During the second quarter of 2023, the number of companies declared bankrupt in the European Union (EU) increased by 8.4% compared to the previous quarter, thus accumulating six consecutive quarters on the rise to reach the highest level of the entire historical series, which dates back to the first quarter of 2015, as stated by Eurostat data.
According to a study conducted by the Failure Institute Research in several countries of different continents, where the reasons for bankruptcies in companies were analyzed, it turned out that 23% went bankrupt due to strictly financial problems, data exportable to these days, which explains a lack of treasury management in companies.
One of the most relevant aspects for an organization is its financial dimension. In my opinion, the finance department and specifically focusing on strategic treasury management is the epicenter of collaboration with the rest of the departments, as we have the vision, we align the company's strategy to ensure that growth is sustainable and financially efficient.
The growing relevance of the Finance Department and therefore the role of CFO as a key player in all decision-making in the company, is due to the fact that the environment in which we move, companies are increasingly volatile (inflation, wars, energy crises, etc.) and the information we must handle before making strategic decisions is not only internal (inside the company), we need to know, know and anticipate what is happening in the industry, geography, environment, economy and geopolitical situation in which you are. So, in the configuration of a Budget, what we call in this article as "strategic cash flow" must discount all these external variables and align the other departments of the company in the variables that we must take into account to make the cash flow that can best take advantage at all times of the company's capabilities within the business environment and the external factors that may affect it.
" It's not just being able to predict cash flow, because we understand the revenue cycles of customers, vendors, suppliers, and contractors, it's knowing how to take advantage of the gaps (ups or downs) to financially align the company's strategy and delimit in advance at what times we can make larger disbursements or refinancing the company "
Moving down from the strategic overview to the more specific details, we should always prioritize cash flow strategies in our business planning. It's not just being able to predict cash flow, because we understand the revenue cycles of customers, vendors, suppliers, and contractors, it's knowing how to take advantage of the gaps (ups or downs) to financially align the company's strategy and delimit in advance at what times we can make larger disbursements or refinancing the company.
As mentioned above, the current economic framework, forces us to have a long-term strategic cash flow vision since the rise in interest rates to contain inflation is making companies more vulnerable, as loans are more expensive, spending on purchases increases, etc... facts that also prevent us, in general, to pass on this effect completely in sales prices. It is just as important to take care of our suppliers as it is to take care of our customers, since, at times like these, reaching long-term agreements with our suppliers, in which we manage to cushion the effects of inflation on our purchases, is almost as important as achieving our sales budget, so that our cash flow remains as healthy as possible with a good working capital ratio.
Now the market trend is to prioritize the execution of strategies that allow the creation of sustainable future value to continue to take care of cash flow.
