From Cash Visibility to Cash Value with Cash and Liquidity Management

Introduction

In the previous article, From Day 1 to Strategic Partner: Building a Treasury Function for a Carved-Out Business, we highlighted the importance of a tailored target operating model (TOM) to establish a solid strategic and organizational base for the new treasury. Following the definition of the treasury TOM and once day 1 readiness measures are in place, the next priority is to focus on value creation via cash and liquidity management, which represent another key pillar for a successful treasury implementation and treasury process. Cash and liquidity capabilities play a vital role in ensuring treasury delivers both operational continuity and strategic value. This article outlines how to build that foundation by establishing robust and forward-looking cash and liquidity management processes already at the time of the transaction, addressing immediate post-transaction needs, and enabling mid-term process efficiency.

Prepare for Day 1: Managing Liquidity Readiness

When preparing for the closing of an M&A transaction, treasury plays a critical role in ensuring that the new organization operates independently from Day 1. Liquidity planning is essential as cash pressures often peak around the time of legal close.

The following aspects may erase cash reserves if not properly anticipated:

• Upfront costs (transaction fees, legal, advisory, integration).
• Debt financing frameworks still under negotiation.
• Cash repatriation constraints or internal investment requirements to support the separation.

Hence, treasury must address these topics in cash and liquidity planning by:

• Modeling short-term needs under multiple scenarios based on validated assumptions on the business’ structure and liquidity needs.
• Ensuring cash visibility and centralization of cash, where possible to manage funding efficiently.
• Evaluating working capital buffers and the need for interim funding lines.

By addressing these topics before closing, the new entity enters day 1 with visibility on liquidity positions, funding plans, and confidence in its ability to operate independently.

Manage Day 1: Establishing Control, Visibility and Centralization

For a newly independent entity, cash visibility is often fragmented across systems and bank accounts, especially in the early stages after a carve-out. Yet gaining (real-time) transparency is fundamental to effective cash management and decision-making. The foundational elements to achieve at this stage are:

• Set up efficient connectivity with all banking partners.
• Deploy treasury technology (e.g., a TMS or interim solution) to aggregate bank balances and transactions centrally.
• Implement daily cash positioning processes across all relevant bank accounts.
• Define responsibilities and control mechanisms for cash operations, ensuring a clear RACI model.

Cash visibility improves control and reduces risk while enabling better liquidity allocation across the group via a centralized cash management process. The deployment of cash concentration structures, such as cash pooling, allows the unlocking of financial resources and benefits, such as fee reduction or interest optimization. Furthermore, centralized cash management data is a prerequisite for AI-driven cash applications and greater financial risk exposure definition¹, which can significantly reduce manual effort in distributing and managing cash across the group.

Early Stabilization: Forecasting and Short-Term Control

Once operational continuity is secured, the focus should move to stabilizing cash and liquidity processes.

Forecasting in a post-carve-out environment is challenging, yet essential. Missing historical data, unclear transaction volumes, and transitional arrangements (e.g., TSAs) often reduce forecast accuracy.

A suitable solution is the deployment of a layered forecasting approach, including:

• Short-term cash flow forecasts (typically 13-week rolling) to guide immediate liquidity needs.
• Medium-term liquidity planning, integrated with business planning (FP&A) and CAPEX cycles.
• Stress-testing and scenario analysis to evaluate performance under simulated business conditions.

In our experience, cash forecasting is an evolving process, which can be optimized and automated over-time through data integration (e.g. from ERP system) and predictive modeling. With data quality as the foundation, cash flow forecasting can begin by establishing  the most accurate starting point and committed forecasts under company control, such as opening balances and invoice payables. Once the high-certainty inputs are captured, additional cash flows such as committed accounts receivable and other material forecasts e.g. sales forecast or CAPEX forecast can be integrated.

Carved-out entities must consider the growing maturity and quality of their systems and respective data over the first 12 months after day 1.

Designing a Fit-for-Purpose Liquidity Structure

Once visibility and forecasting are addressed, the focus should immediately shift to structuring liquidity flows across the new organization. The objective is to ensure funding efficiency, mitigate cash drag and trapped cash, and enable flexibility, all within the constraints of the newly formed legal and operational setup.

Key design considerations include:

• Tailored cash pooling and automated cash concentration structures.
• Intercompany funding structures, including currency and transfer pricing alignment and documentation.
• Liquidity buffers tailored to business volatility and seasonality.
• Working capital optimization levers (e.g., payment terms, supplier financing).

Hybrid liquidity management structures, combining centralized oversight with localized autonomy for operational banking, often achieve the best balance. Zanders supports clients based on its wide experience in bank relationship strategy and liquidity optimization for disentanglements.

Optimizing Cash Flow Management towards long-term state

Throughout the transition and towards the steady-state operations, treasury must monitor and manage cash & liquidity against an evolving backdrop of business integration activities and one-off events.

These may include:

• Working capital shifts based on new supply chains or changes in customer behaviour.
• Integration costs linked to systems, people, and process harmonization.
• Divestitures or asset sales to fund operations or sharpen the business focus.
• Cash flow issues caused by system delays or supplier renegotiations.

To address this, Treasury should establish daily cash positioning routines utilizing state-of-the-art technologies and tools, escalation mechanisms, and strong collaboration with FP&A, procurement, and tax. Treasury shall also foster a “Cash First” mindset in the newly created organization. This ensures quick resolution of bottlenecks and reinforce cash flow discipline.

Strategic Liquidity Considerations for Long-Term Success

Cash and liquidity decisions taken during a carve-out will influence the new company’s financial flexibility as it takes quite some time and effort to implement changes in liquidity structures considerably at a later stage. Therefore, treasury should consider as early as possible the following aspects:

• Debt and credit rating impacts, especially if carve-out funding involves leverage.
• Treasury risk centralization (especially FX risk), to reduce cross-border inefficiencies and improve hedging performance.
• Tax and regulatory considerations, such as repatriation limitations, transfer pricing, and cash tax leakage.
• Strategic investment readiness, ensuring adequate liquidity for future M&A, CAPEX, or digital transformation.

The liquidity setup must be scalable, allowing the business to respond confidently to  rapid growth, market volatility, or external shocks with resilient measures.

Zanders’ clearly sees a need for treasury functions to evolve into applying strategic enterprise liquidity models providing an efficient framework to link various stakeholders around the office of the CFO, including treasury, FP&A, risk management, accounting and more. A group-wide approach ensures alignment, cooperation and can lead to faster and more informed decision-making processes.

A Roadmap to Liquidity Maturity

The path to liquidity excellence starts with day 1 readiness preparation and implementation but extends far beyond. Treasury should approach this evolution through a structured roadmap that includes:

• Standardization of forecasting processes and technology tools.
• Centralization of liquidity governance, structures, and banking relationships.
• Continuous optimization of working capital, pooling structures, and investment of surplus funds.
• Measurement and benchmarking of liquidity KPIs and stress performance.

We bring a proven methodology and deep experience in day 1 planning and execution, as well as in post-M&A treasury transformation. We help clients design and implement cash and liquidity frameworks that deliver control, flexibility, and strategic value.

In the next edition of this series, we look at implementing effective banking strategy and funding practices within the newly carved-out entity, including key areas of focus and potential challenges.