Be Prepared for the Qualitative and Quantitative Effects of Tariffs: How Businesses Can Navigate Potential Disruption in Finances and Production

BOSTON - Rezul -- In business, there are many factors we cannot control. The continued changes in U.S. tariff policies are one such factor on which business owners can only anticipate and monitor. As these new tariffs are being implemented, it is imperative companies prepare their budgets, notify their customers, and evaluate their production systems to bolster the company against any financial impact the new policies may have.

One of the tools New England Consulting Partners (NECP) recommends to all our clients is a 13-week cashflow model. "Anticipating and preserving liquidity is the key component in navigating your company through uncertain times," explains Thomas V. Desmond, Founder-Managing Principal of NECP. "Creating and maintaining a 13-week cashflow model should be standard operating procedure for every company regardless of size, in both stable and uncertain times," he continues. A company's financial outlook is an instrumental metric that aids businesses in allocating their liquid assets for each quarter. It is important companies look ahead at least 13 weeks and account for incoming cash as well as cash on hand at any given time. Monitoring expenses and expected receivable collections is the cornerstone of effectively managing a business. Without a 13-week cashflow model, business owners and financial officers are in the dark about where the company stands financially in real time, especially as expected costs increase as an effect of ongoing tariff fluctuations.

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To properly adjust cash flow projections, we recommend staying in communication with critical vendors that provide your company with the raw materials and services necessary to sustain the operation of your business. "Companies should be prepared to respond to sudden and arbitrary price increases. Arbitrary in the sense that the cost of any item could increase suddenly. In addition, principals need to understand how tariffs could affect the overall supply chain. For example, will a sudden increase in a particular cost adversely affect not only what you can bring into the company, but what you will be unable to bring into the company because your supplier cannot deliver? The concern must be operational and quantitative; we are not just dealing with the effect of a price increase," Desmond explains.

Ultimately, all price increases must "find a home" by either being passed along to the customer or cutting expenses. Business owners may need to provide additional equity infusions to fund the losses and should be prepared to do so if necessary. As a reminder, owners must always have positive cash flow to run a company, and cost increases cannot be ignored. However, it's important to state that business owners should not panic during times of uncertainty. In our experience, when governmental changes are put into effect, the economy ultimately finds an equilibrium to move forward. The global economy is resilient.  Eventually, it reacts to changes and leaves businesses on more solid ground as markets settle into a new normal.

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For more business insights or further assistance, please visit NEConsultingPartners.com or contact us.