Key insights
- Recent months have seen a spike in tariff-related volatility, with new trade measures sparking market jitters and price hikes.
- Adapt to economic changes with practical measures like diversifying your supply chain and upgrading your accounting software to help you manage expenses and mitigate the effects of tariffs.
- Business owners may need professional advice for help assessing the impact on their operations, exploring alternative suppliers, and understanding the potential effects of tariffs on the economy.
Don’t let your organization and customers feel the weight of tariffs.
Announcing tariffs … increasing tariffs … postponing tariffs … the headlines keep coming. When adjusting strategy amid uncertainty, what steps can be considered now and in the longer term?
Overview of the recent tariffs
President Donald Trump first announced tariffs on imports from Canada, Mexico, and China. Additional tariffs followed, and they continue to remain a fluid topic. As tariff plans evolve, many businesses across industries are concerned about what the impact of President Trump’s tariffs could mean for them.
What you can do to help mitigate the effects of tariffs
There are several approaches you can use to lessen tariff impact on your business, including things you can do immediately along with strategies to help spread the risk in your current footprint versus a reimagined footprint.
Consider these five practical strategies:
1. Reduce the price of goods
You might be struggling with high tariffs increasing the cost of goods, making it difficult to maintain competitive pricing. But you may be able to do more than raise prices to compensate for tariffs.
Start by assessing the impact. Evaluate how the tariffs may affect your supply chain, costs, and overall business operations. Identify any products or materials that may be subject to the new tariffs and calculate the potential cost increases.
- To reduce the price of goods, consider working with professional advisors to implement transfer pricing strategies, i.e., adjusting the prices at which goods are transferred between different divisions of your company. For example, if your company has manufacturing units in different countries, you can set transfer prices that reflect the cost structures and tariff rates in each location.
- Implement strategies to spread risk across different pricing models. This can help manage margins and profitability by balancing tariffs impacts across various products and markets.
- Modeling various scenarios can help you understand how decisions around dynamic pricing and other factors can impact opportunities.
- Monitor currency exchange, direct and indirect tax, and other pricing drivers.
2. Offset costs with incentives and automation
High production costs and tariffs on imported goods can impair profitability, but you can leverage credits and incentives to help balance these factors and enhance products and processes.
- Take advantage of government incentives for bringing production back to the domestic market. For instance, you can apply for tax credits, grants, and other financial incentives that can help offset the costs associated with onshoring.
- Look for alternative suppliers or sources for products affected by the tariffs. Diversifying your supply chain can help mitigate increased costs.
- Additionally, you can improve your production processes by investing in automation and technology to reduce labor costs and increase efficiency.
3. Understand the levers you can use to help manage cash flow
Proper accounting treatment for cost accounting and inventory management is crucial for enhancing cash flow.
- Consider implementing a robust accounting software like Acumatica to manage inventory levels and track costs accurately. This can help you maintain the right amount of product to meet customer demand without tying up too much capital.
- Make sure your cost accounting practices reflect the true cost of goods, including tariffs. This can help you make informed decisions about pricing and inventory management.
4. Adjust pricing to meet customer needs
Tariffs may be affecting your pricing strategy, making it difficult to maintain customer satisfaction and sales volumes. Adapting pricing and terms can help retain customers and sustain sales.
- Offer flexible pricing options to accommodate customers directly affected by tariffs, such as providing discounts or promotional pricing.
- Consider adjusting payment terms to make it easier for customers to manage their cash flow. For instance, you can offer extended payment terms or installment plans.
5. Streamline logistics
- Combine freight to reduce shipping costs. For example, you can work with logistics partners to consolidate smaller shipments into larger ones.
- Plan your shipping volumes to take advantage of bulk shipping rates. This can help reduce per-unit shipping costs and improve transportation efficiency.
- Diversify your transportation modes to help avoid disruptions. You can use a combination of air, sea, and land transportation to facilitate timely delivery of goods.
Explore 20+ strategies to help reduce your tariff impact. Watch our tariff webinar series.
How should business leaders adjust to tariffs?
If you’re a business leader impacted by these tariffs, it’s essential to stay informed about the latest developments and understand how the changes to tariffs may impact your operations or personal finances.
Government websites, industry associations, and trade organizations can be valuable sources of information. CLA will also continue to monitor the situation. Visit the Tax Policy Watch page and subscribe to our tax policy newsletter for insight delivered directly to your inbox.
Seek professional advice
Consult with trade professionals, legal advisors, or financial consultants to understand the full implications of the tariffs and develop strategies to navigate challenges — many of which are overall good business practices.
Bear in mind these tariffs may be temporary. Balance tariff mitigation efforts against the possibility of a short-term return to normal trade relations.