Becoming a Treasurer Series, Part 22 – Communication: Mars and Venus
Meredith Zonsius, Strategic Treasurer
Craig Jeffery, Strategic Treasurer
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Episode Transcription - Episode #161 - Becoming a Treasurer Part 22
On this episode of The Becoming a Treasurer series, author Craig Jeffrey continues a mix of interviews around his book The Strategic Treasurer, a partnership for corporate growth. The chapter of discussion is entitled Communication: Mars and Venus, which explores a variety of ways the treasurer and controller see things differently. The reasons behind these differences are described and discussed, allowing for understanding between these two crucial financial players. Listen into the discussion to find out more.
Meredith Zonsius 0:35
Welcome to the podcast, Craig.
Craig Jeffery 0:38
Thanks, Meredith. It’s good to be here, again. I’ve been enjoying our conversations about becoming a treasurer. And thinking through the implications of these topics.
Meredith Zonsius 0:47
Perfect. Well, we’re on part 22. And it’s been such a popular series. So, I’m excited to continue our conversation today. So today, I’d like to continue our conversation around another chapter in your book, The Strategic Treasurer, a Partnership for Corporate Growth. I think the book offers a great mix of topics and insights to help treasurers along in their career journey. The chapter I’d like to cover today is entitled Communication: Mars and Venus. To start us off, could you explain the purpose behind this chapter?
Craig Jeffery 1:19
Yeah. So, you know, I’m not sure if this is still a popular thing, I think there is a book, you know, men are from Mars, women are from Venus, or something along those lines, it talked about different communication styles and thinking. The reason it’s called Mars and Venus or, you know, understanding and minimizing that communication conflict is that within the finance group of a company, there’s a number of players, and it could be controllers and treasurers, as well as people that are doing FP&A or other activities. And if you’re in another area, companies say, “Oh, that’s finance, they all speak the same language”. And that’s true to a large extent, you know, it’s much, much more similar than marketing or product development or human resources. But when you get down to it, there’s a significant number of terms and ways of looking at activities in an organization that are different. So, you have a different purpose, a different primary direction you look at. And this can create all kinds of conflict, competing, I’ll call it worldviews, or a view of the finance world, that that created that create a problem. And so, this is the reason for the chapter is to start saying, how are we different? And how can we better understand each other? Our goals, our drivers, the words we use to make sure we’re not equivocating on terms that one party thinks that means x, the other party means y, and they’re using the same terms or in essentially the same family? But mean something mean something different?
Meredith Zonsius 3:07
That’s, that’s great. There’s a quote that you, you started off the chapter with, and I thought that that was pretty interesting. And it kind of embodies what you’re talking about right now. Could you read that for us?
Craig Jeffery 3:20
Yeah, sure. So, Through the Looking Glass, Lewis Carroll, this this is a this is an interesting quote, it obviously was probably not geared for Treasury, but we’re not sure on that. Of course, this is “When I use a word,” Humpty Dumpty said in a rather scornful tone, “it means just what I choose it to mean, neither more nor less.” “The question is,” said Alice, “is whether you can make words mean so many different things.” And, you know, the book is very interesting in the conversation that they have, and the word play and different types of thinking, but this is important in terms of, you know, can you make words mean so many different things is really not that people are doing that, per se, they’re not making words mean different things. But we use some of the same words and they mean something similar, but different, whether you’re talking about cash, forecasting, working capital, there’s a number of terms that mean something different and if we aren’t sure what the other person means, we talk past each other come up with different understandings.
Meredith Zonsius 4:30
And that’s true and you know, depending on how the person heard it, they could hear things differently even though that you mean something else. So, yeah, communication is a very important topic. What are what are the differences between treasurers and controllers?
Craig Jeffery 4:50
And maybe we should also expand it slightly to even say, you know, people that are focused on FP&A because these may be separate areas, but the treasurers are controllers, I think was the focus of the chapter. But, you know, so what are some of the differences between treasurers and controllers and FP&A, for example? So, a couple areas are the focus of what they do, their views on control, you know, what their, reason for being in an organization is and perspective. So, some of the some of the differences, and I don’t want to overstate this too heavily. But if you think about what direction are people looking at, the primary orientation in terms of time, the controller accounting, primarily accounting and controller function is to make sure that the financial controls of an organization will accurately report the financial performance, that it’ll be auditable that will clearly reflect what’s going on. And, you know, it’s recording primarily historical activity, and so that the view is primarily historical, it’s looking left, so to speak, if we go left to right in terms of time, and that’s the primary orientation. There certainly forward-looking aspects of it as well, you know, perhaps from a budgeting perspective, especially when we think about FP&A. They tend to look at the future. But we’ll get into some of those distinctions in a moment. Treasury, the treasurer is primarily oriented towards the future. What does our cash position need to look like over the next week? Month? What does our balance sheet need to look like, as we expand out to three or five years? How am I going to ensure that the organization has liquidity in the future?
