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CFOs concerned that cash is no longer king

CFOs concerned that cash is no longer king

With the worst of the GFC behind us, the belt tightening that characterised that period has been replaced with a renewed appetite for spending.

Look beyond the household budget and you can observe the same trait in the corridors of corporate power. As the economic cycle turns down the mantra ‘cash is king’ is heard throughout the organisation as managers crack down on costs and wrestle with the cash flow implications in almost everything they do. And as growth returns, things get a little more relaxed and the focus tends to move away from cash management.

Certainly that’s the picture painted by KPMG. When the accountancy firm published its second annual cash management survey in 2010, the responses from the finance chiefs taking part suggested that depressed economic circumstances and the demands of banks, analysts and ratings agencies had pushed cash management right to the top of the boardroom agenda.

More recent research by KPMG suggests a subtle but tangible change on mood. Yes, cash management is still an important priority within organisations but not quite to the same extent as it was in the period immediately after the global recession. For instance, in the 2010 report (based on 2009 responses), 84 percent of respondents said working capital had been assigned the highest priority within their organisations. A year on the figure had fallen to 75 percent.

It’s not hard to find explanations. In a recession, finance chiefs can do little about falling demand but they can take action to cut costs and manage the working capital cycle. Hence the focus on cash management. As the economy improves, a different set of priorities come into play as CFOs turn their attention to winning new business and building capacity. Suddenly the emphasis is on sales, building stock and taking on new staff.

All of this has cash flow implications and as Daniel Windaus, a senior director at working capital management advisory firm REL Consulting observes, the hard won cash management lessons of the recession can be all too easily forgotten. “What we often see is that companies rush to replace the revenue they’ve lost during the downturn so they do things like offering improved credit terms to win the business.”

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