President Donald Trump has announced, rescinded, raised and adjusted dozens of tariffs over the first months of his presidency, leaving business owners scratching their heads as to when and how they should brace for impact.
As the tariff situation develops, many small business owners are worried about how import taxes will affect their bottom line. While not all businesses will feel equal impact, it’s likely that tariffs – in whatever capacity they’re enforced – will affect businesses across the board.
“Most small businesses are going to get hurt pretty badly, if not directly, because of the spillover effect,” says Vidya Mani, associate professor of business administration for the Darden School of Business at the University of Virginia.
Even if a small business isn’t buying a tariffed item directly, a refrigerator assembled in the United States may require parts from places like Canada, China, Taiwan and India, using a chip made with raw materials from Brazil and steel manufactured in Mexico. And that doesn’t even include the equipment and tools used to assemble the fridge in the first place.
Just one disruption to any of these supply points can hold up production and spike prices, as was seen during the pandemic. With tariffs on multiple countries and products, some economists are predicting an exponential upheaval in prices and supply.
While you might not be able to control the global supply chain as a small business owner, there are steps you can take to protect your business, manage price hikes and keep your customers happy.
Talk with your suppliers
It’s one thing to know who your suppliers are and where they source their products. It’s another thing to know the sources behind the sources – and far back your supply chain goes back.
A supplier may not always get inventory directly from the source. They may buy it from a wholesaler, who purchases it from a broker, who sources it from a variety of places – all creating more points of transport and potential supply chain fault points.
“When you lose visibility to that commodity, part of that supply chain is when you get really bad shocks, when disruptions happen,” Mani said. “Figure out the regions and the kind of pricing pressure you will get, so that you can be prepared for these shocks that will come in.”
With a global economy, it’s key to go beyond the first layer or two of supply, and to truly understand where your products are coming from.
Talking to your suppliers about where they source their products – and how they and you can build resilience to tariffs and supply chain shocks – can help you fortify your supply chain in the long run.
Know your whole supply chain
Knowing where your suppliers source their products is crucial to understanding how tariffs, along with other impacts to the supply chain, will affect your bottom line.
Mani predicts that, over time, suppliers may focus on sourcing from regions and countries closer to their customers, such as moving product sourcing from Asia to the European Union in order to serve the United States better.
“You’ll no longer have a global supply and a global marketplace,” Mani said. “You’re going to see more regional hubs for small businesses.”
This means that supply chains may become more susceptible to what Mani calls regional shocks – where a disaster or shortage affects one region, small businesses who rely on that area will see shortages or price hikes.
Knowing where your products are coming from – and how certain regions may be impacted – can give you headwinds on supplies you rely on, and allow you to adjust accordingly.
Get efficient with operations
How you manage your business operations will be crucial in mitigating the price increases that come from tariffs. Every dollar you save can translate to reduced loss – and less of a price burden you have to push onto your clients. The key to this is looking at which products and services are your real money makers.
“Focus on your mainland products and try to get supply for that, and try to start getting as efficient as possible in your supply chain,” Mani said.
By focusing on materials for a few core products, instead of trying to spread around your capital on a huge portfolio, you can take advantage of buying in bulk and an economy of scale, which can save you money in the long run.
Transportation and storage will also play a key role, Mani says. As tariffs and supplies can change in a matter of days, being able to purchase and transport materials quickly can protect you from sudden spikes in price.
Finally, it helps to take a hard look at your budget and cut out discretionary spending for the foreseeable future.
“It is very similar to how we would look at our budget sitting at a kitchen table when inflation comes in,” Mani said.
Avoid the temptation to panic buy
While many businesses are stocking up ahead of the tariff enforcement dates, hoping to save money on future price increases, it’s not a viable long-term solution – or a good use of your capital.
“Every dollar that you get locked in inventory that’s not sold, you could have used for something else,” Mani said.
Instead of trying to stock up, look to where you can use your capital to invest in efficiency and long-term cost savings. This can mean replacing old equipment that uses more energy, investing in automation or establishing new training for employees.
Think long-term
Though the tariff situation is constantly evolving, for the length of the Trump administration, they’re likely here to stay – so plan accordingly.
The ongoing tariff situation will likely be cyclical, Mani says, as negotiations, retaliations and adjustments are likely over the coming weeks. As such, businesses should avoid making any rash decisions.
“It’s better to ride it out and wait, for there’s going to be retaliation right now,” Mani said. “After that there is going to be a simmering down.”
While some business owners are hopeful that tariffs will push more manufacturing and production to the United States, it will take some time for things to shift in that direction.
“Until those supply chains move, small businesses can’t do anything on their own,” Mani says. “They will face increased costs right now.”
Tariffs besides, building out more resilient business operations – such as by establishing a cash reserve – will also help your business health long-term, as disruptions like a pandemic, local disasters and other economic factors can come at any point.
“Businesses need to prepare for a disruption during regular business, not when an emergency comes,” Mani said. “Keep investing in bolstering your resiliency.”
Be flexible
Small business owners have a distinct advantage over corporations in handling tariffs: flexibility.
“Small businesses can move much quicker, much faster, and operate with the same principles as a big business in terms of efficiency applied to a small business concept,” Mani said. “You’re not stuck with a huge plan that you can only move piece by piece. You have a lot of flexibility.”
Being flexible by switching suppliers, changing supply sources and being able to adapt your products and services on the fly can offer you an advantage in mitigating the impact of tariffs. Staying aware of price changes is key in this.
“Can you look at the trends and move fast? That’s where I think the opportunity is for small businesses,” Mani added.
Ordering items on a smaller scale – or patching different sources together to fill your inventory – can also allow you to diversify your supply chain and balance out costs in a way a larger business can’t.
Build your business network
Networking with other businesses can help you save money and stay on top of price changes. A robust business community can help its members endure sudden changes, especially if you connect with both consumer-facing businesses and suppliers.
“If they come together, they can pool resources to create enough buffer in the supply chain such that when one goes down the other can compensate,” Mani said.
Businesses that network together can buy supplies in bulk to take advantage of discounts and stay ahead of shortages and price changes. You can also share equipment, transport and working space in order to save on those costs. Those are the kind of mechanisms that you can build by networking and coming together.”
Bottom line
While the tariff situation still remains uncertain, building resilience into your supply chain and your business operations will help you in the long run. Be sure to talk to your suppliers and get a comprehensive idea of how your supply chain looks for your inventory and equipment. In addition, focus on making your operations more efficient and in building a network with other small business owners. By doing so, you can weather tariffs and manage your inventory for the long run.
Read the full article here
