How Can My Business Prepare for Tariffs?

What is a tariff?

First of all, let’s review how tariffs work. A tariff is a tax imposed by a country or a state on either imported or exported goods. It is calculated as a percentage of the good’s value. So, tariffs are used as a deterrent to influence international trade by limiting the import or export of goods.

What impacts will the tariffs have?

For the time being, the imposition of 25% tariffs on Canadian goods entering the United States has been delayed. But should those tariffs take effect, this could have an impact both on companies that export directly to the United States and on their suppliers. Furthermore, Canada may retaliate by implementing counter-tariffs on American goods, which would also affect Canadian companies.

Here are a few of the biggest challenges you could face:

High operating costs:  : Companies that import goods from the United States will be the first to be affected. You may have to pay higher prices and your supply chains will be disrupted.
Potentially lower profit margins: If you cannot pass on the higher costs to your customers, you will have to absorb the price changes by decreasing your profit margins.
Decrease in total sales : If prices are higher, you run the risk of losing customers because you will not be able to stay competitive. Your international client base could try to find other options, for instance domestically.

How can you mitigate the impact of tariffs?

There are several possible scenarios since the imposition of tariffs remains uncertain. In any case, it would be wise to start immediately implementing certain measures that can help you face potential challenges, such as:

Reevaluating your cash flows to anticipate potential deficits.

An increase in the sale prices of goods or input costs will affect your cash flows. You must therefore closely monitor cash inflows and outflows.

Maintaining financial stability by strictly managing your cash.

The Business Development Bank of Canada (BDC) provides a convenient cash flow calculator which allows you to compare cash inflows and outflows. It enables you to see the amount of cash on hand every week or every month, so that you can forecast potential deficits. It might also prove useful to explore different business models and financial projections should costs increase or sales decrease. Such an analysis can help you prepare a financial reorganization plan for your company.

Demonstrating resilience and implementing changes.

If tariffs are imposed, your company could suffer from liquidity issues and even more serious financial difficulties. In that case, you have to react quickly by:

Revising your cost structure to identify potential savings. Reducing your expenses could mean laying off personnel, shutting down a location to release from a lease or closing a division.
Reducing your dependency on certain countries through market diversification. Interprovincial trade could also become easier in the near future, thus opening up new avenues.
Optimizing your operational efficiency and increasing your productivity. Ask yourself how your company could be more efficient. This is the right time to perform such an analysis!
Exploring new business models and circular economy. It could be profitable to buy from suppliers that are closer to home.

Contact an expert in financial recovery!

Is your business dealing with serious financial issues? Our Licensed Insolvency Trustees provide a complete range of options and legal protection. They can for instance help you by:

Book an appointment today for a confidential consultation with one of our counsellors who will be able to guide you through this difficult time.