Treasury and Finance Fundamentals

Cash forecasting is the process of obtaining an estimate or forecast of a company's future financial position. The primary goal of treasury is to ensure the organization has enough cash to meet its obligations over a certain time period.

Enterprise risk management (ERM) is a strategic framework that enables organizations to systematically identify, assess and manage risks that threaten the achievement of their objectives.

Traditional approaches to risk management often address risk in isolation; ERM takes a holistic view with the understanding that risks are interconnected and can impact more than one area of an organization. Because risk management is integrated into all aspects of an organization’s operations, ERM does more than help mitigate potential threats — it helps organizations capitalize on opportunities arising from uncertainty.

A financial institution (FI) is an organization that facilitates the flow of capital between savers and borrowers. It offers a wide range of financial products and services that enable individuals, businesses and governments to manage their money, invest for the future and access the capital they need to grow. FIs come in many forms and sizes, each serving specific needs.

Liquidity management is the strategy an organization employs to refine, expand and secure its liquidity. In other words, making sure cash is in the right place at the right time. 

Why is this important? The health of an organization is measured by its liquidity, which may equate to how quickly it can access the debt/capital/loan markets and/or how much cash it has on hand (short-term). Either way, it’s about an organization’s ability to quickly and efficiently pay off its debt and short-term liabilities (e.g., payroll).

Technology has become indispensable to treasury management. Data is key to making informed decisions, and technology provides needed visibility of cash and risk. As finance serves as the central hub for the collection of information streams within a company, it is the responsibility of treasury to seamlessly integrate with other operational areas, such as accounting, payables and receivables, thereby connecting the various systems, solutions and data sources.

Treasury management is the process of overseeing a company's financial resources (including cash, assets and liabilities) to achieve the company’s strategic objectives.

Treasury management focuses on optimizing the use of monetary assets, managing daily liquidity and risk, and ensuring sufficient cash reserves to sustain ongoing operations. By guaranteeing fund availability, treasury management enables the execution of strategic initiatives aimed at achieving the organization's goals.

Determining an organization’s operational efficiency, or viability, is a product of calculating its working capital. If the working capital is positive, that means the organization has enough to cover any short-term debt. Depending on the amount left over, i.e., residual cash, it may have enough to invest in or expand the business. 

Financial Operations (FinOps) involves the operational activities performed within a company’s Office of the CFO. The primary purpose of FinOps is to manage the organization’s financial resources. The functions within FinOps typically report to the company’s controller, who is responsible for accounts payable (procure-to-pay) and, at many companies, accounts receivable (order-to-cash), among other functions.

A payment is the transfer of monetary value from one party to another, either in cash or noncash form.

Cash payments are made through the exchange of physical currency, while noncash payments usually involve transferring value between bank accounts via payment systems. Banks facilitate these transfers for their customers through multiple electronic and paper-based systems, such as Fedwire and ACH. Newer noncash payment methods, like mobile payments, transfer value between virtual accounts held by the payment service provider.

Payments fraud is one of the principal challenges organizations and businesses face today. Payments fraud is the illegal or unauthorized use of payment instruments — including credit and debit cards, checks, wire transfers and online payment platforms — to obtain financial gain. The umbrella of payments fraud encompasses a wide range of fraudulent activities, including credit card and check fraud, phishing and account takeover.

 

Budgeting is the creation of a detailed financial plan that outlines the organization's expected revenues, expenses and capital expenditures over a specific period of time, typically a fiscal year. If an organization has a long-range plan, the budget extends beyond one year into the future.

Effective budgeting helps ensure the company aligns its vision with its goals and operations. It also helps the company allocate resources effectively, meet financial targets and maintain good financial health. Additionally, budgets provide a critical benchmark for evaluating performance, identifying variances and making informed decisions to pursue organization-wide objectives.

BPM enhances the effectiveness of planning processes, such as budgeting and forecasting, by creating a feedback loop between strategy, planning and operational activities.

Capital budgeting is the process organizations use to evaluate whether or not to fund major projects or investments intended to increase cash flow or advance strategic objectives. It involves the planning and analysis of investment in long-term assets such as new or replacement machinery, new plants, products or R&D.

The goal of capital budgeting is to determine whether an investment or project is worth pursuing, and to ensure the company's capital resources are efficiently allocated, as these assets require a considerable amount of funding and are not easily liquidated.

Effective communication skills are necessary to become a trusted business partner in finance. The business trusts FP&A because of its understanding of the numbers and listens to FP&A because of its ability to tell the story of what those numbers mean. When you can clearly convey financial information to non-finance colleagues, you build credibility across the organization and position yourself to influence decision-making at all levels.

Business partnering is the collaboration between finance and other business units to enhance decision-making and optimize resource allocation. It enables FP&A to leverage its financial analysis, reporting and forecasting skills to drive the business forward.

FP&A builds alignment across strategy and operations by seeding the strategic plan into the annual operating plan and managerial ownership levels. By objectively assessing the financial implications of proposed actions, FP&A ensures decisions are well-informed and strategically sound, playing an influential role in the company's overall performance and success.

A financial model is a representation of the expected financial performance of an organization, product or asset. It simulates the potential outcomes of decisions or scenarios by defining assumptions about the world, expected performance, and operational and financial relationships.

A financial model estimates the financial outcome of questions such as, how much money will we make this year? Is this investment a good idea? How much risk are we taking?