The Trade War Effect and Your Business

It can be a bit disturbing to think about trade wars and tariffs, and the effect they may have on your small business. With the prospective higher costs looming you should be as prepared as you possibly can be. Below are some suggestions that may help you work the possible effects of the trade war.

Pinpoint areas at risk. Which of your suppliers and items are the most vulnerable to tariffs? Do the items include steel or aluminum or other imports from China? The average tariff on all U.S. imports at this point is less that 2% and more than half of imported items have no tariffs as of yet. However, items such as clothing and shoes may very much be subject to increasing tariffs.

Pursue additional suppliers. After you have pinpointed items that may be vulnerable to tariffs, you should then decide which of these items are key components to your business. Next, research other similar suppliers that attain their merchandise using a non-tariff source. By creating a good relationship with these suppliers now, you will increase the odds of reducing your added expenses later.

What’s your breakeven point?  For your business, the breakeven point is when your total revenue is equal to your total costs. This point is helpful when forecasting your breakeven sales and the ability for you to absorb any price increases from your suppliers. Knowing your breakeven point will be helpful in identifying if, when, and how much to raise your prices.

Potential areas to cut costs. Determine all of your expenses and classify them in 2 categories, essential or non-essential. You might be able to save your overall profitability if you cut some of your non-essential operating expenses if tariffs will impact your margins.

Modify the timing of your supply chain. There may be a possibility to manage your inventory and create a buffer that will absorb a tariff as long as the trade war is short-lived. Creating a working capital account could allow you purchase flexibility to make your expenses a bit more predictable in your crucial sales season. To manage storage concerns, try to negotiate a staggered delivery schedule with your suppliers.

You may be better prepared to reduce the risks that comes with a trade war by staying informed about the tariff updates. At Summit CPA we offer multiple resources that will help get your business on the right track. For more tips, contact our office at (866) 497-9761 to schedule an appointment with our advisors.