Managing Uncertainty and Costs as the Small Business CFO

By CFOGlobalHQ / December 7, 2012

Following the market and the financial system closely is something CFOs do on a regular basis. With global and local economies still recovering from the 2008 downturn, CFOs are in a tough position. No one likes uncertainty in any area of life, especially when it comes to finances.

CFOs definitely don’t like to deal with uncertainty. It can make their work frustratingly difficult and even wasted. In an unstable situation, the CFO could do everything right for his company but the market decides to ruin whatever options his company is pursuing with its investments and financial plans.

This is especially true when it comes to small business CFOs and the environment they have to work in. It can be hard to know what to do; you’re afraid to make a move out of fear of failure and the unpredictability of the economy. This leaves you stuck.

What Can You Do?

According to Ryan Padilla with CFO.com, the most important thing you should do is “manage what you can.”

One of the areas of business you can control as a small business CFO, or any CFO, is understanding the data involved in overhead and costs. You can use this data to determine if the small business is efficiently controlling costs. Make sure time and resources that are supposed to be allocated to a task are being used properly. If data doesn’t match the degree to which time and resources are supposed to be used, you have a cost problem, especially when it comes to employee time use. Correcting the discrepancies can help your business get its costs under control.

Look at Sales Contracts

As Ryan points out, “Many small-to-midsize businesses unintentionally give unearned breaks to their customers that result in both lost revenue and increased costs.” For the sake of simplicity, many small businesses do not adjust their sales contracts appropriately.

Smaller orders should be priced higher and as the volume increases, and prices should drop accordingly. Many small businesses make the mistake of simply cutting in half the price of an order if the volume of the order was halved. This is not the best practice and contributes to out of control costs.

Fixed costs are not good. Sales contracts should be adjusted to take that into consideration. If they aren’t, you are at the mercy of market disruptions and changes in supply and demand. Oftentimes, fixed rates cause your business to lose out on revenue if this occurs.

What do you do to control costs in an uncertain market?

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CFOGlobalHQ

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