Takeaways from Preparing for Tariff Impacts That Go Beyond the Bottom Line

Scenario planning

Steven Kwasny and Mary Larson discussed the importance of scenario planning in navigating uncertainty.

They emphasized that businesses often find themselves in a defensive posture during crises, focusing on survival.

"Often in times of crisis or uncertainty… you're in survival mode," Steven said. However, businesses can eventually transition to an offensive strategy, which is crucial for identifying opportunities created by crises and taking advantage of them.

Scenario planning involves mapping out various potential futures based on the duration and impact of tariffs. This systematic approach helps businesses filter out noise and focus on what truly matters.

"Think about what seems likely to happen. What seems plausible? And how can those events be disruptive?" Steven said.

By considering political, regulatory, economic, technological, social, and environmental trends, also known as a PESTLE analysis, businesses can define a reasonable set of options and scenarios to plan for.

Mary discussed eight areas of your business that might be implicated:

• Supply chain
• Branding and marketing
• Sales
• M&A
• Financing
• Governance and ESG
• Manufacturing
• Employees

Building resilience in the value chain is essential. Mary emphasized the need to assess the ability to source materials and consider alternate suppliers. Businesses may need to hire strategically based on new market focuses, adjust product portfolios and value propositions, and explore new channels for exporting.

"This isn't just a hit on profitability potentially, but it could be an opportunity for me to rethink how every part of my business might be made into something that is more exciting, more resilient," Larson concluded.

Making decisions with data

Michelle Miller, Vice President of Core Services at MNP, highlighted the importance of data-driven decision-making in understanding the financial impacts of tariffs. She outlined several key considerations, including direct costs, indirect costs, and cash flow.

"There's a broad range of financial impacts that could come out of tariffs from direct costs to price and volume of sales to capital expenditures and cash flow," Michelle explained.

Businesses should assess how tariffs affect the cost of sales, selling prices, sales volume, shipping, equipment, and other operational expenses.

Financial modelling is a valuable tool for examining both best and worst-case scenarios. By modelling these financial impacts, businesses can identify where to focus their attention and make more informed decisions.

Michelle used MNP’s Private Enterprise Insights tool to conduct a tariff impact analysis.

"Once you've modelled out those financial impacts, you should have more clarity around the possible magnitude in each area, which should then help you identify where to focus your attention," Michelle said.

Strategies for managing price and volume impacts include conducting market research, implementing tiered pricing models, adding value-added services, and sharing tariff costs across high-margin products.

For indirect costs, businesses should consider:

• cutting unnecessary expenses
• sourcing from local suppliers
• renegotiating prices and terms with suppliers
• streamlining internal processes, and
• utilizing new technologies to improve efficiencies.

"Think through your top 10 expenses or so, the different categories, and the individual vendors or expenses that make up each of those categories," Miller suggested. "How could each category be impacted?"

Q&A summary

The webinar concluded with a Q&A session, addressing several key questions. One question focused on the definition of "Made in Canada," clarifying the difference between customs origin and preferential origin. Another question explored the impact of tariffs on service companies, noting that service transactions are generally not impacted.

The discussion also covered goods transiting through the U.S., explaining that goods from other countries transiting through the U.S. are not subject to U.S. tariffs if they are not of U.S. origin. Additionally, the importance of assessing vendor risk was emphasized, with advice on understanding vendor supply chains and having open discussions to mitigate risks.

Finally, the webinar highlighted available government support programs, including loan programs from federal Crown financial institutions to help businesses navigate the challenges posed by tariffs.

Questions about tariffs typically require specific answers that look at the specific factors in your business. If you have questions about how your business can navigate tariff impacts, contact your local MNP advisor.