Treasurer of a Corporation – Mentor, William Langdon

bill-langdon-photoMr. Langdon is the founder of YPNG. Beginning in 1983, he started four other successful businesses. One was a financial services firm and three were oil and gas related businesses including an exploration and development company and two oil and gas property acquisition companies. Mr. Langdon holds a BA, MA in Economics and is a decorated Viet Nam combat veteran. In the course of his career, he has also worked for a major New York investment bank, held various jobs in the treasury department of a large agribusiness company and was Vice President of Finance for an international chemical company

 

Overview of the Position

The position of Treasurer is fast paced and challenging. The job’s basic responsibility is to manage all the company's revenues including cash, checks and wire transfers and paying all the company’s bills. If the company does international business, the treasury  department handles foreign currency transactions including managing currency risk if business is done in currency other than U.S. dollars. The Treasurer also sets standards for granting trade credit to customers and procedures for collecting the receivables that result from customer credit. The position also manages the company’s bank relationships and other methods that the company uses to borrow money including the public issuance of debt and equity. In the company where I worked, the Treasurer was also in charge of buying the company’s insurance and developing self-insurance programs, a function called risk management. During periods when a company has excess cash, the Treasurer invests this money.

A company’s Treasurer most often reports to the Chief Financial Officer or CFO. But in many cases the position is considered so important that the Treasurer is also a member of the Company’s Board of Director. The Treasurer is also one of the company’s officers who collaborate on developing the business plan that establishes the future direction of the business.

Satisfying Aspect of the Position

Some of the aspects of the job that I found most interesting and challenging were the management of the company’s sale of debt and equity. Debt and equity is normally issued to cover the cost of large capital expenditures like the construction of a new processing or manufacturing plants, large purchases of equipment or the acquisition of another company.

Deciding on the level of debt versus equity was always a challenging exercise. Debt is useful as way to increase the owner’s return on equity because debt is less expensive and does not dilute the current percentage of ownership among the stakeholders. Yet too much debt risks the inability to pay both principal and interest in a down year or series of down years. Every businessperson knows they must plan for fluctuations in revenue that experience tell us are part of the normal long-term business cycle for every company. Choose the right balance between debt and equity and the shareholders’ are rewarded with higher returns. Choose wrong and high amounts of debt, called financial leverage, can make it difficult for your company to compete in the downward periods of a normal business cycle. Decreased cash flow from a contraction in sales or sales margins makes it more difficult be able to meet the mandatory principal and interest payments on debt compared to the voluntary payment of dividends to shareholder, which can be suspended when there is a slump in cash flow.

There are also opportunity costs to not having adequate working capital to expand your business at the expense of the competition during a downturn. Good opportunities appear in most negative parts of a business cycle for companies who have the financial resources to take advantage of them compared to the weakened competition. These include expanding into a competitor’s market where their financial weakness hurts their ability to service their customers as well as being able to purchase competitors who have not planned well and who need a company to bale them out of a difficult financial situation. This pressure on a competitor to sell occurs in situations when the credit rating for a competitor has gone down making it difficult for them to access the credit markets. It also happens that in downturns the company may no longer meet the credit criteria used by the banks to grant their original loans. In these cases, the banks can and often do put pressure on a distressed company to either shore up their balance sheet with an additional equity investment or look for a merger partner. It is important for a Treasurer to position the company to be able to take advantage of such opportunities.

I also enjoyed working with our bankers. Agribusiness lending required our bankers to become familiar with our business and our company’s financial risk management practices. Since the sums involved in financing grain and chemical inventories were so large, agribusiness-lending units at the banks attracted some of the banks’ brightest people. They not only learned about our business, but they also were helpful in pointing out things that they thought we could do better. The personal relationships I developed with our bankers have lasted years after we all moved on to other careers.

Difficult Duties of the Treasurer

The thing that I found most difficult was handing the company’s trade credit.  Since the seasonal pattern of the annual business cycle in agribusiness  affected our customers, it was important to them that they get reasonable trade credit from us rather than having to incur the cost of bank borrowing. If we didn’t have credit terms comparable to our competition, we would lose their business. While granting credit and trade terms to customers can be a way to expand sales in any business, it is inevitable that there is going to be some bad credit in the system that will require collection efforts no matter how much research and effort is made to set credit limits for individual customers. In that sense, the company has a lot of the same problem as a bank with bad loans when the business cycle sours.

When I was younger, bad credit irritated me because we ran our company so that we could always pay our bills. We were never late for a bank payment or paying bills to one of our trade creditors. But as I grew older and started my own business, I found out that it is often a lot harder for a smaller business to accurately predict cash flows. Plus, when a smaller agribusiness has problems with their receivables, it can often be because of regional weather problems that the business could not have predicted. I did eventually learn to understand this and worked with honest people who were hit with problems that they could not have anticipated. But then there are the dishonest people who supplied us false financial information. You have to decide if entering the legal system is worth it if there are no assets to lien so that you can recover some of your money even if the court granted you a judgment. I always agonized over whether or not to get the attorney’s involved just on the basis of the principal of prosecuting a dishonest customer versus the potential additional cost involved in pursuing them.

It can also sometimes be difficult to keep perspective that all the attention you get from bankers, underwriters, insurance brokers and customers wanting credit approval. You have to understand that the hospitality and entertainment you receive is not directed at you as a person but at the power your position has to influence the businesses these people represent.