So that’s a key distinction. One is looking back to make sure things are accurately recorded and tracked, problems can be detected, that there’s longevity of the financial statements. And the other is looking to make sure that liquidity is you know, protected available, the balance sheet will support what the organization is trying to do. So those are two very related items. And certainly, the treasurer looks back at history to see what’s going on, controllers will look to see what are expected activities occurring for the quarter and that their reporting will be accurate. But that’s a core difference in terms of how you know how their head is turned towards historical and towards the future, both are vital. So that’s, that’s one area. Another, you know, another would be in the area of control. And this is easily overstated, so I just want to say some qualifications up front, so people aren’t yelling back at their listening device for the for the podcast. If I seem to be over emphasizing it, but on the control front, oftentimes, the controller group wants to make sure that their controls will detect a problem and to some extent, prevent problems. But it’s heavily oriented, that they can certainly discover problems that exists.
So, it’s detective controls tends to be the orientation of the controller function, and many of them do quite a bit on the on the preventative controls as well. Treasurers are geared on protecting payments from a preventative standpoint. They have to stop money going out the door, there’s much more immediacy. They tend to have access to a far higher level of payments, because they’re doing Treasury payments, or these are larger payments, they have access to a greater amount of funds. So, they have to make sure that they have good preventative controls. They want to set up the banking structure to support good controls, while supporting the accounting functions of an organization. And that’s a, that’s a fairly notable difference in terms of what they’re doing, and how both of them fulfill those types of roles. Those are a couple of the different you know, purposes and perspectives of an organization you know. Who looks at after the most liquid assets of the organization? Cash near cash, debt borrowing, that’s the domain of the treasurer. Who looks after the recording, the financial, the financial statements, the process, the general ledger, the books of the company, that’s the that’s the controller, and these are both vital roles that support each other, using some of the same terms, but those are those are a couple of the differences to get started.
Meredith Zonsius 9:54
Thanks for that explanation going back to communications, given they use the same language of finance and even identical words to mean different things, isn’t it a ripe environment for miscommunication?
Craig Jeffery 10:08
Yeah. And that’s like the reason that it’s a huge part of the reason for that particular chapter. Yeah, so some of the words might be, you know, forecasting, working capital, cash, and there’s quite a few others. Sometimes we’ll do presentations and step through a bunch of these. It’s more like therapy for finance people. But if you look at cash, the formally trained accountants as well, there’s a generally accepted accounting principle definition of cash. And, you know, this is how we record it, we have to comply with it, this is our framework for understanding it. And that’s the language of financial reporting. And so, we’ll use that. And the treasurer may use the term cash, but they also may be thinking of liquidity, what do I have available. And so, the issue of float is a non-concern in the accounting world, or it’s very minimal, that the primary reason is the primary purpose is to follow the principles of gap, for example. So, anything with a delay, and I hate to use the example of checks, but I think everyone will understand that as you issue a check, and they’ll immediately reduce the cash balance on the general ledger to say, hey, the cash is gone.
From an accounting standpoint, even though the cheque may not be mailed, and may not clear for a number of days, and we can think about float in different methods as well. But they will have a lower level of cash and so all outstanding checks are treated as the cash is gone. And it is from an accounting perspective, but any treasurer worth their weight in Bitcoin will use the cash that’s, that’s flow to pay down debt or invest more heavily or be more efficient, because they’re concerned about liquidity. Now, you have to comply with GAAP. But you also have to make sure you’re having good use; you have a proper stewardship of your most liquid assets. And so, this is an area where people will say cash, people say, liquidity. Treasury, make it into an argument, say real cash, you know, what we can use and then, you know, the controller, or the accounting group will say, GAAP cash, or they’ll say cash. And they view that as the real cash. And so, it’s important to understand those different opponents. And there are certainly ways to satisfy both of those needs effectively, even through the general ledger, and leveraging that with automation. And we have I think we spoke about cash bootcamp, and I explained some of the ways of doing that. That’s like how to keep both people happy and do the right types of activities that support good financial controls, that comply with gap, as well as proper stewardship of your assets that Treasury be concerned about.
Meredith Zonsius 13:14
I think that’s very interesting. I think one of the biggest challenges for business professionals, especially finance oriented folks, is communicating in a way that is easily understood by others, and let’s say other groups or departments like finance, communicating with marketing. How do you convert terminology into an easy and understandable language? Do you have any helpful examples for that?
