Treasury Management for Growing Businesses

What is Treasury Management and Why Does It Matter?

Treasury management encompasses the strategies and processes a company uses to optimize its cash position, manage financial assets, and ensure sufficient liquidity to meet both operational obligations and strategic objectives. For growing businesses in the $5M-$50M revenue range, treasury management often receives insufficient attention until a liquidity crisis forces the issue.

The JPMorgan Chase Institute's research on small business cash flow found that the median small business maintains only 18 days of cash on hand—a buffer that can evaporate quickly when revenue seasonality, growth investments, or unexpected expenses converge. Companies that survive and grow tend to take a more sophisticated approach to liquidity, treating cash not as a resting place but as a strategic asset requiring active management.

For businesses in this revenue range, treasury management addresses several interconnected challenges. First, cash visibility: Do you know your actual cash position across all accounts and entities in real time? Second, liquidity optimization: Are you maintaining the right cash buffer without excessive idle funds? Third, risk management: Are you exposed to banking, credit, or interest rate risks that could threaten operations? Fourth, growth support: Can your treasury processes scale to support expansion without creating operational friction?

The consequence of neglecting treasury management is predictable. Companies that fail to monitor cash position carefully often find themselves in credit facilities they did not anticipate, missing payments to key suppliers, or unable to seize growth opportunities because cash is committed elsewhere. The fix is rarely simple—building treasury capability after a crisis is more expensive and more painful than establishing good practices proactively.

The CFO's Treasury Responsibilities

Treasury and accounting share responsibility for financial operations, but their functions are distinct. Understanding the boundary between treasury and accounting is essential for ensuring neither function is neglected. When these responsibilities blur or fall between roles, companies frequently discover cash management gaps during critical periods.

Treasury Owns the Cash Position Treasury's primary responsibility is maintaining the company's liquidity position. This includes monitoring daily cash balances across all accounts and entities, forecasting cash needs across multiple time horizons, managing banking relationships and credit facilities, investing excess cash to maximize returns while preserving liquidity, and monitoring compliance with debt covenants. Treasury operates at the portfolio level—thinking about cash as a pool of resources available for deployment.

Accounting Owns the Transactions Accounting's domain is recording what has already occurred. This includes transaction recording and classification, accounts payable and receivable management, month-end close and financial statement preparation, tax compliance and reporting, and payroll processing. Accounting operates at the transaction level—capturing individual events that affect the cash position.

The interaction between treasury and accounting is where breakdowns commonly occur. Accounting records a transaction; treasury needs that information to manage cash. Treasury identifies a future cash shortfall; accounting needs to know to ensure adequate funding. The CFO must bridge these functions, either through direct involvement or by establishing processes that ensure effective coordination between treasury and accounting teams.

For smaller companies without dedicated treasury staff, these responsibilities typically fall to the controller or CFO. As the company grows, treasury often becomes a dedicated function. The key is recognizing when your company's complexity warrants dedicated treasury attention. A useful heuristic: if you have more than three bank accounts, multiple credit facilities, or revenue exceeding $20M, you likely need more formal treasury management than you currently have.

Cash Positioning and Liquidity Optimization

Cash positioning is the practice of understanding and managing your company's cash balance across all accounts, entities, and time periods. Liquidity optimization extends this concept to ensure you maintain sufficient cash to meet obligations while avoiding the inefficiency of excessive idle funds. For growing businesses, finding this balance requires ongoing attention as the business evolves.

Understanding Your Actual Cash Position The first step in cash positioning is achieving visibility. Many growing businesses maintain multiple accounts across different banks—operating accounts, payroll accounts, tax reserve accounts, and entity-specific accounts. Without a consolidated view, you cannot manage your cash position effectively. The solution may be as simple as daily reporting from your bank or as sophisticated as a treasury management system that aggregates account data automatically. What matters is having a real-time picture of total available cash.

Setting Cash Buffer Targets Cash buffer targets should be calibrated to your company's specific risk profile. The JPMorgan Chase Institute's research found that median small business cash on hand is approximately 18 days of expenses, though this varies dramatically by industry and business model. Companies with predictable, recurring revenue can operate with tighter cash buffers. Companies with seasonal revenue, contract-based income, or high operating leverage need larger reserves to bridge periods of lower cash inflow.

A practical approach is to establish three cash buffer tiers: a minimum balance representing your floor (typically 30 days of fixed obligations), a working balance representing your normal operating range (typically 45-60 days), and a strategic reserve for growth investments or unexpected opportunities (potentially an additional 30-45 days). These tiers help you make decisions about deploying excess cash versus maintaining liquidity.

Working Capital as Treasury Lever Working capital management—specifically the cash conversion cycle—is a powerful treasury tool. The cash conversion cycle measures how long it takes to convert inventory and receivables into cash. A longer cycle means more cash is tied up in operations. By reducing days sales outstanding in receivables, extending days payable outstanding where feasible, and right-sizing inventory levels, you can release cash from operations without increasing revenue. This cash is then available for strategic deployment without relying on external financing.

Cash Buffer Research

Banking Relationship Management

Banking relationships for growing businesses often develop reactively—you open accounts, deposit funds, and borrow when necessary. Strategic treasury management requires treating your banking relationships as assets requiring active cultivation. The quality of your banking relationships directly affects your access to credit, the cost of borrowing, and the operational smoothness of your treasury functions.

