4 ways to prepare your manufacturing business for potential tariff hikes

By Tara Torseth, CPA

As we head into the new year, we’re thinking about the changes that lie ahead. One potential change on our minds—and likely yours too—is the new administration’s proposed tariff hikes, which would increase the costs of certain imported goods and materials.

While details of this plan have yet to be announced, now is the time to assess how it could impact your manufacturing business and be ready to pivot if needed.

Here are four ways to prepare your manufacturing business for tariff increases.

1. Review your supply base and chain.

First and foremost, take a close look at the materials your company imports and identify where these products are coming from. How would their costs be impacted by increased tariffs?

If you’re purchasing materials from a country that could have a higher tariff, such as Mexico and Canada, consider seeing if you can source it at a lower cost from somewhere else. It may be worth it to make a list of sourcing options for any materials you import—across all supplier tiers—from countries that may have increased tariffs.

2. Review your contracts with vendors and customers.

Part of assessing your options involves checking with your vendors to see if they will be impacted by tariff pricing. At the same time, review your vendor contracts to determine if they will be able to pass this cost directly onto you. If so, you may need to consider other sourcing options or be ready to adjust your pricing.

Depending on your contract terms, you may be able to negotiate with your current vendor. Knowing your options (if you have them) can put you in a stronger position to negotiate.

Be sure to also review your contracts with your customers and keep this in mind: If you have a fixed contract, you might not be able to pass on any costs.

3. Understand how tariffs could impact your budget and pricing.

Although it’s tempting to put off preparing for a potential change, no one wants to see their profit margins eaten up by tariff hikes. To give yourself a road map regardless of what happens, consider drafting two budgets: one that accounts for increased tariffs, and one for if the status quo remains.

4. Understand how tariffs could impact your competitors.

The onset of new tariffs could certainly disrupt the marketplace. Be sure to assess how your competitors will be affected. Consider their location and how this may impact their need to raise prices. If your competitors will be more greatly impacted by tariffs, for instance, you could be in a better position.

Proactively prepare for a strategic edge

Take steps to prepare for the possibility for increased tariffs now can give your manufacturing business a strategic edge. If you’d like to explore how your business could be impacted by increased materials costs, we can help. Our team can run cash flow projections for different scenarios and guide you through adjustments.

To learn more about how we can help you stay ahead of these and other regulatory changes, contact us today.