Capital & Clarity: Navigating Tariffs in Consumer & Retail (CFO Perspective)

I've spoken to many founders of brands doing $10M-250M+ in revenue in the last few weeks. I’m capturing the "cliff notes" version of how my team is leading the charge with brands given tariff implications.

I'll start by saying: I know how to underwrite good news. I know how to underwrite bad news. I don't like uncertainty.

1. Finance-Ops alignment. Doing a top-down and bottoms-up review

Start with product margin and gross margin impact. Do a catalog and SKU review and potentially sunset slow-moving products with limited scale (and pause net-new POs with co-man). Prioritize inventory turns.

Focus on hero products that capture economies of scale. Minimize long-tail impact that ties up cash.

Retail requires diversification in your catalog. DTC requires a focused catalog.

Reflect on pricing. This is key and often a missed opportunity. Tariffs create an inflationary impact. This is a moment to start testing for price elasticity.

2. Finance-Marketing alignment. Protect contribution margin (CM%)

Lock arms with CMOs and heads of marketing. Product and marketing are your most significant expenses; drive efficiency across your channel mix. Reduce waste in media spend. Dial in and refine your attribution models.

Lean further into retention (but don't exhaust your customer base). It's a delicate process when nCAC targets have to adjust. Use your cohort models to build flows that drive incremental revenue. The focus should be on improving LTV/CAC.

3. Finance-Management alignment. Create operating leverage.

Stay as lean as possible for as long as possible. Minimize overhead.

Negotiate net payment terms with all partners/vendors. Improve your cash conversion cycle. I wrote about this here: https://tinyurl.com/faheemccc.

Minimize software "tax" - ask your accountant to scrub all credit card statements for the last 6 months. Be relentless here.

Your dollars need to go towards protecting GM% and CM%.

4. Finance-Board alignment. Protect net operating margin.

I want all my portfolio companies to build durable businesses and maximize shareholder value.

We are board observers for many of our portfolio companies; especially the ones that have institutional capital. We are all talking about durability.

I wrote a short essay on how to build a productive asset in consumer & retail for further reading: https://tinyurl.com/faheemproductiveasset

5. Balance sheet focus

• Keep liquidity strong

• Keep weeks of supply optimal (for most companies, we target ~13 WOS depending on supply chain, co-man, etc. This number can vary depending on category).

• Keep the inventory and merchandising plan focused

• Seek extended payment terms with all vendors; get comfortable with a slight shift in balance sheet ratios

• Finance all working capital gaps; protect cash flow that's generated ops. You can use retained earnings to invest in future growth.

• Secure float with your lenders; cost of capital is key and float is equally important. I wrote about this in detail here: https://tinyurl.com/faheembeltssuspenders

6. Board discussion

Be pragmatic with your board when providing management guidance. If you’re a founder, know that your board understands the mechanics of your business. Ambition and realism aren’t mutually exclusive.

7. Re-cast against your v1 2025 budget

Keep track of your re-forecasting efforts and map against the original budget. This will help inform future forecasting and make everyone involved smarter.

1. Growth plan

2. Board plan

3. Bank plan

You will have to build a few scenarios to support this. Make your models dynamic.

There are many tentacles to this. But we are ready to play offense.

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What I’m reading

I am still working through 1965-2024 Warren Buffet’s letters in preparation for my trip to Omaha. I hope to meet Warren.

I want to share something that stood out in one of his letters, where he complements his partner, Charlie Munger. Charlie can distill textbook worth of ideas in one sentence.