As cinema goers flock to see the ‘Founder’, Mark O’Toole of OpenLink explains the cash flow forecasting challenges facing global food and beverage businesses 60 years on from the creation of the golden arches.
“If you’re not a risk taker, then you should get the hell out of business.” One of the many inspirational lines from Ray Kroc, the man behind the McDonald’s franchise model we all know today. But as poignant as these words may have been back in 1950, it is hard to fathom how this former milkshake salesman’s roll of the dice decision-making would fit into the global behemoth that is McDonald’s today. After all, for any firm currently operating in the global food and beverage industry, it isn't so much about taking greater risk, more about finding smarter ways to manage it.
Take the very thing that enabled Kroc to franchise the McDonald’s name and bag his first restaurant - cash flow. Kroc had to raise $50,000 from cash flow in his existing milkshake business; which is a mere drop in the ocean when you consider the endless accounting audits, ongoing fees and working capital involved in setting up a modern-day franchise. These costs would pale into insignificance if Kroc was heading up McDonald’s now, as far greater cash flow challenges would lie ahead.
For any c-level exec equivalent to Kroc working for a major food and beverage conglomerate, a highly volatile global macro and geopolitical climate is putting a huge strain on annual capital allocation. Understanding how much cash is at risk is a perennial concern of any firm, and numerous situations could hit the balance sheet at any given time. For example, any U.S restaurant chain heavily exposed to commodities may be trying to forecast how much cost they can pass to end customers amid rising food prices. At the same time, if say more than half of their sales are international, it may be looking at its hedging strategies to determine the bottom line impact of future rises in interest and FX rates. After all, currency risk can be embedded into a physical commodity risk, exposing the balance sheet at any point.
The trouble is that too many corporates simply cannot access the right information from their group treasury and procurement teams to make informed decisions about how best to manage these scenarios. Throwing money at the latest tech is fine, but this doesn't solve the key issue that the Kroc’s of today face - getting the right level of insight to appease shareholder concerns. Brash and buccaneering risk takers certainly have their place in the corporate world, as well as the big screen. However, daily currency and commodity market price swings mean execs need to be more focused than ever on the less Hollywood task of managing risk, which has never been more complicated.
This is why, to ensure cash flow is managed efficiently under any scenario, c-level execs need to have full visibility across treasury and procurement teams. Without this insight, boardrooms put their company’s value and reputation at risk. With increasing shareholder pressure to reduce costs and provide value, it may just take a 21st century version of Kroc to convince the rest of the boardroom that having a complete view of risk exposure is the best way to forecast the capital that needs to be allocated during times of stress. After all, as the "founder" once put it, “the quality of a leader is reflected in the standards they set for themselves.”