plan schedule a demo today!

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