Treasury Made From Scratch: How to Best Support Your Business Spinoff

Decisions regarding the post-spin long-term structure of the new company typically won’t start until leadership is in place. However, these future leaders might not impact treasury management today, so it’s best to start documenting all treasury-related information as soon as possible. Create a comprehensive appraisal of your organization’s existing treasury functions—include data, processes and structures, with a focus on the areas the spinoff will impact most.

Begin by analyzing accounts, accounting for account related transactions, services and integration points. Then, examine your systems, technology, processes and people, including critical third parties. In addition to building due diligence, this analysis will serve as your source documentation, identifying what’s shared with your current parent company and what’s already managed independently by the soon-to-be spinoff company.

You don’t want to do this spinoff alone, nor can you. That’s why it’s important to identify internal and external partners, and involve them early. Internally, these partners include stakeholders who are part of the current treasury stream, whereas external partners include banks and third parties that provide services for your treasury.

Your partners are invaluable during your company’s spinoff—they provide expertise, help document the company’s current state and guide the design process as you create and refine your plans. When determining partner teams, remember to identify sponsors—team captains—who can serve as the senior point of integration to your enterprise and assist in decision-making and escalation as needed.

As you establish your post-spinoff treasury vision and roadmap, embrace principles and practices that align with the spin company’s growth strategy. Ensure that you incorporate best practices and capabilities by engaging your banks and technology providers.

The ultimate objective of spinning off is to separate from the parent company, including its legal entities, systems and processes. But before you achieve that objective, there are smaller goals to achieve along the way. Given that treasury activities can be aligned with other enterprise systems and processes—including enterprise resource planning (ERP), payroll and accounts payable and receivable—it’s important that your treasury goals and timelines are aligned with enterprise milestones.

To the extent possible, build your treasury structure and systems so they can run parallel from the parent prior to close. This helps to ensure a clean transition.

Unfortunately, there are situations in which a clean break isn’t possible. For example, if you share systems, operations, people or other activities with the parent company, you’ll need more time to complete the treasury spinoff. If that’s the case, you may also need a transition service agreement (TSA), which allows your spin company to utilize its current shared resources during the transition without disrupting operations. When establishing the TSA, not only should your treasury make sure its activities are properly covered, but that the TSA’s duration is reasonable. Although this varies among spin companies, 12 months is generally an appropriate TSA time frame.

Just as a merger or acquisition demands a roadmap, so does a spinoff. As such, you should develop a comprehensive spinoff plan that documents all required activities and interdependencies, allowing the spinoff company to:

• Plan for the demands of opening new accounts. The new entity will likely be required to undergo a “know your customer” review by its bank, and enter into bank account service agreements before it can operate any bank accounts.
• Establish control of accounts and services so only those responsible for the spinoff company are granted accountability and access.
• Gain cash visibility, which will assist in cash positioning and forecasting to the spinoff company, as well as your short- and medium-term needs.
• Understand investments so you can properly direct them to ensure you’re maximizing the use of assets.
• Set up centralized control of all payments to produce an approved payment file from your ERP and utilize automated payments to improve your working capital.
• Develop a centralized receipt process with integration into the receivables system.

Your bank should have a framework in place to manage the spinoff throughout implementation. That framework should include a single, designated point of contact at the bank; you should meet regularly with this contact to help navigate the organization as it spins off. Despite your best efforts, some things may require swift resolution if they don’t go as planned. In such instances, your bank point of contact will be the first call you make for quick execution and problem resolution.

Your spinoff may be official once you change legal representatives, but that doesn’t mean your work is complete. Far from it. Keep TSA dates and details in mind, and don’t forget to work with the parent company to deactivate or close anything that’s no longer relevant to their setup as you transition to the new spinoff structure.

More importantly, remember that establishing the treasury structure for your spinoff is just the beginning. It’s also critical that you maintain communication with your trusted treasury providers to stay abreast of the latest technologies and services. In addition, you should continue to assess potential efficiencies, which can not only make your business easier to manage while delivering value to your enterprise, but better position your company for future expansion.