How Small Businesses are Coping with the Impact of Tariffs

As trade tensions between the U.S. and China continue to fester, small businesses are finding it increasingly difficult to hold the line. After nearly a year and a half, the tariffs, which have been increased several times, are impacted many businesses, large and small, across the spectrum. However, small businesses, which make up half the economy, are feeling the brunt.

Large companies have more flexibility in how they manage their supply chains and how they can spread increased costs. Small businesses have less room to maneuver so they having to make tough decisions about pricing, renegotiating with suppliers, and managing cash flow. Although they may have fewer options than large companies, there are a few things small businesses can do to ride out the storm.

Watch your profit margins

Many small businesses have already seen their profit margins shrink. Take a close look at yours to determine which costs you can absorb and which need to be offset by cutting costs or raising prices. Look for ways to squeeze more efficiencies out of your business and assess what kind of price hikes your customers will tolerate. For many, all that is left to do is to cut expenses wherever they can by squeezing greater efficiencies out of their business. Cutting operation hours could reduce payroll and electricity costs. Outsourcing staff functions, such as payroll, can also cut costs.

Renegotiate

Once you know which expenses can be cut, look into renegotiating with suppliers and vendors. If they aren’t willing to renegotiate a more favorable deal, they may be willing to lock in a long-term deal while pricing is still favorable. If you can lock in needed goods at current prices, you can avoid further price increases if the trade war worsens.

Change up your supply chain

You may not be able to renegotiate with some suppliers, which is why you should consider changing up your supply chain. Businesses can get complacent with their suppliers so it’s a good idea to make changes anyway, Look for substitute products that still meet quality-control standards.

Manage inventory levels

One of the biggest challenges for small businesses is the cloud of uncertainty the trade war has cast over inventory planning. If you anticipate price increases on any goods you sell that are in high demand, consider making bulk purchases now. If you need to finance inventory purchases, now would be a good time due to lower interest rates.

Update electronic equipment now

Electronic equipment manufactured in China or made with parts from China will become more expensive if the trade war drags on. Consider equipment upgrades now and take advantage of the more liberal Section 179 expensing opportunities to save on taxes.

Communicate with your customers

If you’re left with no option but to pass on rising costs to your customers, start communicating with them well beforehand. Learn what they might be willing to accept and openly share your rationale for raising prices. Customers value solid communication almost as much as they value fair prices. You can build more loyalty by keeping them in the loop.

Tariffs are not expected to last forever. But, by being proactive now, you can prepare your business for the worst and be better positioned to thrive when business conditions get back to normal.