The Treasurer’s position required at least 60 hours a week and often when things got hectic as many as 80. There is considerable travel involved especially when you are selling debt and equity for the company and meeting with investors. This can put a strain on your marriage and relationship with your children. Make sure you and your spouse are prepared to deal with this reality before you start on this career path.

Typical Work Day

A typical day for the Treasurer in the agribusiness company where I worked started with a review of the company’s current assets and liabilities. In our company, besides cash and money owed us in receivables, the company’s inventory levels were important in cash management. Most of the company’s current assets were in fact grain and chemical inventories where the level of inventory investment was highly seasonal. For example, sales of grain were fairly constant all year while seed and chemicals were sold through narrow windows of time during planting seasons. Also our purchase of grain was primarily done over harvest season. This was a four month period in late summer and early fall when the famers either sold the grain they had harvested or brought grain into our facilities for drying and storage until they decided the market was right to sell. In general, the company’s borrowing levels were highest during the harvest season because grain was received at our storage facilities much faster than we could sell  and could ship it.

One of my proudest accomplishments while working at that company was when I was able to institute a new way of borrowing to support inventory shortly after I was hired as an Assistant Treasurer. Rather than using traditional line of bank credit, I arranged to do this borrowing through an instrument called a banker’s acceptance. This was a note issued by a bank but backed by our grain inventory and sold in the money market the same as treasury bills and commercial paper. At the time, the difference in the interest rate between a BA and the rate on a commercial bank loan varied from 1% to as much as 3%. Given the fact that our cost of money was a major item in the company’s overall cost of goods sold and sales margins, this change in borrowing policy had a real impact on the company’s profits and got me noticed by top management.

On most days as a Treasurer you are also involved in meetings with your staff. The Treasurer’s staff is normally made up of departments headed by Assistant Treasurers or other staff managers. These included accounts receivable and payable managers, credit and collections managers as well as a position called a risk manager who was supervising the company’s insurance programs. The AT position in our company was in charge of the daily management of the company’s short term cash needs. This position determined the amount of money needed to support the company’s activities for that day and then either arranged draws on lines of credit or if there was excess cash, managed the investment portfolio.

Longer term financing decisions included the issuance of debt and equity in the public and private markets. The Treasurer made recommendations. But any decision for this type of financing was reviewed and approved by the company’s Board of Directors. Once top management made that decision, the Treasurer met with investment bankers to arrange funding. This required a lot of judgment and marketing strategy that often included going on the road with top management to make presentations to potential investors.

There was also a steady stream of bankers wanting to discuss how they could earn your business along with your current bankers who would come in to inspect the company’s operations and facilities as well as regularly talk with top management about the direction and health of the business. A good banker had experience with many clients in the industry and often was able to offer creative suggestions for ways to improve parts of the business. For that reason, we tried to find bankers we felt were good business partners not just moneylenders. The expertise of many of these people made us feel that some bank’s money was better than others because it came with such talent.

Personal Characteristics Needed for the Position

A Treasurer must have the ability to build and continuously improve the company’s treasury management systems. It is critical to be able to monitor not only all the company’s cash flow, but also to track the company’s inventories, which in most companies represents a significant investment. This requires good analytical and math skills. Although the Treasurer works with accounting records to be able to do this, a strong accounting background is not as critical to success in this position as being able to do complex financial analysis and forecasting. You also need support from your spouse as the position is fast paced and can unexpectedly require your time sometime making it difficult to manage your personal life.

Preparation for the Position

To become a Treasurer you normally follow a career path that begins with experience within the company’s finance department. In very large companies, many of these functions are delegated to an Assistant Treasurer who is supervised by the Treasurer. The best of this group  usually is promoted to Treasurer. These assistant treasurer positions are often considered training positions. It is where you need to start if you aspire to the Treasurer’s position. To qualify, you will normally need a business degree, preferably an MBA. You course work should emphasize financial analysis and investment management. It also helps to have some commercial banking or investment banking experience so you can demonstrate that you can manage the company’s bank relationships and handle the public and private placement of debt and equity. These are the most critical recommendations by the Treasurer to the companies Board of Directors. As we have talked about earlier, the proper balance of debt and equity has a direct effect on the overall success of the company and the return on the shareholder’s equity. This is one of the key responsibilities that makes the Treasurers position so important to the long-term success of a business.

Since international trade is growing and part of most every company, familiarity with foreign currency trading and hedging foreign currency risk can also be important. Most business schools teach the fundamental management skills for foreign currency transactions. Foreign currency trading experience from a financial institution is another way to prepare yourself for some AT positions that give you the shortest career path to the position of Treasurer in companies doing a lot of international business.

The highest paying entry-level positions as well as the position of Treasurer itself are with the largest companies. Training positions for these companies usually are filled with people recruited from business schools. Assistant Treasurer positions are often filled from people with investment management experience and security underwriting experience at commercial or investment banks. Because these positions pay well, they are very competitive. The best preparation would include a business degree from a good university and experience from a prominent commercial or investment bank.

Financial Prospects for Treasury Positions

The most recent data from the Association for Financial Professionals shows that the Assistant Treasurer positions associated with cash management range from $77,000 to $104,000. The corporate Treasury position itself averages $207,000 with larger corporations paying much more. Since all companies require good financial management and since foreign trade in many businesses is growing, positions within a company’s treasury department offer excellent long-term career prospects based on my personal experience.

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