Tariffs and the Impact On Your Small Business

85. We recorded this episode just before inauguration where tariffs were a mere speculation, little did we know that so quickly thereafter, it is now a reality. In today's episode, we talk about the real-life impact that tariffs can have on your small business and ways to prepare for the downstream effects.

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Got questions or have a topic you want Sevana and Tiffany to cover? Email us at thebusinessbehindsmallbusiness@gmail.com and see your question answers or topic of interest discussed on a future episode!

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About BBSB - We are two business owners with two very different perspectives on building business, and the business behind that in order to achieve your goals. One of us built to sell, and will continue on the serial entrepreneur path, which means your focus and drive should include very particular tools and tips in order to achieve your goal. The other, is building a generational business, one that can go on long after she’s let go of the wheel. This type of business also requires very specific tools and platforms to achieve this goal. Both women have been successful in their own right, but in honesty - haven’t scratched the surface! 

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Disclaimer - Details of today’s story was inspired by true events but are not based on proven facts. Also, we are NOT licensed financial experts, nor do we give financial advice. Anything we share with you here on our podcast, whether it be a personal experience or submission, or advice/tips that have worked for us, or that we believe would work for you should not be viewed as either financial, business, or tax advice. We ask for you to do your research, have open and honest conversations with your company’s own support providers and make decisions based upon that. Throughout this broadcast we will share our knowledge and give suggestions and hope you will receive them as part of your overall research to better your own company.

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Reference/Resources Used In this Episode:

⁠Brookings

POLITICO

Alternative Titles:

• Trump's New Tariffs
• Import Export and Small Business
• Tariffs on Mexico, China, and Canada

Transcript

SPEAKER_00 0:00

2024 has been uh had been a hard year for a lot of people in both their personal and professional lives. Real estate went through the roof and made it difficult for small businesses to transition to brick and mortar. The cost of living made it so that small businesses, many of them, struggled. Although today's episode will be about financial preparedness in 2025, we would be remiss if we did not also discuss the proposed tariffs that are still very much on the table and how they could impact your business for the next year and beyond. So buckle in and be prepared for a nice big episode in which we will discuss how those tariffs could potentially impact you and how to prepare yourself and your business for a more financially gainful 2025. And with that, I welcome you, well, we welcome you, to the show The Business Behind Small Business. In every episode, we dive into an area of what you need to build a lasting business. We are going to peek behind the curtains. We're going to drill down and how you can apply this to your own business. We are your hosts, Savannah Stone, and Tiffany K.O. No one gets to a million without getting a little dirty. That's gonna be our new jingle. But there's a lot of business behind small business, so let's get to it. All right, so Donald Trump.

SPEAKER_01 1:37

That's the who loves tariffs.

SPEAKER_00 1:41

Totally.

SPEAKER_01 1:44

I remember his interview, he was like, tariffs how I love tariffs.

SPEAKER_00 1:48

Yeah.

SPEAKER_01 1:48

I mean, okay, that's how he uses to have leverage.

SPEAKER_00 1:53

I guess. Uh so his proposed tariffs uh could have significant impact on U.S. trade and domestic businesses. So the proposal includes a universal 10 to 20 percent tariff on all imports and targeted tariffs of up to 60% on goods from China. These tariffs really coming out of China, huh? So much so. Um, and I get it, I totally get it, but also like it took us nearly a hundred years to get here. So we're not gonna turn this ship around that quickly. I don't know. Anyway, but these tariffs are we're gonna get to what I mean by that. But so these tariffs are part of an effort to promote domestic manufacturing, cool, uh, reduce reliance on foreign suppliers, totally cool, and address trade imbalances. Can I get some more of that? Trump also signaled potential tariff increases on imports from Mexico and Canada. This could complicate the existing agreements under the USMCA. Uh, the administration may even extend tariffs to the European Union, citing perceived trade advantages. I don't know. Um, now, since he introduced his plan, Trudeau, the PM of Canada, resigned from his post. The president of Mexico hinted at a retaliation. If her and Trump are unable to come up with an agreement that benefits both countries, so right now we're not besties. Like all three of us are not besties. So, as a reminder, we are sharing with you our perspectives based on the most recent information available to us. It is January 2025, so this is what we got so far. If things change after the airing of this broadcast that may affect the validity of our statements, please don't come at us. Uh please listen to please listen to our show with that in mind. And know that we are not in the business to sway you or persuade you. We want you to take the information and do what you think is best for your business's future. All references we make are taken from research, and the sites that we pulled the information from will be noted within our show notes. We are doing our best to be as mindful of our positions as we can. Hopefully, you will take this all and take it all in and use it to your best advantage.

