Editor’s note: DJ Hunt is a longtime columnist with Rethinking65. Read more of his articles here.
DJ Hunt
It’s getting a crazy out there, folks! Since “Liberation Day” on April 2, President Trump has announced two rounds of tariff reductions, issued carveouts for some industries, seen his tariffs halted by one court and then re-instated by another court. Who knows what the rules will be when the bluster dies down and we finally get some clarity. But here is a brief run-down of what tariffs could look like from a small-business perspective, and some things we planners can do to help guide our clients.
Tariffs are a tool for protecting domestic industries or as leverage in trade negotiations. They are essentially a tax imposed by a government on imported goods. The intent behind tariffs is to make foreign products more expensive, thereby encouraging consumers and businesses to buy domestic alternatives.
Small Businesses Are Particularly Vulnerable
Tariffs can significantly alter the cost structure, supply chain dynamics, and profitability of businesses, particularly small enterprises that don’t do enough volume to flex their muscles with suppliers. Small businesses that import products directly or rely on imported raw materials for manufacturing could find themselves paying significantly more due to tariffs.
Many small businesses operate in niche markets where price sensitivity is high. For instance, if a boutique apparel company depends on fabric from overseas, higher material costs could force them to raise prices. In a crowded marketplace, even a modest price increase could lead customers to seek out brands with more pricing flexibility that haven’t (yet) had to raise prices.
Small manufacturers might have to reconfigure their sourcing strategy entirely, which takes time and can even increase costs in the short term. Unlike their larger competitors, small businesses rarely have the people power or capital to manage such transitions efficiently.
“A bourbon distillery in Kentucky that sells to customers in Europe may suddenly find its products taxed heavily upon entry into the EU, making them less attractive to European buyers.”
Additionally, retaliatory tariffs from other countries can limit the ability of U.S. small businesses to export their products. For example, a bourbon distillery in Kentucky that sells to customers in Europe may suddenly find its products taxed heavily upon entry into the EU, making them less attractive to European buyers.
If the cost of inventory rises, if it becomes more difficult to sell to international customers, or if the supply chain is disrupted due to tariffs, a small business must either dip into reserves, cut other expenses, or seek additional financing to cover the shortfall. This all brings additional complexity into the financial planning process for business owners. Unpredictability turns planning into guesswork and forces securing the “now” to take precedence over saving for “later.”
4 Proactive Strategies
Here are several proactive strategies that planners can walk their small business-owner clients through to reduce the effects of tariff-related challenges:
Have a Pricing Strategy. Fully wrapping your arms around inputs can help you determine where you can pass costs on to your customers without significantly affecting demand. Bundling products or offering premium versions may also help maintain margins.
Explore Domestic Alternatives. Although it may not be feasible in all cases, sourcing domestically can reduce exposure to tariffs. Local suppliers might also provide faster turnaround times and better communication.
Build a Financial Cushion. Cash is King during uncertain times. Hoard it. Liquidity can give small businesses the breathing room and flexibility they need to figure out the best path forward.
Stay Informed and Advocate. Keeping up with trade-policy developments and participating in industry associations has never been more important. Business owners should also consider reaching out to lawmakers to express how tariffs affect them directly.
As financial planners, our advice to small business owners should be clear: Monitor your cost structure closely, communicate regularly with suppliers and customers, and prioritize flexibility until there is some clarity around how this is all going to shake out. Those small businesses prepared to navigate the changing landscape with foresight and agility will emerge more resilient than before.
DJ Hunt, CFP, is a fee-only financial advisor with Moisand Fitzgerald Tamayo, LLC. in Melbourne, Florida. His clients include working professionals, business owners and retirees. DJ can be reached at dj@moisandfitzgerald.com.
