As Andy Warhol once put it, "everyone will be famous for 15 minutes.” Commonly referenced to signify the modern day celebrity culture, there is a surprising link to the world of treasury and cash management. After months of sluggishness, a recent uptick in M&A activity, could mean that zero based budgeting (ZBB) has its own moment in the spotlight. A form of budgeting which scrutinises costs across every part of the business, ZBB often comes into its own in the wake of an M&A.
According to recent analysis from PwC, M&A activity bounced back strongly in July and August – with a 54 per cent increase in the number of deals with a disclosed value of more than £25m completed. In the outcome of any acquisition, one of the first things corporates look to do is make savings wherever possible to budget for future years. Often the acquiring firm naturally looks to reassess budgeting to seek out any possible efficiency savings. And while it has always had a role to play, the drive to cut costs in the post of any M&A is exactly why ZBB should be getting some star treatment from group treasurers and financial directors right now.
Zero Based Budgetting
ZBB ensures that c-level objectives can be implemented into the budgeting process, by tying them to specific functions of the business. This is increasingly important when an acquisition occurs, as costs inevitably need to be regrouped and measured differently to fall in line with new expectations. The trouble is that all this involves a realignment of processes and procedures that will be running on different systems, in some cases for a number years.
Take the example of a successful food and beverage company with commodities trading and procurement. The firm in question, which may be ripe for a takeover, could be in a situation where the trading department is managing the physical contract buying along with the logistics of getting the commodity from A to B. The trouble is that when it came to risk management and hedging, this becomes challenging without a robust system in place to handle this type of scenario. Indeed, many firms have been running key processes on spreadsheets for the most part with a clear separation between trading and treasury. As a result, they simply haven’t had full transparency and a global view into the position and the real risk around it. And the same could be said for any commodity intensive corporation.
Consolidate everything on one platform
This is why there is increasing trend from firms embroiled in M&As to consolidate everything on one platform. From the ability to better enable capture of all their exposures, to supporting their operational and financial accounting needs, having everything in one place leads to improved transparency and better risk management. If M&A deals continue to rise, it is highly likely that firms considering ZBB may have a little more than just 15 minutes of fame. Those that look to rationalise their systems while getting visibility into ZBB, will ultimately be the ones to grab the limelight in the treasury and cash management world.
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