Companies that thrive in uncertain trade environments become companies that think long-term and strategically rather than short-term, respond in a knee-like manner.
Also says Brad Kayton of The CFO Center, a fractional CFO service company for Northeastern Regional Director. As the different nature of Washington's customs policy continues, it is an approach that can prevent businesses from adjusting courses when new trials or trade negotiations support short-term solutions.
In this interview, Katon draws on the broad experience of software engineers, product managers, CEOs, CFOs, angel investors and board members at consumer technology companies to advise fellow CFOs on financial strategies and tactics that will help organizations become resilient in the face of an unpredictable economic climate.
How should CFOs evaluate their exposure to customs risks and what areas of the supply chain should they focus on?
Tariffs are constantly changing, so businesses need to identify vulnerabilities. This includes mapping all the first major suppliers from tier 1 to tier 3 to third major suppliers and determining whether to operate in tariff-affected regions such as China, Mexico, Canada and the EU.
Understanding supply chain geography is also important. CFOs should assess the origin of the components, calculate the total land cost, and investigate whether there are alternative suppliers for low-custom order areas. Additionally, it is necessary to assess whether a subcomponent of a supplier's product carries a risk of customs duties.
Running scenario analysis is another important step. Tariffs fluctuate based on political and economic factors, so preparing for policy changes through contingency plans is important. Companies need to model the impact of increased tariffs on costs and operations, determining whether changes can be absorbed and whether adjustment strategies should be adjusted. A clearer understanding of these factors allows CFOs to make positive decisions rather than scramble whenever government policies change.
What financial strategies can CFOs use to offset rising material costs and protect profitability?
There are no solutions for all sizes, but a combination of financial tactics can help ease the blow. One approach is to leverage relatively strong US dollars. This will make imports from non-tariff regions more affordable and offset other increased input costs. Additionally, CFOs need to plan more inflation. In many cases, tariffs increase prices across the board and affect decisions regarding real estate, capital equipment loans and corporate financial strategies.
By negotiating with suppliers, businesses can explore options such as longer payment terms, bulk purchases, alternative procurement, and even direct sharing of tariff burdens. Companies also need to build flexibility into contracts. The contract allows for quick adjustments in procurement and pricing when supply chains need to shift. Furthermore, streamlining operations and eliminating non-essential costs can help strengthen cash flow and mitigating higher material costs.
Adjusting pricing is optional if necessary. For example, product bundles and premium positioning can stay competitive without alienating customers. Ultimately, the goal is to balance cost management with long-term growth, ensuring that short-term financial decisions do not undermine future success.
What about your financial strategy to protect against volatility? Are there any moves that the Ministry of Finance should consider?
Consider currency hedging. Tariff wars tend to be characterized by currency fluctuations and sudden revisions. This occurs due to adjustments in trade balances, changes in investor sentiment and capital flows, changes in inflation and interest rates, market speculation and intervention by government and central banks.
If your business has money crossing borders, such as international salaries, it makes sense to work with FX specialists to stabilize cash flow currency fluctuations and take advantage of some people's preferred exchange rates [countries]. The rule of thumb is that cross-border currency conversion of $1 million is the point where hedging makes sense.
Can businesses use technology to ease their dependence on supply chains affected by new tariff policies?
Investments in automation allow businesses to move away from labor-intensive overseas production, making domestic manufacturing a viable alternative. Furthermore, efficiency-enhancing technologies such as AI-driven supply chain analysis and advanced inventory management systems can optimize costs and minimize disruption. Integrating automation with smart supply chain technology helps businesses build adaptive and cost-effective operations.
What long-term planning strategies should CFOs focus on to prevent trade uncertainty from hindering growth?
Rather than responding to all tariff announcements, businesses should aim for long-term resilience. Diversifying suppliers are important. This is because relying heavily on a single country or region can pose serious risks. Instead, explore suppliers in low-duty or tariff-exempt regions to provide a safety net for your company.
Government incentives to invest in re-accession and strengthening domestic production are the best time to rethink where critical components are manufactured. That is, it is the purpose of the tariff baseline.
