One of the hottest topics discussed between business owners in the last week, month, hell even the last two years, has been tariffs. Quality Business Plan’s professional business plan writers have found that small business owners are absolutely terrified of tariffs, especially retailers and restaurant owners. For example, online retailers located in the Dallas Texas area may receive the bulk of their inventory from low-wage countries, such as Mexico and China. When tariffs are placed on these countries, purchasing inventory costs significantly more for the small business owner. As a result, owners of the retail establishments must pass on their elevated costs to the consumers.
When speaking with small business owners about this topic, I have stressed that some of their competitors enjoy the thought of tariffs being placed on these countries. Their nonchalant attitude is due to the fact that the business owners have prepared for these situations and more using strategic planning and other methods for preparation. Discussed below are two important concepts that all small business owners should embrace when the potential of tariffs impacting their business is a factor.
Utilize Several Suppliers
CNBC recently ran an article showing that approximately half of the countries in the world run a trade deficit with the US. What this means is that the current administration will not be focusing tariffs on these countries because the US exports more products than we import. From this situation, small business owners need to diversify their supply channels to include countries that run trade surpluses with the US. By doing this, not only are small business owners protecting their business against political actions but they are also ensuring a broad base for supplies.
Over the last couple decades, management techniques have focused on a theory called just-in-time activities. What this means is that small businesses order raw material only when needed. When doing this, the business owner insurers that inventory for raw materials stays low and obsolescence risk is mitigated.
Unfortunately, due to political activities of tariffs, applying just-in-time practices and inventory ordering may be impractical. Our business plan writers have started to recommend that small business owners, especially in the San Diego California areas, utilize bulk ordering, if your products are received from potentially targeted countries, such as China and Mexico.
Just keep in mind, when bulk ordering, make sure to utilize financial models to determine where your breakeven point is between suffering through tariffs and utilizing excessive inventory.
Published Books by Paul Borosky, Owner, MBA., Doctoral Candidate
The current political environment has fostered tariff actions against some countries that run significant trade deficits with the United States. These tariff actions have caught unsuspecting small business owners flat-footed. As a result, some small business owners are now forced to either raise their prices or reduce their profit margins. However, these issues can be prepared for and avoided using specific strategies. As noted above, utilizing a broad supplier base or employing bulk order activities are just some of the actions that prepared businesses have taken to ensure a competitive advantage through these turbulent times.
Author: Paul Borosky, Doctoral Candidate, MBA., Author