How Global Tech Companies Can Optimize Cash Flow Management

Written by Jason Mountford
May 24, 2024

Global tech companies always have their eyes on the future. From humble garage beginnings to multinational global brands, the sector is defined by constant innovation, large upfront investment and a R&D payback period that can sometimes be measured in decades.

As a tech business matures, that demand for growth expands beyond in-house R&D to huge capital outlays in the form of mergers and acquisitions. In short, staying competitive in the tech sector requires substantial amounts of cash on an ongoing basis. 

And while a long time horizon is a necessary part of a tech company’s business plan, there needs to be sufficient cash flow to ensure the company survives long enough to see out its long term vision. That’s why optimizing cash flow is especially crucial in treasury management for the technology industry.

The rapid pace of growth that most tech companies are aiming for heightens the risk of cash flow problems. The more aggressive the growth strategy, the greater the pressure on meeting financial targets and spending cash in line with forecasts. Errors in the R&D burn rate calculations or underestimations in the headcount plan can quickly send forecasts out the window. 

These risks can be managed. As long as treasurers understand the potential outcomes of these events, and their financial models sensitivity to changing assumptions, they can manage cash in a way that reduces the chance of them becoming an issue.

Modern treasury software plays a huge role, allowing treasurers to create multiple complex scenario plans, run sensitivity analysis and keep a close eye on cash reserves using real-time banking data across multiple subsidiaries.

Let’s take a look at exactly how the right treasury tech can help tech companies optimize their cash flow for sustainable long term growth.

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Balancing Long Term Growth Objectives With Short Term Cash Flow Needs

The financial model of a tech company is arguably more important than in many other sectors. Traditional industries with lower capital expenditure costs or a more consistent return curve can model modest, consistent growth and create an accurate forecast with limited variability.

In tech, there can be many years where a company or product line loses money, before gaining some traction. If it ever does. Even once it reaches breakeven, the growth trajectory can remain flat, see some modest growth, or experience parabolic gains in an incredibly short space of time.

This variability of outcomes makes it difficult for treasurers and finance teams to accurately plan.

Long term growth objectives are obviously important, and companies need to allocate sufficient resources to provide the best opportunity to reach scale. At the same time, there are likely to be many failures along the way. 

‘Betting the farm’ on a single product or technology can send a company down for good.

This is why short term cash flow should always be a high priority for tech companies, balanced against the need for long term growth objectives. Healthy short term cash flow provides a company with flexibility, giving finance teams access to resources which can be reallocated during volatile periods.

Example: Expansion through acquisition 

The key here is access to the right forecasting tools. Getting the balance right between growth and financial stability comes down to accuracy on the current financial position of the company, and oversight of the potential future outcomes of the growth plan.

Treasurers need to be able to forecast a range of different scenarios, to allow them to plan for the worst and best case scenarios. 

For example, imagine a social media platform which is looking to make a large investment in a messaging app. 

Scenario A: Success

This will be a major capital investment. If things go well, it will provide the platform with access to a large database of new users, significantly more data and subsequently greater opportunities for advertisers.

Treasurers will need to model not only the additional revenue that will be generated from the deal, but also the increased costs that will hopefully come from the scale the acquisition brings. Growth is a good thing, but the company needs to be able to handle it without failing on delivering customer expectations on product stability and updates.

Building a scenario plan based on the successful integration will allow treasurers and finance teams to more accurately forecast their headcount plan, product roadmap and cash needs. 

Scenario B: Failure

Alternatively, the acquisition might be a total failure. In this scenario, treasury and finance teams need to understand the impact this will have on the company’s short term cash flow. Will budgets need to be reduced in other departments to cover the losses on the acquisition?

Will layoffs be needed? If so, what will the upfront costs of this be? 

There are thousands of questions that need to be answered, and scenario planning allows analysts to play them out and provide well-reasoned strategies to navigate the potential hurdles.

Improving Cash Visibility in Treasury Management for the Technology Industry

But it’s not just forecasting that’s important to tech companies looking for sustainable growth. Something as simple as cash visibility can have a major influence on the effectiveness of treasury and finance, and their capabilities as a key strategic advisor for the CFO and rest of the C-suite.

Particularly for large companies, cash visibility can be a challenge. There are often many bank accounts spread across multiple banks, requiring substantial manual work in exporting and consolidating the transaction and balance data into a master spreadsheet.

This puts the treasury a step behind. Rather than focusing on trends in the cash flow data or seeking opportunities to increase cash yield, all of their resources are spent in simply keeping the records up to date. That’s low value work that doesn’t drive growth.

