The current economy may occasionally make it feel like it’s an awfully tough time to be a CFO.. 

By Richard Flynn

But there is at least one small silver lining: the down economy has perhaps set the stage for a trend that could bring CFOs greater prominence in their companies and in the business world in general.

In times like these, small business owners are more likely than ever to look for extra financial guidance to run their businesses. And for most companies, the CFO is the logical person to turn to. Where this trend will lead is impossible to say, but it does stand to reason that CFOs who rise to the occasion with solid financial guidance will be recognized for their abilities. Fortunately, as challenging as this economy is, the basic goals and principles of sound financial management remain the same. CFOs, however, will need to put greater emphasis in some areas, such as managing risks, building steady profit, and maintaining healthy cash flow. To help you identify new ways to adapt to the economy and usher your company through to better times, consider how you’re dealing with the following three areas.

Reassess risk
Risk is always something a CFO must keep in balance, but the current economy creates an environment where risks are both greater and less predictable at every level, from big-picture industry issues to day-to-day collections and vendor relationships.

In this environment, one of the greatest financial risks is to continue operating under existing business assumptions. Be wary of any assumptions you have made about the downturn and its duration. While optimism has its place, counting on a recovery too soon could lead to overstated revenue projections and overly large budgets, resulting in depletion of reserves. The current recession has already outlasted its last two predecessors, so we’re in uncharted territory.

To keep risk under control, reassess your growth and earnings projections. For many companies, earnings and growth projections calculated on a yearly basis, for example, may prove to be too inaccurate over time, given the increased volatility of a down economy. Revisit projections made six months or more ago and assess how accurate they have been to date. If there are already considerable discrepancies between projections and reality, you may need to adjust current budgets to curb losses. And for the future, you may want to consider the benefits of projections and budgets for shorter periods, potentially trading annual calculations for bi-annual or quarterly figures.

In addition to adjusting assumptions, developing contingency plans can also help reduce risk. In better times, conventional planning and budgeting serve well, but a volatile environment with multiple heightened risks requires multiple backup plans. Developing several worst-case scenarios can benefit any company by helping to avoid on-the-fly decisions if the worst does occur.

One area to look at is the risk passed on by customers and vendors. Evaluate which of your customers and vendors are the most critical to your business, and take the initiative to learn about their solvency and overall financial strength. For new customers or vendors, exercise the option of doing a credit check through Dun & Bradstreet. You may also want to take the extra step of requesting trade references and bank references, which can provide detailed information about business dealings with the company in question.

For existing customers or vendors, take a look at their track record with your own company over the past six months. If a vendor’s delivery time has lengthened or reliability has slipped in any way, it could mean risk has also increased. Likewise, customers whose payment time has extended significantly may be greater risks for your company. In addition, stay abreast of industry news that affects vendors and customers. A loss of large accounts, increased market turbulence, lower stock prices, or rising raw materials costs for either customers or vendors all serve as warnings of elevated risk. Being aware of rising risks will allow you to plan accordingly, should a customer’s or vendor’s situation take a turn for the worse.

If customers appear to be rising credit risks, it is important to reassess any credit you extend. You may also simply want to encourage customers to pay by credit or charge card, so that you will be guaranteed timely payment and avoid the risk of slow payment or non-payment. Customers will still be able to delay payment and may also appreciate the benefits and rewards that a number of charge and credit cards offer.

Seek out small but steady gains
Most companies build profitability in small steps, not through major high-profit opportunities, which tend to arrive sporadically even in the best of times. In a slow economy, profitability is more than ever likely to be the result of long-term discipline and small, consistent gains.

Target predictable savings and discounts that will help boost profits in a time when profits are soft. Trade terms, for example, are one such opportunity. With diligence, these seemingly small advantages can be significant over the long term. While some terms will allow you to defer payment when cash is short, nearly all reward early payment with a discount. Delayed payment may present greater benefits depending on your organization’s cash flow, but when paying early is an option, the rewards are worthwhile. Although 1 or 2% seems a small amount, it’s a deal since these are savings you can reinvest into your business. If you’re not able to take advantage of trade terms with some or all vendors, look for other options, such as credit and charge cards that offer cash-back rewards, miles, or other advantages, or those that offer trade-like terms, such as the Plum Card from American Express OPEN.

Opportunities for discounts may be less abundant in a down economy, but there is often room for negotiation. Identify or create additional opportunities by assessing vendor relationships across the board. If you provide steady business to a vendor but haven’t been able to negotiate better payment terms, discounted prices, or other advantages, then consider how you might better your standing, whether now or in the future. Asses whether it is worthwhile to formalize a standing order, instead of ordering on an as-needed basis, for example. You might also gain negotiating power by consolidating your business with one vendor.

Sync accounts payable and receivable
To create optimum cash flow, accounts payable and receivable have to be more than well managed; the two must work in lockstep. While ccounts receivable will always present greater unpredictability, streamlining accounts payable can lend more focus to cash flow efforts.

Assure that outflows are not continually due before receivables by standardizing payment dates whenever possible. Negotiate payment dates with vendors and creditors to streamline payments and better coordinate them with receivables cycles.  This can also help reduce the distraction of dealing with payments in a scattered manner and will create more focus in areas of accounting that require greater attention and effort.

Look at late payers to determine how you can help keep them on track. When a customer is past due, immediately open a dialogue to understand the situation. In addition to learning more about the customer’s situation, evaluate your own organization’s role in late payments. Spot checks in specific late-payer cases will help you determine whether your own accounting system is getting invoices to the customer promptly. Keep in mind that getting the invoice in the mail is not the last step. Invoices must reach the appropriate customer contact and must contain all essential information, such as purchase order and vendor numbers, so that the customer can process the invoice in a timely fashion.

More than ever, companies are relying on their CFOs to maintain resilience with strong cash flow and appropriate liquidity. By taking into account the risks and challenges of the times, however, you can do more than just weather the economy; you can also use it as an opportunity to build long-term financial standing and get a jump on the competition when the good times return. And if the trend of greater leadership roles for CFOs continues to progress, doing the right thing for your company can transform your career.

Richard Flynn is senior vice president and general manager for American Express OPEN, the nation's leading issuer of card products for small business owners.