By Bill McPherson
The tariffs that have been placed on goods coming into the United States have created economic uncertainty among many industries.
While large corporations will likely pass these additional taxes onto the customer in the form of more expensive products, it’s the nation’s smaller businesses that will have to deal with a carefully orchestrated balancing act.
Just like their larger brethren, smaller businesses will also have to pay the tariff to customs when their products arrive in this country. Most of these businesses don’t have deep pockets like perhaps larger companies, making it more difficult to absorb higher costs.
That means small business owners will either have to come up with the cost difference on their own or pass it along to their customers — a choice that can make or break their business longevity. Since small businesses represent nearly half of the United States’ gross domestic product (GDP), customers will either be saddled with higher costs or see their favorite small businesses close.
As a result, many entrepreneurs seeking small business ownership should consider joining a franchise to help guide them through the tariff storm. Whether they want to convert their current business into a franchise or join a franchise from the start, franchises can ease the burden of business ownership through their proven processes.
Understanding How Tariffs Affect the Bottom Line
It has been decades since many American businesses had to deal with the effects of tariffs, and most small business owners don’t have any experience with them. This results in a lack of understanding about the impact tariffs have on their bottom lines.
Some of the biggest issues that tariffs create come from miscalculations, underpayments and penalties. For example, many entrepreneurs may not understand how currency fluctuations can affect what they owe their suppliers, so they may not understand how to budget for these variations.
Other issues that entrepreneurs need to be aware of include:
- A failure to address compliance issues: Because international trade regulations can be complex, entrepreneurs need to be aware of any regulations they need to follow or documentation they need to complete to remain in compliance.
- Inadequate risk management plans: Because tariffs can sometimes cause problems in the supply chain, your suppliers need to remain as diverse as possible to avoid disruptions in shipping. Ensuring you have the products you need to conduct business is a top priority.
- Legal disputes: Tariffs can cause unforeseen performance issues that make it impossible for you or your suppliers to meet your contractual requirements. This can result in lawsuits or other legal issues.
- Passing too much cost to customers: If business owners raise prices on their goods too much, they run the risk of losing customers to competitors who have found ways to minimize cost increases.
A Higher Cost of Doing Business
The first and immediate impact most small businesses will see is an increase in the cost of essentials. For example, restaurant owners who import ingredients and purchase steel cooking appliances will see costs rise on products they need to run their business. That means they will have to charge more for everything from a cup of coffee to grilled meat in order to offset some of the costs.
The automotive and technical industries are also expecting a steep rise in the cost of doing business since these industries rely heavily on steel, copper and semiconductors that are processed or produced in China, Mexico and Canada.
For companies that provide printed materials to both individual and business consumers, the increased cost of imported paper or ink could add to a customer’s bill. Printing shops also face higher prices if they have to replace aging printing equipment that is manufactured overseas. Small business owners may even face delays and supply-chain issues due to an increase in the cost of shipping and logistics.
Even with a 90-day pause on the “reciprocal,” or higher-rate tariffs placed on Canada and Mexico, the current lower 10% rates will still result in higher prices.
Many franchisors also provide their franchise owners with centralized services and technology that can reduce the cost of doing business. Whether the franchisor offers call center services or a marketing team, the end result is that the franchise owner saves money. Instead of paying customer service representatives to answer calls or hiring a marketing team to develop an expensive campaign, franchisees can use the money they may have spent on these resources to offset increased costs elsewhere.
A larger organization, like a franchise, also has buying power. Their size allows them to negotiate better pricing or to buy in bulk, allowing its franchisees to join in the savings.
Franchisors to the Rescue
As a small business owner or potential franchisee, the uncertainty surrounding how tariffs will affect your business model is an issue that will weigh on your decision to convert or buy into a franchise brand.
Because most franchisors have attorneys and tax experts on retainer and are big enough to have negotiating power with foreign suppliers and domestic alternatives, they are in a better position to weather the tariff storm than independent business owners. They are also likely better informed on complex legal and contractual obligations.
Franchisors can also use this period of uncertainty to review their company’s risks and vulnerabilities, particularly those relating to the health of their supply chain and critical infrastructure. Updating your contracts with suppliers can include the kind of dynamic pricing provisions that allow cheaper shipping costs to offset tariffs.
And, because franchisors often represent dozens—if not hundreds—of business owners, they have the ability to push back and demand a fairer price. Independent business owners don’t have this kind of leverage and can be left paying thousands in increased costs associated with tariffs.
If you are an entrepreneur weighing the pros and cons of independent small business ownership versus franchising, you should also consider the types of training a franchisor can offer. During the onboarding or ongoing training, franchisors will keep their franchise owners informed about how tariffs will affect both the franchisor and the franchisees and how to prepare for these changes.
Make the Right Choice
As a potential franchisee who is concerned with tariffs or simply would like to join a team that can ease fears during times of change, you need to make sure the franchisor you choose is willing to provide operational guidance and tools to help you mitigate the impact of tariffs.
During your Discovery Day, see if your franchisor is already working to diversify its supply chain by reaching out to domestic providers or negotiating better rates with existing offshore suppliers. Ask the franchisor if the company has developed plans that help franchise owners optimize their operations so they can save money through efficiency.
Keep in mind that the current economic setting is dynamic and will shift often as the tariffs go into effect. It’s your franchisor’s job to ensure that, as a franchise owner, you will be able to run your business effectively and keep costs down without harming the customer experience.
Bill McPherson is the regional vice president of retail network development for several concepts within the Fortidia family of brands. With more than 29 years of franchise leadership, he has led franchise development and real estate for B2B, B2C, retail, and in-home senior care concepts. For more information, visit https://postnetfranchise.com/.
About Fortidia
Fortidia is the brand identity of MBE Worldwide S.p.A. – a privately-owned company headquartered in Italy – and its affiliates. Fortidia is a global commerce enabler for SMBs and consumers thanks to its platform including brands providing e-commerce, fulfillment, shipping, marketing and print solutions: PrestaShop, Mail Boxes Etc. (outside the U.S. and Canada.), PostNet, PACK & SEND, World Options, AlphaGraphics, Multicopy, Print Speak, GEL Proximity, and Spedingo. In 2023, the combination of its physical platform – including 3,200 Business Solutions Centers in 60 countries with 14,000 associates – with its PrestaShop e-commerce platform served 1.1 mln business customers worldwide generating €1.4 bln (US$1.5 bln) of System-wide Gross Revenue and €22 bln (US$23.8 bln) of Gross Merchandise Value.
For more information, visit the Fortidia Group websites:
www.fortidia.com – www.prestashop.com/en – www.mbeglobal.com – www.mbe.it – www.mbe.es – www.mbe.de – www.mbefrance.fr – www.mbe.pl – www.mbe.pt – www.mbe.co.uk – www.postnet.com –www.packsend.com.au – www.packsend.co.uk – www.worldoptions.com – www.alphagraphics.com – www.multicopy.nl – www.printspeak.com – www.gelproximity.com/en – www.spedingo.com/en