That’s why it’s not surprising that 40% of CFOs around the world do not completely trust the accuracy of their organization’s financial data – creating challenges for strategic decision-making at a time when global business leaders are confronted with a wide range of external challenges. Confidence in cash flow visibility also remains stubbornly low, making it difficult for organizations to respond to unexpected market changes, according to a survey by Blackline.

Using modern treasury tech solutions, much (or all) of this data gathering can be automated through the use of technology such as open banking APIs. This gives treasurers the ability to see all of their cash holdings, in real time, on a single dashboard.

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Combining this with advanced analytics and features such as automated transaction tagging and custom search capabilities, frees up time to spend on analyzing the data, rather than collecting it.

Once you add AI and machine learning to help identify trends in the data, analysts can now quickly see cash flow or growing cash balances that are being underutilized. From there, they can re-allocate the resources to other budget line items, or simply move the cash to a higher yielding account or investment.

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In short, tech enables cash management strategies which not only maintain liquidity, but drive additional revenue.

The Challenge of Cross-Border Cash Flow Management

Challenges of efficient cash management, from visibility to maximizing yields and everything in between, are magnified when dealing with multiple entities across multiple countries.

This level of scale brings with it tax complications, additional risks related to foreign exchange, and the need to operate across multiple different banking systems.

It’s arguably not possible to efficiently manage cash holdings and cash flow in mutli-national companies without the use of specific software designed for this purpose. The right platform can automatically adjust details based on live exchange rates, automatically calculate and categorize tax liabilities in both current data and in forecasts, and even take into account more complex corporate structures like joint ventures.

The trick then, is choosing the right technology solution to meet those needs.

Choosing the Right Treasury Tech Solution

Multi-bank connectivity isn’t new. ERPs and legacy TMSs have been doing it for a while, providing treasurers with some consolidation of their banking data. However, the accuracy and efficiency of this data transfer has always left a lot to be desired.

Inconsistent file matching means high failure rates on the data being accurately transferred from the banking portal to the client platform, and the manual file based process means a significant amount of human intervention to normalize the data.

Even when that’s done, the data is basic and the platforms lack comprehensive forecasting and analysis tools.

Modern treasury tech solutions help solve that problem. By using an API-first approach, these newer platforms utilize open banking to provide a direct, real time link with each bank. That means no manual data entry or normalization, and no need to wait for a file to be sent to see up-to-date information.

Treasurers can log into their third party treasury tech platform, and see a real time mirror of their banking data.

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Because modern platforms have access to so much more data (such as the entire transaction history), it opens up significantly more options for analysis and search capabilities. Additional features like automated tagging means that over time, the understanding of this data just gets better and better. 

They offer the ability to manually analyze the trends in each category, or even use the in-built AI and machine learning tools to help identify trends and anomalies for you.

Trovata Provides Global Tech Companies With a Cash Management Edge

Trovata offers the best in what modern treasury tech solutions have to offer. Building the platform around APIs not only means faster access to more data, it means the ability to push new updates and features on average every two weeks, rather than every six months for a legacy TMS.

It also means being able to provide these updates without the need to shutdown the system, losing visibility of your banking data in the meantime. The customizable tagging feature allows treasurers to automatically categorize and organize their data, which can be then built into custom dashboards to provide a snapshot of any metric, trend or piece of financial information you can think of.

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For companies who operate across multiple entities, Trovata offers a range of specific features designed to make this more efficient. Customizable entity hierarchy, flexible entity-based permissions for enhanced security, and simple bulk imports for new entities as your company scales are just some of the capabilities available to multi-entity finance and treasury teams.

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The automation features extend to reporting and forecasting, allowing finance and treasury teams to create usable outputs from their data in a matter of minutes, rather than days.

And for those companies who already use an integrated ERP, Trovata can seamlessly integrate into those platforms, giving treasurers and finance teams access to vastly superior data and analysis tools, while continuing to provide an effective overview for the CFO and the rest of the C-Suite.

“I gravitated to Trovata because of the APIs. I think this is just the way to go compared to SWIFT and host-to-host. The daily feed keeps our data fresh and readily available. Transaction tagging allows for easy categorization and a clear picture of our actual cash flow. Logging in provides instant updates, eliminating the need for manual data pulls. Now, the team has complete confidence in the accuracy and accessibility of our financial data, allowing everyone to easily track specific transactions as needed. It’s also really easy to implement.”

Bruce Edlund – Assistant Treasurer at Cloud Software Group

Want to find out more about how Trovata can enhance your cash management? Book a demo today!

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