What questions should NED ask about cash optimization and risk?

Non-executive directors ("NEDs") have an important role in ensuring organizations adequately manage with a view to cash optimization and manage risk. What questions should an NED ask or be curious about?

Non-Executive Directors (NEDs) play a crucial role in overseeing a company's financial health and risk management. When it comes to cash management and diversification risk, they should ask the following key questions:

Cash Management-questions about cash optimization and risk

1. What is our current cash position?

   • How much cash is on hand, and how does it compare to our short-term liabilities?

2. What is our cash flow forecast?

   • What are the expected inflows and outflows over the next 3, 6, and 12 months? How reliable are these forecasts?

3. How are we managing our cash reserves?

   • What strategies are in place to optimize cash management, such as investments, debt repayments, or capital expenditures?

4. What is the status of our liquidity?

   • Do we have sufficient liquidity to meet short-term obligations? Are we reliant on external financing for cash flow needs?

5. What is our working capital management strategy?

   • How are we managing receivables, payables, and inventory to optimize cash flow?

6. Are there any significant cash flow risks?

   • Are there any known risks (e.g., delayed receivables, large upcoming expenses) that could impact our cash flow?

Diversification Risk

1. How diversified is our revenue stream?

   • Are we overly reliant on a few key customers, products, or markets? What is the impact if any of these underperform?

2. What is our investment diversification strategy?

   • How are we diversifying investments to mitigate risk? Are we exposed to specific sectors or asset classes that could present risks?

3. How are we managing geographic diversification?

   • What is our exposure to different regions or countries? How are we managing risks related to political, economic, or currency issues?

4. What is our approach to supply chain diversification?

   • Are we dependent on a limited number of suppliers? How are we mitigating risks associated with supply chain disruptions?

5. What is the risk of concentration in our business operations?

   • Are we dependent on a few key business units or segments? How are we addressing potential risks from this concentration?

6. What stress-testing or scenario analysis has been done?

   • Have we stress-tested our business model against potential diversification risks (e.g., market downturns, geopolitical events)?

7. Are there emerging risks that could impact our diversification strategy?

   • Are there new trends or changes in the business environment that could affect our diversification risk?

These questions about cash optimization and risk will help NEDs gain a comprehensive understanding of the company's cash management and diversification strategies, identify potential risks, and ensure that the company is well-positioned to handle financial challenges.