Craig Jeffery 13:41
Yeah, I can think of a number and I’m just trying to think of, you know, there’s the how do we communicate within the finance realm? How do you communicate to executive management? And then how do you make these terms make sense, within maybe the business area, people that aren’t financially oriented. So, the challenge here is to make sure we’re communicating in a way that the recipient understands. And so, if you’d know how they think you can do a better job off the bat. But you have to make sure that there’s this whether it’s humility, or just making sure that they’re receiving the same message that makes sense in a language they understand. And the light bulb goes off. And, you know, same thing when you’re trying to understand what an area is doing. This, this makes sense. I’ll give a more finance concept that’s related to cash, working capital, and then I’ll give something that’s related to sales in a way that translates into these different domains. So, for example, you know, we talk about working capital, we have a working capital program. What does that mean? And so, part of that is how do we understand what working capitalism, if you’ve listened to our podcasts, you’ve probably heard something on this already. But there’s a definition of working capital, which is the accounting and oftentimes banker definition, which is current assets minus current liabilities. And this is simply a method of showing that the organization has sufficient liquidity to meet its obligations or payment requirements as they come due. And so, anything a current assets like cash or receivables, okay, I’ve got enough of that to cover my payables any type of liability or debt is coming due that that makes perfect sense.
So that’s a measure of, not necessarily a measure of cover, but a measure of managing short term liquidity to make sure that the company is solvent. Now we talked about, we need to manage working capital, do we want to increase working capital do we want to decrease it. There’s another definition of working capital that relates to the cash conversion cycle. And this takes cash out of the equation. This is, you know, receivables, payables and an inventory. And so, this idea that any changes in those has an impact on cash. So, increasing your inventory means you have to use cash to increase your inventory. You draw down your receivables by collecting better and you generate more cash. And so, there’s those those three items resolve themselves to cash. And so, if we’re talking about, we need to optimize working capital, it’s really thinking about how do I speed the business process up for converting money into inventory into products, for example, in, let’s say, a manufacturing environment, to receivables and I collect that, and inherently the treasurer knows that it’s far better to have cash, then accounts receivable. You can spend cash that’s in the bank account versus receivable, which you may or may not know when it’s actually coming in. And so, we’re having a working capital optimization program means we need to understand what’s the right level we need of working capital, make sure it makes sense. There’s some examples of what this means. Someone who’s in charge of procurement, for example, another financier, may have all of their goals waited on cost, how well they negotiated things, and they don’t care about the time value of money. They don’t care in that’s not part of what they’re measured on. And so, they buy up a bunch of items to make sure that sales can happen, they get the lowest price because they’re buying in great quantity. And this creates a problem for the working capital program that the treasurer is running, because they just pulled a bunch of cash out of either a line of credit or out of their investments, pulled it into inventory, or, you know, as a way to help sales or decrease their cost increase their margin, but left off the other implication. So, you know, part of this communication is understanding up and downstream, and understanding different motivations and using the same term. So, I know that’s a lot more than just the Alice in Wonderland when I use a word, it means exactly what I intended to mean type question, but that’s a that’s an example. I’ll pause there because I have another example more related to sales.
Meredith Zonsius 15:39
Oh, good. I love examples. Perfect.
Craig Jeffery 16:26
You know, I think you said how do you change terms so that it’s easy and understandable? And I don’t know that I answer that in that example. But let me try to answer that. For the example, you know, of talking to someone who might be outside of finance and the VP and treasurer for Home Depot. This was this was a number of years ago now. So, the factors are probably off. But this was this was remarkable to me. And that’s actually where that panel discussion that I that I ran before I started the Strategic treasurer had the treasure from Home Depot and a number of other organizations and it was called the Strategic Treasurer. And that’s where the name came from that panel discussion and some of the concepts that came out of that but sorry for all that side rabbit trail, but since we’re talking about the looking glass, there are definitely rabbit holes. But they were they were talking on the sales side is how do we communicate the need to drive revenue for example and put it in terms that makes sense and they talked about, you know, if we have if everyone who comes to the line at this huge home improvement store comes to line picks up $1 worth of, you know, stuff at the register, whether it’s a bottle of water, a small screwdriver, whatever those things are that whatever sold at the register. If everyone who comes through picks up $1 worth of goods or services that will increase revenue, I think at the time, it was almost exactly a billion dollars. And that’s pretty easy to understand. So, if you like, hey, we’re gonna pay attention to making sure that stuff at the register is available. That’s a billion dollars. I don’t know how many stores that’s equivalent to, but just being wise and thinking about how do these things work? That can make someone who’s not finance oriented at all, turn their heads and say, “Wow, that’s, that’s significant!” That would be you know, maybe that’s the equivalent of, I don’t know, 10 stores or some such number. But it’s very, very significant. A way to increase your revenue by helping people understand your actions have an implication, you bind $30 million, more than HVAC material to get your price down, you know, defeated two months’ worth of work we had tried to reduce our working capital, because you saved a few dollars, and that had an overall negative impact. But your key performance indicators and your goal, your desire to meet those had a negative effect somewhere else. So, part of that is communicating well, giving terms and language that works.
