A Roadmap of Eight Areas to Address the Trade War Impact
In the first article in this two-part series, Tariffs & Trade War Timeline: An Overview, we took an objective look at the brewing trade war between the U.S. and China, including the series of tariffs that have been imposed by each nation on imports from the other. In this article, we will talk about some potential solutions that can help you address the trade war impact on your business performance.
Your Trade War Roadmap
To meet the challenges posed by the U.S.-China trade war, you must first address the specific areas of your business where the trade war impact is greatest. Following is a list of eight common areas in many businesses that are (or could be) affected by the trade war and some potential solutions that can be provided by an on-demand CFO partner. Each section includes a link to one of our related, more detailed articles.
Using this list, you can work with a project CFO or part-time CFO to devise a “trade war roadmap” to minimize any potential damage to your company that could result from a prolonged trade war.
1. Performance measurement
It all starts here because without solid performance measurement procedures in place, there’s no way for your company to know how you’re being impacted by the trade war and tariffs, if at all. Elements like dashboards, scorecards and benchmarks to monitor Key Performance Indicators (KPIs) on a real-time basis will let you know at a glance what’s happening with your company’s financial performance at any given time.
2. Profitability & cost analysis
The tariffs are impacting raw material costs (especially steel and aluminum) for many manufacturers. Of course, this can eventually lower gross profits. By performing a detailed cost analysis, you can quantify the trade war impact on your raw material costs and your bottom line.
3. Product & service offerings
In some cases, a trade war and tariffs can affect a business’ ability to offer basic products and services to customers, as well as force businesses to have to rethink which products and services it can offer customers and still remain profitable. A CFO partner can help you gauge whether or not your product and services offerings will remain feasible in the face of a protracted trade war, or if you need to broaden your product and service offerings.
4. Overall customer base
Since a trade war and tariffs can affect which customers you can profitably deliver products and services to, it may force you to reexamine and make changes to your customer base. It is important to determine whether you need to stop selling to certain customer segments and broaden your customer base and to identify other segments that you can serve more profitably and efficiently.
5. Customer contracts & pricing
If the cost of imported raw materials rises, you have two choices: Absorb the higher costs and suffer the effects on your bottom line or pass them on to your customers by raising prices. The latter may involve renegotiating customer contracts, which can be tricky. An analysis of your customer contracts can reveal which ones (if any) can be renegotiated in order to help protect your profit margins.
6. Supply chain management
A trade war and tariffs can affect businesses up and down your supply chain just as much as it affects your business. In extreme cases, some of these businesses may no longer be able to service your business in the same ways they have in the past. A supply chain analysis reveals opportunities for reengineering your supply chain as needed.
7. New vendor sourcing
In the course of reengineering your supply chain, it may be necessary to identify new vendors to replace some vendors who can no longer provide services to your business. An outsourced CFO can provide valuable advice and assistance when it comes to new vendor sourcing.
8. Vendor contracts
Just like with customer contracts, tariffs and a trade war can force a business to renegotiate vendor contracts. This can also be challenging and require expert contract analysis and negotiating skills, both of which are part of the expertise available from an on-demand CFO.
The U.S. and China are in the early stages of a trade war that could go on for months or even longer. This makes it critical to address the trade war impact on areas of your business that are at risk, especially if the trade war escalates. A project CFO or part-time CFO from a local CFO services firm can team with you to devise a trade war roadmap that can minimize any potential damage to your company that could result from a prolonged trade war.
Arthur F. Rothberg, Managing Director, CFO Edge, LLC
Articles in this two-part series:
Part 1 – Tariffs & Trade War Timeline: An Overview
Part 2 – Eight Areas to Address Tariffs & Trade War Impact: This article.