We’ve said it time and time again: the role of the CFO has evolved. No longer are CFOs traditional finance stewards; they’re responsible for driving strategic and operational value creation. In fact, operational CFOs aren’t just a private equity nice-to-have—they’re a sponsor expectation.
Nowhere is this more apparent than in today’s market environment, amid tariff whiplash and growing fears of a near-term recession. Because tariffs don’t just impact the balance sheet: they disrupt supply chains, shift customer behaviors, and reshape capital allocation. Through it all, the CFO’s job is to evaluate the exposure and impact of tariffs on their companies—and find ways to mitigate this impact while ensuring that the business has the cash they need to weather uncertain storms. Not an easy feat.
So, how can CFOs embrace the operational side of the role to mitigate tariff risk and withstand volatility? There are several to dos (and some critical don’ts), but they generally fall into four buckets:
1) Expose exposure:
This is the ‘what do we know’ phase. What portions of the business are, or have the potential to be, impacted by tariffs? Do we have delayed close cycles on sales orders—and if not, are we at risk of delays in the near future? What is the inevitable impact on the supply chain—and what are all the potential ranges of that impact based on global manufacturing regions? Do we have operations in highly-affected areas like China?
All these questions have significant implications on the all-important acronyms: COGS, SG&A, A/P, A/R, G&A, etc., etc., etc. To understand that impact, CFOs need to undertake a significant exposure exercise. But they can’t do that alone. If the primary question is, ‘what do we know?’ the critical follow up is ‘and who knows it?’. CFOs should proactively engage business partners within the organization who can shine a light on exposure from their unique lens into the business (customers, suppliers, employees, etc.)
2) Unlock the budget:
It’s May. Chances are the corporate budget has been locked—but it’s time to unlock it. (But not undo it, though we’ll get to that later.) The budgeting process is a laborious and time-intensive exercise that painstakingly projects and addresses business outlook based on market conditions, accounting for a certain number of reasonable variables. Some CFOs may have taken Trump at his word and built in tariffs as a reasonable variable. Others likely did not.
CFOs must address the risks and opportunities posed by a range of tariff scenarios, conducting a tariff impact analysis that evaluates exposure and builds high level models of business cases to quantify impact to P&L, cash flow, and balance sheet (for example, if this country gets tariffed by X%, the impact will be Y). Revising should address driver-based scenarios (customer regions, units and pricing, quarterly phasing/timing, GDP vs. secular impacts). It should also capture the operational effects of tariffs, such as shifts in buying behavior, changes to investment priorities, and impacts on capex planning. What’s more, CFOs should be mindful of hidden costs—including delayed purchasing or hiring decisions, lost sales momentum, and operational inefficiencies driven by supply chain reconfigurations.
And, of course, in a PE-backed environment where cash is critical, it must address liquidity planning and the balance sheet (sensitizing covenant scenarios, payroll viability, setting aside emergency cash). But all these dos come with one critical don’t: don’t launch a full reforecast…yet. While scenario planning is key, tariff whiplash and recession uncertainty make any substantive attempt at accurate forecasting, at this point, a fool’s errand.
3) Learn the levers:
Of course, a tariff impact analysis is essential for understanding exposure and potential effects—but what comes next? CFOs need a robust solution: one that not only illustrates tariff exposure, but also highlights actionable SC&O strategies to offset the impact. For example, how can we realign our sourcing strategy? If we have operations in highly-affected countries like China, are there alternative sourcing locations that we can look at? Are there any exemptions we can mine for? How can we re-engineer our product design to optimize tariff-based cost savings? And beyond that, are there any other non-core costs we can cut out?
But SC&O changes alone aren’t enough; CFOs need additional cash management strategies to ensure they have sufficient liquidity to navigate the financial and operational disruptions that arise. That means they need to forecast in a way that tests for “what-if” scenarios, using cross-functional inputs that give management a holistic revenue picture. What’s more, CFOs should focus on optimizing working capital by tightening up receivables, extending payables where feasible, and streamlining inventory—freeing up trapped cash that can be redirected toward more strategic initiatives or used to buffer against volatility.
4) Speak to sponsors:
As with all business disruptions, communication is key. The CFO must play a two-fold communications role. S/he should take the lead in articulating to employees any substantive changes to business operations. But the CFO’s primary audience must be the sponsor, because (one more time with feeling) sponsors hate surprises. CFOs must seek to eliminate those surprises by proactively communicating the exercises Finance is undertaking to understand exposure, budgeting implications, and lever identification. And then, they must communicate the results from that undertaking, being transparent about risks and impact to the business, and updating those projections based on real-time data.
The really smart CFO, however, will do more than lean in to sponsor communication, s/he will lean on sponsors for guidance. PE firms have a portfolio-wide view of corporate response to tariff uncertainty. They have unique insight into emerging best practices. The CFO must be a student of those, asking their sponsor (when it’s not already offered) about portfolio-wide preparedness planning and benchmarking.
Tariffs will impact businesses. Just what that impact is and how long the implications last remain to be seen. The PE-backed CFO could/can/may play a critical role to help the company weather and withstand the fiscal threats during both the short- and long-term. The prepared PE-backed CFO will play that role.