Financial Foundations to Weather Tariffs and any Economic Challenge

Navigating the turbulent waters of the current economy is a top concern for CPG brands and businesses across the board. With ongoing economic uncertainty, fluctuating tariffs, and a rapidly evolving landscape, founders are grappling with understanding the impact on their operations and building a resilient foundation for the future.

In episode 220 of Startup to Scale, host Jordan Buckner welcomes back Brad Ebenhoeh, founder of Accountfully, to delve into these challenges. Drawing on his daily experiences with clients, Brad offers valuable insights into the financial worries of businesses and practical strategies for navigating these uncertain times.

Here is your how-to guide to navigating the tough waters of the economy as a CPG or inventory-based founder.

Listen to the full podcast:

Key Takeaways & Founder Checklist

Economic Uncertainty is Normal:

Market fluctuations, tariffs, pandemics, and supply chain issues are recurring challenges in business, happening every few years. Expect change and prepare for it.

"Having Your House in Order" is Critical:

Having a strong financial foundation and organized business processes is crucial for weathering economic storms.

"I think that the theme of 2025 and even the past five years going forward needs to be, do you have your house in order? Do you have your business in order to properly respond to whatever happens?" Brad Ebenhoeh

Funding Challenges:

Securing funding, especially for emerging CPG brands, has become more difficult recently. Focus on fundamentals and building a sustainable business.

Customer-Funded vs. Outside-Funded:

Businesses primarily funded by customer sales tend to be more sustainable and resilient than those relying on external funding.

Diversification is Key:

Diversifying revenue streams, customer base, and supply chains can help mitigate risks during economic shifts.

"There's times when the economy changes, people may not be able to afford your product or buying behaviors change, but the more, the bigger the problem that you're solving for customers, the more likely they will stick with buying and using your product through these changes unless something so drastic happens that it affects everyone." Jordan Buckner

Understanding True Costs is Vital:

Founders must know the actual costs of manufacturing, ingredients, and operations, including freight, duties, and taxes.

Inventory Management:

Accurate inventory counts and management are critical to controlling costs and preventing losses.

Sales Channel Analysis:

Margins and profitability vary by sales channel. Segmenting financials to analyze each channel separately is essential.

Cash Flow Management:

Maintaining cash reserves, negotiating with vendors, and optimizing inventory purchasing cycles are crucial for cash flow management.

Proactive Financing:

Securing lines of credit or loans when times are good provides access to capital during challenging periods.

Action Items for CPG/Inventory Based Founders

• Review and Organize Finances: Ensure accurate books, updated balance sheets, and P&L statements. Understand your tax return implications.
• Analyze Product Costs: Break down the Bill of Materials, understand all costs involved in manufacturing, and track changes over time.
• Audit Inventory Management: Implement a system to track inventory accurately, including location, quality, and counts at 3PLs and Amazon.
• Segment P&L by Sales Channel: Use the class function in QuickBooks (or similar) to track revenue, COGS, and expenses by sales channel to identify profitability.
• Recalculate Product Margins: Re-evaluate pricing and margins, considering recent cost increases and changes in the market.
• Negotiate with Vendors: Discuss cost-sharing and payment terms with manufacturers and suppliers.
• Optimize Inventory Purchasing: Reduce long inventory days on hand by buying smaller quantities more frequently to maintain cash flow.
• Maintain Cash Reserves: Be cautious with cash outflow. Consider discounting old inventory to generate cash.
• Secure Financing Proactively: Apply for lines of credit or loans when your business is performing well to have a financial safety net.
• Diversify Revenue and Customers: Expand to new sales channels, target new customer segments, and avoid relying on a single large customer.
• Evaluate Supply Chain: Explore US-based manufacturing or diversify suppliers to reduce reliance on overseas production.
• Monitor Small Charges: Keep track of all charges, even small ones, as they can accumulate to significant amounts.
• Get Professional Help: Seek accounting and financial expertise, especially from those with CPG industry knowledge.

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If you need help on the accounting front, feel free to reach out. Accountfully has been helping founders understand their numbers since 2012.