Choosing Banks for Treasury Operations Not all banks serve treasury functions equally well. When evaluating banking partners for treasury operations, consider several factors beyond simply checking rates. Payment processing capabilities matter—if your bank cannot handle the volume and types of payments you need (ACH, wire transfers, international payments, payroll), you will face operational friction. Online treasury management tools vary significantly in quality; robust reporting and cash concentration features can reduce your manual effort substantially. Local market presence and relationship management matter too—having a dedicated banker who understands your business provides advantages when you need credit accommodations or have operational issues to resolve.

For growing businesses, multi-bank relationships often make sense. Primary operating banks provide the core transaction services, while secondary banks may offer specialized capabilities or simply provide backup access to credit. The key is managing complexity—each additional bank relationship adds operational overhead. The benefit must justify the cost.

Credit Facilities as Strategic Tools Credit facilities—revolving lines of credit, term loans, and asset-based lending—serve as liquidity reserves for growing businesses. A properly sized revolving credit facility provides a safety net for unexpected cash needs without requiring you to maintain excessive cash balances. The cost of maintaining an undrawn credit facility is typically modest compared to the flexibility it provides. Many treasurers view their credit facilities as insurance rather than debt—drawing only when needed and repaying quickly.

Negotiating Credit Terms Credit negotiations for growing businesses require preparation and strategy. Lenders evaluate companies based on financial metrics, character (management quality and commitment), and capacity (ability to repay from cash flow). Before negotiating, ensure your financial statements are clean, your covenant compliance is documented, and your use of proceeds is clearly defined. Demonstrate that you understand the business and have a realistic plan for using the credit facility productively. Banks reward borrowers who make them comfortable; demonstrating organization and foresight reduces their risk assessment.

Debt Covenant Compliance

Debt covenants are the conditions and restrictions that lenders impose on borrowers to protect their interests. Covenant compliance is not a box-checking exercise—it is a fundamental discipline that reflects how well your company is tracking against the commitments made to lenders. Violating covenants can trigger consequences ranging from increased oversight to acceleration of debt repayment. For growing businesses, covenant compliance requires proactive monitoring, not reactive response.

Common Covenant Types Most credit agreements for growing businesses include three categories of covenants. Financial covenants measure your financial performance or condition. The most common include leverage ratios (debt to EBITDA), interest coverage ratios (EBITDA to interest expense), and liquidity or current ratio requirements. Affirmative covenants require specific actions or prohibit certain actions: maintaining insurance, filing financial statements, providing notice of material events. Negative covenants restrict certain activities: incurring additional debt, making acquisitions above certain thresholds, paying dividends or making distributions.

What to Track and How Often The conventional approach to covenant compliance is monthly calculation at month-end. This is insufficient for growing businesses. By the time you calculate covenant metrics at month-end, you are looking at historical data two to four weeks old. A better approach is weekly calculation of covenant metrics, using rolling 12-month figures and projected performance. This provides early warning if you are approaching covenant thresholds and allows time for corrective action.

Common covenant violations in growing businesses result from seasonal revenue declines, unexpected expenses, or business combinations that alter the financial profile. Revenue dips that reduce EBITDA, for example, can push leverage ratios higher. Acquisitions that increase debt can affect leverage and coverage ratios simultaneously. Growth-stage companies with thinner margins have less buffer before violations occur.

When You Identify a Potential Violation If your monitoring reveals that a covenant violation is likely, immediate action is essential. Contact your lender before the violation occurs—lenders generally prefer advance notice and the opportunity to work with borrowers compared to discovering violations through required reporting. Prepare documentation explaining the cause of the potential violation, the expected duration, and the remediation plan. Many lenders will provide covenant waivers or amendments if borrowers demonstrate good faith and have credible recovery plans. The cost of a waiver is typically modest compared to the consequences of default.

13-Week Cash Flow Forecasting

The 13-week cash flow forecast is a treasury management tool that provides detailed visibility into expected cash flows over a rolling 13-week horizon. Unlike annual budgets or quarterly forecasts that focus on income statement performance, the 13-week forecast focuses specifically on cash—the actual money flowing in and out of your accounts. For treasury management, this focus on cash timing is what matters most.

Why 13 Weeks Specifically The 13-week horizon balances several considerations. It is short enough to develop reasonable accuracy—predicting cash flows more than 13 weeks ahead involves significant uncertainty for growing businesses. It is long enough to identify meaningful trends and provide advance warning of liquidity needs. It covers a full quarter, capturing the typical reporting and planning cycles that most businesses operate within. It aligns with the operating cycles that most businesses track internally. This combination makes 13 weeks the standard time horizon for treasury cash management.

Building the Model The 13-week cash flow model begins with opening cash balance and adds expected cash receipts and subtracts expected cash disbursements week by week. Receipts typically include customer payments (estimated based on historical collection patterns and known large receivables), loan proceeds, asset sales, and other income. Disbursements typically include payroll, vendor payments, debt service, taxes, and capital expenditures. Each line item should include the expected timing and amount.

The discipline is in the updates. The model should be updated weekly at minimum—more frequently if your business has significant volatility. Each update should compare actual cash flows to the forecast, investigate significant variances, and use that understanding to improve subsequent forecasts. Over time, this discipline develops institutional knowledge about cash flow patterns that improves the accuracy of longer-range planning.

Responding to Identified Shortfalls When your 13-week forecast identifies a future cash shortfall, you have options—but only if you have sufficient lead time to execute them. Options include accelerating receivables collection through early payment discounts or aggressive collection efforts, extending payables through negotiation with suppliers, reducing discretionary expenditures, drawing on credit facilities proactively, or pursuing new financing. The value of the 13-week forecast is having time to execute these options systematically rather than facing a crisis with fewer alternatives.

Frequently Asked Questions

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