Planning and Dealing With Tariffs
Ended soon
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://3.86.193.120/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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