As global trade policies evolve, small businesses feel the pressure of tariffs and their impact on profitability and operations. The unpredictability of tariffs doesn’t have to throw your business into disarray. With a proactive approach, you can turn these challenges into opportunities for growth and resilience. Here’s how to prepare and protect your small business from tariff-related risks.
Here is a five-step strategy for small businesses that protects their bottom line and strengthens their position in an increasingly complex global marketplace.
Step 1: Have a Proactive Supply Chain Strategy
The first step in navigating tariffs is to assess your supply chain vulnerability. Start by mapping out where your materials and components come from and identifying which ones might be affected by tariff changes. Diversifying your suppliers—whether by exploring new countries or seeking domestic alternatives—can help reduce the risk of disruption. Some companies have already moved production to unaffected regions or investigated vertical integration to reduce dependence on external suppliers. The key is to start planning today, even if you haven’t been impacted yet.
Step 2: The Legal Shield
Contract review is essential when preparing for tariff volatility. Ensure your supplier and customer agreements include tariff-related clauses, such as force majeure provisions and price adjustment mechanisms. These clauses provide flexibility in the event that tariffs increase suddenly. Your legal team must work with you to ensure you can adapt to changes in trade policies without having to scramble for last-minute fixes.
Step 3: Financial Fortification
Don’t overlook the financial side of tariff management. Build different economic models to understand how tariff increases will affect your margins. Creating cash reserves allows your business to weather short-term cost hikes without putting your operations at risk. Review your pricing strategy as well. Can you pass some increased costs on to customers without losing market share? Consider whether you should delay pricing changes until competitors act, which could help you avoid absorbing too much of the cost increase. Additionally, some businesses are exploring hedging strategies or forward contracts to manage long-term risk.
Step 4: Stakeholder Communication
Clear and consistent communication with stakeholders is key. Inform your suppliers about potential tariff impacts early and adjust your agreements accordingly. Customers are often more understanding about pricing increases if they are communicated, reasonable, and come as no surprise. Don’t forget to update shareholders as well—keeping them informed about your mitigation strategies builds trust and ensures alignment with your business’s direction.
Step 5: Adaptive Strategies for Tariffs
Adaptability is crucial. Consider different approaches to respond to tariffs, such as temporarily absorbing the costs while you explore long-term solutions, gradually passing on cost increases to customers, or restructuring your supply chain to reduce dependency on goods affected by tariffs. Some businesses are even redesigning their products to use alternative materials or expanding into new markets less affected by trade tensions.
Stay Flexible and Proactive
Flexibility and preparation are the keys to surviving—and thriving—through tariff changes. While tariffs present challenges, businesses that stay proactive, adaptable, and prepared will not only manage trade policy changes successfully but may even discover new growth opportunities.
Andres Lares is the managing partner at Shapiro Negotiations Institute and co-author of Persuade: The 4-Step Process to Influence People and Decisions
Photo courtesy Getty Images via Unsplash+