Meredith Zonsius 21:34
To support the success of an organization, it’s important that colleagues communicate effectively with each other, in this case, what are some ways that can foster good communications and understanding between the treasurer and controller?
Craig Jeffery 21:49
Yeah, and that’s, that’s it, that’s a crux of the matter and the issue, particularly between the treasurer and controller, but it doesn’t end there. I don’t know where it ends, but it certainly includes communicating with the rest of the executive group who may have no finance expertise. But you still have to communicate in a way that helps them understand that’s your job to communicate well. And so, when we think about treasurers and controllers, and controllers and treasures, effective communicators, not just finance communicators, but they’ll have clarity in what they’re communicating, they will confirm what they’re saying and what they’re hearing. And they’ll take pains to understand what guides the other person’s thinking. What’s important to them? What principles they follow, what’s their key performance indicators, their measurements, what they’re motivated by, and this allows them to communicate well. So, can you talk to everybody in the room, whether it’s the if the executive, the firm, someone else in finance, someone in IT? Someone maybe that’s got a customer facing role. It’s like, how do we how do we put ourselves in their shoes as much as possible? And part of that is, you know, let’s not assume we think all the words are the same, have the same meaning behind them? Because oftentimes, they don’t, there might be other assumptions. And you know, what’s motivating people? And what will create a reaction? You know, if you say, well, we don’t care about generally accepted accounting principles, well, that’s not going to work well, because your organization has to comply with generally accepted accounting principles. So, it can’t be a win-lose venue there. There’s lots of creative solutions that will allow you to get what you need, while supporting generally accepted accounting principles, as an example. So yeah, really understand the responsibilities, work to be clear, confirm the activities, and you know, that’s not a one-time activity. It will, it might require multiple points of contact, and be seen more as a process, not just an event.
Meredith Zonsius 24:15
Let’s take a look at some finance areas and talk about who should drive what. Let’s start with cash and liquidity management. Any thoughts around that?
Craig Jeffery 24:25
Who owns cash who wants liquidity management that’s clearly in the treasurer’s domain that says they have specific responsibility for that? But they don’t own or have everybody in the organization that has an impact on those areas or can influence how quickly cash is collected or how things are dispersed. So, they should drive the measurements there, make sure that the communication is clear and understand the stewardship role of protecting access to the most liquid assets and promote good stewardship, good use of those assets throughout the board. So that’s, that’s clearly an ownership by treasurer. And so, they need to drive effective use. And they need to convert that because there’s other activities, that will have an impact on both cash and liquidity, everything from inventory, to sales, to margins on activity, and it needs to be resolved, or communicate in a way that the other areas understand the back-and-forth aspect of those activities. And, you know, Treasury, if we’re talking about, well, maybe broader liquidity management has an influence on working capital, or working out, but I was an influence on liquidity. If you try to tighten things up too much to reduce working capital, you can prevent sales, reduce margin, and create a negative trend in that way too, because you’re focused only on finance, not on the business at large. So, it’s not just Treasury needs to help other people understand Treasury. And they do that is their role. But they have to make sure they understand the business, the overall effect on the organization. So, it’s, everyone has to be a learner of what the others are doing.
Meredith Zonsius 26:14
What are some other ways to minimize conflict between treasurers and controllers? Have you experienced any situations in your career?
Craig Jeffery 26:23
Of conflict or minimizing?
Meredith Zonsius 26:26
Craig Jeffery 26:27
Minimizing the conflict?
Meredith Zonsius 26:30
Minimizing the conflict? Or maybe both? Feel free to share?
