Hazeltree CFO: Cash Is King but Needs a Diversified Realm

No one is an atheist in a foxhole, and no one is alone in a banking crisis.

While the recent failures of Silicon Valley Bank (SVB) and Signature Bank may have repercussions for years to come — at least according to J.P. Morgan Chase CEO Jamie Dimon — chief financial officers today can get ahead of future bank risk by diversifying their portfolio of cash and investments, as well as building new banking relationships.

That’s according to Kevin Held, CFO at Hazeltree, who said during a conversation for “PYMNTS CFO Series: What’s Different?” that “cash is king” and “protecting those assets” is more important than anything else, particularly given the contemporary macroclimate.

“Diversification and protecting [business] assets is of the utmost importance,” Held said, adding that in order to effectively do both, finance leaders need to make sure they understand what the needs and risks of the company are.

By spreading their company’s banking relationships across multiple banks, CFOs can reduce concentration risk and mitigate the impact of a bank failure.

Still, it’s important to strike a balance between establishing relationships with larger, fortress-style institutions and smaller, more nimble financial service providers, Held said.

Take Time to Assess Needs and Risks

It may go without saying, particularly in today’s environment, but CFOs need to constantly monitor and stay up to date on their partner banks’ financial health, as well as regularly forecast the impact of any potential bank risk on their company’s own balance sheet and how it might affect liquidity needs.

As for how to choose the right banking relationships? It all comes down to a company’s individual needs.

“For us, the options we are looking at are definitely product driven,” Held said. “That’s at the forefront. What can the banks do for us and what services can they provide?”

He emphasized that now more than ever, with liquidity and treasury management at the forefront of CFOs’ minds, it all goes back to being nimble.

As a global company, Hazeltree is generally interested most in financial platforms that can handle global banking needs versus requiring the use of multiple banks, he said.

“It goes back to being able to provide some of the more personalized service that you may lose with bigger banks, but the best-fit solution is really based on the size of your organization and the reality of your needs,” Held said.

“Keep your eyes wide open, assess risks, catalog them, and then determine which banks can best fill those holes,” he added.

Continuous Communication Is the Best Contingency Plan

Held said while the broader impact of the banking failures is starting to ease up, the shocking nature of the collapses has highlighted the need for greater and more frequent CFO-led communication around liquidity levels and cash availability at the board, management, and even employee level.

“We certainly needed to reassure our employee base that we didn’t have any issues, as well as let everyone know what we are doing for those members of our customer base that were affected by SVB’s collapse, as well as letting our customers themselves know that we are there for them and doing everything we can do help,” he said.

Held emphasized the importance of establishing an ongoing conversation among management.

“You [as CFO] need to reassure the rest of the business that every action in the market itself doesn’t have an adverse effect on your growth or profitability, making sure that the board is comfortable with what the business is doing too,” he said.

The dialogue should be ongoing between the CFO and the business economics, Held added.

“It’s one of the most important pieces out there … just making sure that you go back to your cash flow projections,” he said. “Have they shifted from where you put them together three or six months earlier? Are they accurate? Going back to where your AR (accounts receivable), DSO (days sales outstanding) are, and doing that on an ongoing basis, not just when a crisis happens. Liquidity is really important.”

As for the advice Held would give to younger CFOs just cutting their teeth in this challenging environment?

“Always be prepared,” he said. “Diversify and protect your assets, make sure the right controls are in place, and most of all: do your homework.”

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