Reassessing Financial Maturity Post-Pandemic

Published: November 10, 2021

With the successful vaccine roll-out and the lifting of Covid-19 restrictions in many parts of the world, it feels like we are finally moving beyond the pandemic and returning to (something like) normal. However, most business leaders recognise that major disruptions will strike again. Today’s finance and treasury teams are faced with ensuring their business’s financial health and stability while grappling with this unpredictability.

Since the beginning of the pandemic, treasurers and CFOs had to keep tight control over existing and future cash flows. To preserve cash during a time of crisis, many businesses froze hiring, and cancelled or deferred investment decisions. Coupa’s global survey of more than 650 financial executives last year found that 70% made cuts in order to contain costs. While they may have been necessary, these reactive responses are unsustainable in the long term and can restrict financial recovery and growth. 

To return to growth, finance leaders must regain control over their business’s financial health, and research shows that preparing now pays off later. According to McKinsey, companies that prepared sooner, faster, and more strategically for disruptions to profitability, cash flow, liquidity, and growth go on to perform better financially both before and after a downturn. In fact, McKinsey’s report found that these “resilient” companies outperformed rivals by more than 150 percentage points based on returns to shareholders.

So how can treasury help achieve this resiliency? The key is financial maturity: the more financially mature a business is, the better it can plan for uncertainty and respond to disruptions. It is, therefore, a priority for businesses to assess their financial maturity.

At the beginning of the financial maturity journey, most companies are reactive. Typically, processes are manual; treasury will likely be keeping track of cash flow using basic spreadsheets or paper. This might be natural for a small team, but this process does not scale as the business grows, and getting things done quickly becomes difficult as procurement, finance, accounts payable (AP), and treasury become entrenched in silos. The same Coupa survey of financial leaders found that the vast majority of companies (78%)are still reliant on manual methods of business spend management.

Once a company has digitised and consolidated its financial information, it moves to the next stage: operationalised. It has stopped using spreadsheets and paper and started connecting systems together using cloud-based technology that enables collaboration between departments.  Problems such as siloed spend may still happen, but digitised operations will make it easier to identify and address.

The next stage is when companies become orchestrated. The business will have invested in technology platforms that unifies its spend and liquidity. For instance, a centralised treasury system can be the first line of defence in a time of crisis because of the group-wide control and cash flow visibility it offers, enabling treasury to make more accurate forecasts.

Orchestrated companies will see their financial transformation beginning to accelerate and return on investment (ROI) increasing. Their spending is smarter and cash projections are painless. Finance and treasury spend less time on manual tasks and more time on strategic priorities.

The final stage of maturity is optimisation. Optimised companies can leverage advanced technologies to automatically predict and assess threats and fraudulent activity before they happen. They are ready and able to respond quickly to disruptions and are committed to continuous improvement.

With the stages of financial maturity identified, how should finance leaders lay the foundations to achieve optimisation? The first step is to assess the financial health of their company. Treasury will play a key role here, as this moment of reflection requires three elements.

The first is visibility. Do you have real-time visibility of your costs and cash flow? Without this, all your decisions will be made reactively, not proactively. Research in 2018 from the Economist Intelligence Unit found that more than 60% of CFOs lack complete visibility into their transactions.

The second element is control. A lack of control makes it almost impossible to manage liquidity or ensure compliance. By empowering the treasury team with the correct control capabilities, it becomes easier to optimise working capital and ensure cash is in the right place at the right time in the right currency. Financial control also brings with it traceability, which is essential for oversight and auditing.

Last, there is financial performance, which drives business success. How are you performing currently, and where is your untapped potential?

Combined, these elements affect financial health across spend, payments, and liquidity. Unifying the financial data across your business is essential to creating a strong foundation for reducing risk and improving performance.

This self-assessment is essential before a business can take action to improve financial maturity and build resilience.. It’s also important to remember that the journey to financial maturity is ongoing and businesses must work to continuously improve, or risk regressing if, for example, the treasury loses visibility of financial data as the company grows larger.

With the right data to hand, a mature and optimised business can respond rapidly to any given situation. Of course, no one can totally avoid or prevent disruption, but research proves that we can be more prepared for it by prioritising financial maturity.