Tariffs and How They Affect Your Business
Simply put tariffs are an import tax on an item sent into a country from a foreign one. All countries use tariffs for a variety of reasons and have done so for centuries.
One of the most prevalent reason a country uses tariffs is its objective to protect their own local industries vs foreign competition. An example of this would be to the steel industry. Steel made in the US is more expensive than steel made overseas, should the foreign commodity enter the US unabated, builders would be inclined to purchase the cheaper commodity and therefore adversely affect the US industry as sales would plummet. A tariff or import tax would put the foreign steel on par price wise with the local, or in some cases make it more expensive, leaving buyers less of a choice when it comes to purchasing materials and in theory buy local. The thought is the US industry would stay profitable and continue to prosper for local communities, employ the citizenry and create revenue to their home country.
With tariffs moving so quickly in the current environment, it’s beneficial to understand how they can affect your business.
The first step is to garner a keen understanding of your supply chain: where and how you get your products or components, understand where they are assembled or packaged and how delivery occurs. Getting a firm grasp of these operations is essential to profit optimization, by lowering final production costs and maximizing sales output.
Ever changing taxes and fees can affect your business, by raising production costs via imports or lower your bottom line during the export of a product to a foreign buyer.
I concede this process is extremely nuanced, every product out there has endless processes and options on how to handle production and delivery available to them, I will however look at some general strategies on how to get the most out of each.
If you have mapped out your supply chain, examine each part and search for optimization in regards to tariffs, taxes and fees.
Every Country has different taxes and rates on specific commodities, always has and always will whether importing or exporting. Possibly consider these simple options: does your product or components require to be manufactured in a particular country or jurisdiction? Have you researched other locales or companies capable of production at possible lower fees on importing? Possibly keeping the same production facility but importing a product from a separate route via a less cost-worthy jurisdiction?
Knowledge is power, the more power and resources available to you the better, the ability to adapt and move in an ever-changing world and environment is key.
Unfortunately, so many small businesses and entrepreneurs neglect this and stay stiff, or stubborn in their industry, not embracing change, feedback or other factors beholden to the environment in which they are operating. It’s often forgotten that running a business is akin to entering a strange, foreign and dangerous environment and the challenge to not only survive there but also thrive, put down roots and achieve longevity. Like walking into a rain forest alone, in order to live one must understand the terrain, how to create shelter, navigate, find food etc. without prior research, training and adapting to the environment, and taking the tools necessary to survive, it’s hard to come out unharmed. When looking at it, it is not difficult to surmise why most startups and new businesses fail.
In the current tumultuous time, it’s highly important to stay flexible, not only on the production front but all other aspects of your business. Rigidity leads to fractures, and with fractures a structure will ultimately fall.
For personalized guidance for your business on this topic and others contact us.
- Vincent Calace
Founder & CEO Venture Business Development