Craig Jeffery 26:35
Well, you know, it’s, it’s maybe it’s how do we apply that concept of speaking the language of the other person? You know, my formal training was in accounting, but don’t tell anyone, but I don’t love accounting. I love treasury, but I, you know, it’s necessary. And, you know, I guess there’s a couple aspects, let me give you some meandering comments as background before I before I give an example of that, as, you know, when you go through accounting, and you’re studying and you hear the language of finances, accounting. And I swallow that hole. And, you know, as we’ve gone through my career and worked with many, you know, CFOs controllers, head of GL, finance people across the board is, it seems like, it’s pretty clear that accounting is the language of financial reporting. And it’s essential that you understand the language of financial reporting, that’s crucial. And the language of finance and the language of treasury is a little different. But that language, the treasury principles that come about, and liquidity management and risk management and some of those areas, that’s the language of finance. And so, the language of finance, the language of financial reporting, can be different. And we need to understand that I think most people as they as their approach and being a treasurer or controller, they understand some of these different aspects. Yeah, there’s a significant difference between, you know, income on an income statement and cash flow. Yeah, because we lease something versus, we purchase something, the income statement may look the same in a particular year, but you bought something and spent, you know, 5 million and CapEx on it, you have 5 million less cash versus you’re leasing something for a million that year and have 4 million more in cash. So, I think there’s an aspect of we want to understand the language differences and where things go on. But, you know, I found when we’re trying to optimize something for Treasury, and you have to get things done through other areas, whether it’s accounts payable, the controller’s group, a business area. You have to understand what’s going on and be able to explain things in their language. So, if we’re trying to say we want to be able to see float through our financial statements, and we want to be able to record things through the system, you can if you get an argument about, well, that’s not according to GAAP. You’re not going to win that argument if you approach it that way. Because you’re saying, “Break, generally accepted accounting principles”. And you don’t want to do that. You want to say, “Well, here’s what GAAP says and here’s what we need in treasury, for better visibility, improved performance, improvements in forecasting, whatever. And here’s how we would like to do it.” You might end up saying, here’s how it’s going to work, and you draw some you draw T accounts, for example, perhaps with the accounting groups. As you’re explaining it, they’re like “Oh, that’s how it works, that maintains the control GAAP purposes, this is great”. And then you have to show at the same time, you have to communicate to IT in a way that they’re going to understand, oh, here’s a system feed. Here’s how the file is balanced and controlled at this point. And, and they’re like, “Okay, I get that”. So, it’s, you have to be able to talk in a language and in a way that the others will understand and maybe you know, their language, well, maybe you don’t, but asking questions and restating things in ways that the others understand, really makes things go a lot smoother. So, don’t just assume everyone has the same lexicon in their head of, you know, words and hierarchies of understanding in your own head is always the same, because it’s not. It’s easier to talk to people that where there’s like a lack of diversity of in this case, diversity of terms and maybe your pedigree in a business. Hey, I like when I talk to people who can understand me exactly–having shared experiences and cost accounting, or Treasury or AP or whatever. But we have to think about that there’s a lot of different experiences, mentally. I know, that’s not the common definition, diversity, but this this idea of different business experiences, we have to understand those. So, some of the same principles apply in that in that way.
Meredith Zonsius 31:32
That’s great advice. Very, very good advice. Any final thoughts on today’s discussion?
Craig Jeffery 31:40
Are you enjoying reading all this material? I mean, the book and summary chapter is terrible. Is this. Okay? I’m, I’m just wondering,
Meredith Zonsius 31:52
I’m learning more and more about Treasury every day through your book.
Craig Jeffery 31:57
That is a good, that is a good answer. I, you know, I remember, I remember when I was a kid, and I was writing, I don’t know if I’ve told you this, but it was it was early and this was, I want to say maybe it was fifth grade, or sixth grade. I can’t remember. But I wrote something about, Is solar power, a viable alternative source of energy? And I wrote this whole thing, my mom looked at it, and she was an English teacher. And she said, “Oh, my”, and she literally took scissors and cut. And I don’t think we use paste, but she cut and taped stuff to new papers to rearrange what went on. And, obviously, I got better at writing and organizing thoughts as time went on. When I wrote the book. And it was published, I gave it to her. I was like, “Oh, she’s gonna read it.” You can read this book on Treasury. And she didn’t, she looked through it until she could find the first grammar or punctuation mistake. Thankfully, it took her a while. So, here’s an error somewhere. And then she was done. Then she was done with the book. And there was the little boy in me was a little bit sad. And I was like, Yeah, that would be like a horribly boring book to read. If you’re weren’t in there. So, that just shows you the … that’s where I was coming from with that.
Meredith Zonsius 33:22
I love it.
Craig Jeffery 33:24
I am not sure why I went down that road.
Meredith Zonsius 33:25
That’s great. No, I love it. It’s a great way to end this this episode today. Craig, thanks so much for taking the time to share some more insights from your book, and I look forward, as always, to catching up soon.
Craig Jeffery 33:38
All right. Thanks, Meredith.
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