As the Trump Administration’s tariff plans approach reality, you may worry about their impact on your small business. Planning ahead can mitigate tariff risks, maintain profitability, help you sleep better at night, and position your business for long-term success in a changing economic environment. Below, we discuss four key strategies to help small businesses navigate this transition effectively.
Tariff Tactic: Stock Up on Inventory
What to Do: Front-run tariff cost increases by purchasing additional inventory before January’s inauguration.
Why It’s Important: Stockpiling inventory now can help you avoid the immediate impact of increased tariffs, providing a buffer to adjust to higher costs over time. This is particularly critical for products from China which seem likely to be directly affected by new import duties.
How to Implement:
- Review Demand Forecasts: Analyze sales trends to determine how much inventory you’ll need to cover upcoming months.
- Evaluate Storage Options: Ensure adequate warehouse space or negotiate temporary storage solutions.
- Ensure Adequate Financing: If cash flow is a concern, consider short-term loans or credit lines to fund inventory purchases. Or consider if your business is not in a position to execute this tactic.
By acting early, you can maintain pricing stability during the initial transition period, preserving customer trust while preparing for broader adjustments.
Tariff Strategy: Execute Strategic Price Increases
What to Do: Adjust pricing to account for increased costs without alienating your customer base. Nearly every successful business executed this strategy to offset Trump 1.0 tariffs.
Why It’s Important: For a 60% tariff (as proposed by Trump), passing on the costs is more than a best practice – it’s unavoidable. A carefully planned approach can help maintain profit margins while retaining customer loyalty.
How to Implement:
- Communicate Transparently: To maintain trust, frame price increases as a response to external factors, such as tariffs.
- Introduce Gradual Increases: Spread price adjustments over time (e.g. at contract renewal) or implement tiered pricing to ease the transition for customers.
- Bundle Products: Create value-packed bundles to enhance perceived value while subtly incorporating higher prices.
Taking a proactive stance on pricing ensures that your business remains viable without compromising customer relationships.
Tariff Strategy: Offer Value-Added Services
What to Do: Differentiate your products by offering services like warranties and maintenance agreements that increase customer loyalty and generate tariff-exempt revenues.
Why It’s Important: Enhancing your offerings reduces reliance on price-sensitive goods, giving you greater pricing flexibility and helping offset tariff-related expenses. Plus, incorporating services increases your overall pricing power, allowing you to pass on tariff costs more easily.
How to Implement:
- Provide Customization Options: Allow customers to tailor products to their specific needs (e.g., offering tinted windows when selling new cars)
- Extend Warranties or Support: Offer guarantees, maintenance plans, or after-sales support to enhance value and secure future service sales.
- Educate Customers: Provide training, usage guides, or complimentary consultations to improve the customer experience.
Value-added services justify higher prices and help your business stand out in a competitive market.
Tariff Strategy: Diversify Your Supply Base and Negotiate with Suppliers
What to Do: Sourcing suppliers from multiple regions, including nearshore or domestic options. Use these alternatives to negotiate lower costs with existing offshore suppliers.
Why It’s Important: Diversification reduces dependency on tariff-affected imports. Although nearshore and domestic suppliers are often more expensive, new tariffs close that gap or make offshore options more expensive.
With alternatives in hand, you may be able to negotiate lower costs with offshore suppliers to help share the tariff burden.
How to Implement:
- Explore Domestic and Nearshore Options: Partner with local manufacturers or suppliers in tariff-exempt regions to reduce costs and lead times. Check out our article on how to find a supplier.
- Negotiate for Discounts: Request cost reductions from existing suppliers, leveraging the potential for reduced orders or shifting volume elsewhere.
- Establish Redundancy: Develop a backup network of suppliers to maintain flexibility and avoid disruption.
This strategy reduces tariff exposure and strengthens your supply chain’s resilience against future market fluctuations.
Conclusion
As tariff policies take shape under the new administration, small businesses have a window of opportunity to prepare. Proactive steps today can mean the difference between weathering short-term disruptions and thriving in a new economic landscape.
But remember – each strategy has its own risks too. Make sure you understand each playbook before choosing a strategy to execute.
No matter the tariff environment, there is no substitute for teamwork and collaboration. Work with your managers and Fractional CFO to ensure your business is poised for success in 2025.
This article was written by a CFOshare employee with assistance from generative AI for rhetoric, grammar, and editing. The ideas presented are a combination of the author’s expertise, original ideas, and industry best practices.
