Planning and Dealing With Tariffs
Greetings fellow business operators. Regardless of your political or other views, we wake today under with the burden of another new tariff regime, with many more scheduled and maybe or maybe not coming over the next few months. Again, without debating the merits of using tariffs as a weapon in a trade war, it is important to consider how to deal with these new and all too often unplanned and unwelcome costs.
For those of you who do not regularly think of tariffs, keep in mind these are fees or taxes charged at the US border. This means they are due for you to receive your goods and are your US responsibility, meaning your supplier or factory cannot pay for them. This creates an additional cash need at a different point in your calendar.
If like many firms your cash conversion cycle is tight, you may need to consider a trade revolver or other mechanism to provide some additional cash for peak inventory incomings. This will minimize the disruption to your cash flow and perhaps preserve the solvency of your business. Fortunately, bank rates are low right now, but it can take a few weeks and a bunch of data submissions so consider your need or learn about this option sooner than later.
Now on to the cost realities, and that means addressing what may be a 15% or more rise in costs. This cost increase may be short term, or it could be long term. It could go up or it could go down. Regardless of term, it is generally too much to “absorb” in your business without incurring loss. What to do?
First, realize that this is happening to everyone. Throw out your assumptions about pricing power, everyone is dealing with this. The fact is price increases have already been ongoing. While some competitors may hold prices for a while, this may be due to their inventory situation. They may have hedged and brought in more inventory ahead of the tariffs. Perhaps you did this too, but in the end your inventory will, at some point, reflect the higher costs.
In one of my ventures, we have been paying 25% tariffs (perhaps going to 30% shortly), since last July 2018. Like many others, we already had introduced our new product. So, we had no opportunity to offer new items at new prices to provide cover for price increases.
We decided to be very clear about the effect of tariffs. Of course, at first many of our trading partners rejected any talk about price increases. We did our best to educated them about the specific of the tariffs and shortly after they began hearing from most of their other vendors.
We increased prices but broke down our increases based on the tariffs themselves. Since our price increases did not reflect a full 25% rise, they realized we were not profiteering off the situation, understood the pricing increases and in general accepted the new pricing. Now more than a year later, our sales have grown substantially.
Our recommendation is to plan on tariffs, educate your network, raise price as needed but expose the reason in the tariffs, and then get on with business. We can all hope for a positive outcome but must deal with the hard reality at the border. If you’d like to know more, give us a call, or click here http://18.104.22.168/contact-us/ to schedule a free half hour call to discuss tariffs, or anything else affecting your business.
Robert Heiblim has more than 35 years of experience in the consumer electronics field encompassing all phases of general management, including management of new technology start-ups, and high growth companies. Along with his teams Mr. Heiblim has developed, marketed and sold hundreds of millions of devices through most global outlets for consumer technology. Robert is the current Chair of the Consumer Technology Association (CTA) Small Business Council as well as ex-officio Chair of the CTA Audio Board.
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