Small business owners and Made in America.
In the U.S. small businesses comprise 99.7% of employer companies and 48% of the private workforce. Yet, when the analysts forecast financial market trends, they seldom look at small businesses as a force that determines the direction of the financial markets. However, the pending tariffs that may be imposed on businesses that purchase goods from China will cause havoc on Main Street which will impact Wall Street. The retail market will affect the money market.
A secondary outcome of the imposed tariffs
A secondary outcome of the imposed tariffs that Wall Street will be taking into consideration is the possibility of less taxable income from small businesses.
If businesses are unable to reduce overhead, they will not be able to retain the same bottom line, which will reduce the amount of taxable income. Less taxable income relays into larger budget deficits.
Made in the U.S. A. may be a long-term goal that hopefully has a positive impact on the American economy, but that goal will not solve the immediate concerns of small business owners.
They must address many immediate issues including:
- Reduction of profit margins
- Availability of marketable products
- Delayed delivery of goods
- Shortage of reliable distributors
- Changes in the supply chain
- Added marketing expenses
Some aggressive businesses with financial stability will try to take advantage of a changing marketplace.
They will place orders for merchandise prior to the date the tariffs will go into effect. However, the majority of small business owners, when faced with uncertainty, postpone decisions rather than take risks.
They will wait until they know for certain that changes will be enacted. This pause or slowdown in the marketplace, will have a huge impact on the entire U.S, economy in terms of employment, wages, growth and stability.
Can Consumers Absorb the Increase Costs?
Businesses will attempt to pass along the increases to their customer base, but there is no certainty that the market will accept price increases. Brick and mortar retailers have been dealing with on-line competition and now they will have to face another battle for survival.
Small businesses which are customarily strapped for cash, do not have the flexibility to readily adjust to change, and a sudden change such as the pending tariffs will affect profitability,
Businesses will do their best to retain their profit margins, but when they are unable to pass the increases on to retail consumers or their business customers, they must seek other options such as lowering operating costs. They should prepare a strategic plan to analyze their best options to retain profitability.
Most operating costs such as rent and insurance are fixed expenses, but payroll is not a fixed expense, so business owners may have to consider reducing payroll expenses to remain profitable.
Options to be considered are payroll reduction, buying goods from a country without tariffs, cutting general operating costs, cutting back on third party contracts such as marketing costs and professional fees, delaying major FF&E purchases, postponing expansion plans, reducing borrowing costs, and delaying loan payments.
The loss of a season is a disruption to most retail businesses. The current uncertainty may result in not having merchandise available for the biggest season for many businesses – the holiday season.
The only businesses that will not be directly impacted by the tariffs are businesses that do not import goods and businesses that provide services.
However, many of these businesses will be indirectly impacted with increased rental expenses from increased constructions costs, and increased equipment costs, such as computers, telephones, and furniture.
Long Term Benefits
Despite the disruption in the market, there are benefits from buying products in the U.S.
The benefits include reduced freight costs and import duties, reduced delivery time, less requirement for storage, and reduced need for working capital. Having the option of purchasing inventory when needed rather than ordering in bulk means that companies will not need as much working capital, which will reduce their interest expense.