By Carlos Martins, Advisory and Compliance at Change Financial Solutions
When operating an import or export business in South Africa, you could be forgiven for assuming that volatile currency movements are the sum of “risk” that your organisation might face in financial markets. The reality is that if you don’t have a Treasury and Risk Management matrix in place, this will have a knock-on impact to all parts of your business.
If one researches the word “risk”, they will discover that it has its origins in the 1660’s and derives itself from the French word “risqué” which refers to “hazard, danger, peril, exposure to mischance or harm”. It appears in English in the early 1700’s and refers to the “hazard of the loss of a ship, goods, or other properties” – the word is perfectly aligned with the challenges of import and export operations.
Every ship needs a captain and a bosun. It is the bosun’s task to guarantee the operation of the ship and crew so that the captain may guide it. The key benefit of your Treasury function is to act as the bosun who will provide you as the entrepreneur or finance arm of a business with a clear overview of all the financial risks across your business and help you make informed decisions to maximise profit and reduce risks.
Irrespective of your industry and structure, all businesses have 3 core parts that are exposed to a degree of financial risk:
- Front-Office
- Middle-Office
- Back-Office
An integrated Treasury function will not only ensure risk is managed holistically – but will assist Financial Management teams to stay focused on long term strategy. Empowering a Treasury function allows for quick decision making that is aligned with long term strategy but focused on short-term liquidity and financial risk.