What does a Treasurer Do?

What is the function of the treasurer of a company?

The answer is simple: the treasury function is all about looking at possibilities, risks, and returns. A treasurer of a company analyzes the economy, the business cycle, the product life cycle and the business plan of the company. What funds are going to be needed? Is there a recession coming or underway? How can funds be deployed for the best risk-adjusted returns? What is the cost of capital?

The answers to these questions are all moving targets, and a lot of it is educated guesswork. The treasurer has to work with the management team in formulating and executing the business plan. The work is at the same time very granular and yet also broad brush to the point of conceptual.

If they have promising projects, with large risk-adjusted returns on investment, that is where they should put their funds. If they can buy businesses with a good return on investment, they should do it. If they can place the money in investments which pay a greater return than their cost of capital, they should do it.

If the Treasurer’s team sees a big recession coming, they may decide to build a war-chest, or invest in things that will lower operating overhead. They may decide that paying down debt is a great idea.

Part of the “cost of capital” equation is what to do about dividends. It may make sense to pay a healthy dividend to investors, thus increasing the value of the common stock, which in a roundabout way reduces the cost of capital, or at least its accessibility.

So, as you can see, there are as many different answers to this question as there are issues to be addressed. But is this only an issue that large public companies have to deal with? The answer is decidedly no. In fact, the imperative of dealing with these issues is even more acute for smaller firms with less resources, and a higher risk of failure. Every entrepreneur has to deal with these issues.

At CEAnow.org, we have some videos which describe the treasury function as it relates to smaller firms in the context of executing the business plan.

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