SPEAKER_01 4:17

Just think about how it affects your business. It's all we're getting at. So they'll shoot us in the process.

SPEAKER_00 4:23

Please. All right, so let's talk about the potential impacts uh on businesses. So I'm gonna talk about um product-based businesses and service-based businesses because that's you know really what we have, right? Those are the two main things that we got here. So a positive for a small-based business, a positive impact, uh, could be uh that domestic manufacturers will see a reduced competition from cheaper imported goods. So, for example, like the things that you buy from Timu, Timu, Temu, or Shane, or Sheen, or however we easy to pronounce those. So, you know, maybe you won't have to compete with them as well as much as you have up to this point. And tariffs could also encourage sourcing materials from US-based suppliers that could boost local economies. Not a bad thing. However, the negatives would be higher costs for importing materials or finished products. Let's say these materials that you need can only come from outside of the country, or there are there's a specific uh manufacturer that you work with. These increased expenses are gonna obviously increase your products, and that might not bode well. So, you know, there might even be potential retaliatory tariffs from other countries that could impact your exports. Like I said, that's one of the things that Mexico said. If you're gonna tariff us, we're gonna tariff you. Anyway. So is that a phrase? Uh it might be. You might have said it now. You might have been like, if you're gonna punch me, I'm gonna punch you back.

SPEAKER_01 5:57

Um, anyway, so it'll be tough for those businesses that make their own. It really is.

SPEAKER_00 6:02

So here are some things that you might want to consider in uh you know, for you to be proactive or for you to, I don't know, just just ways in which you can protect yourself. Maybe this won't even happen. We don't know yet. You know, as of the airing of this show, he's not yet sworn in. So he might get in there a few more days. He might be like, psych, got you. So who knows?

SPEAKER_01 6:26

Um, he could be using it as leverage, it's just to you know start that negotiation, you know, start out strong, which a lot of people do, although uh aggressive, but that is his tactic, and you know, to get other countries thinking about how to work with the US. So who knows? Right, precisely.

SPEAKER_00 6:42

So um, one way in which you can maybe protect your company is to diversify your suppliers to potentially non-tariffed countries locally, shift your production, shift your sourcing to domestic suppliers, or maybe diversify that as well. Even if it's initially more expensive, this is gonna help you mitigate the risks of those tariffs. So, you know, just protect yourself for now, or at least have them in your back pocket.

SPEAKER_01 7:10

You probably should diversify, anyways. Anyway. Because, like, you know, international economics is gonna constantly shift, it's not gonna stop shifting. This is uh, if anything, a forewarning or a wake-up call that if you have all your eggs in one basket in another country that may or may not be friends with the U.S., now's probably the time to start making those shifts.

SPEAKER_00 7:30

Yes, because we've already seen. Sorry, go ahead. No, no, no, keep going. We saw what happened with farmers and feed and Russia. Uh, with with flour.

SPEAKER_01 7:43

Wait, I don't even know why I just said yeah. I have no idea what happened with farmers and feed and so what happened?

SPEAKER_00 7:49

Oh, uh well, Russia is Russia is one of the main exporters of feed and my brain is not working right now. How to keep the bugs off of your off of your vegetation. Pesticide? That's it. That's the word. Wow, I could not remember that. And because of what was going on with Russia and Ukraine and the US's support with Ukraine, it really, really impacted farmers, not just in the US, but it impacted farmers in all over Europe as well. Feed went sky high. Yeah. So, you know, that's just one little big little thing that's part of the chain, right?

SPEAKER_01 8:30

Which eventually settles down to us consumers. It's a bit of a butterfly effect, right?

SPEAKER_00 8:35

So, you know, South Korea's people are not very happy right now, France's people are not very happy right now. So if you're getting things from, and India right now is not like there's some things bubbling up in India. So if you're getting things from, uh, and then obviously we don't actually know what's going to end up happening with China, but something could potentially happen with China as of the airing of this show, with the whole TikTok banning and maybe Red Note and blah blah blah. And it's like, you know, who knows what could potentially happen there too. So it's probably best for you to protect yourself anyway.

SPEAKER_01 9:12

Well, the world's also, I mean, they're also diversifying in that sense, too. I mean, Taiwan with the semiconductor uh factories. I mean, what is it? I don't even know how many year plans, but they're already undergoing like a multi-year plan to build a semiconductor factory in Arizona now because they need to diversify. Because what is it, 90% of the world's like chips are made out of like a semiconductor factory in Taiwan, which you know China has missiles pointed towards, so yeah, including iPhone chips and things like that. So everybody is rushing to diversify. So it would just wouldn't be a bad idea to do that just to save yourselves from future heartache.

SPEAKER_00 9:51

Totally agree. Uh so you know, these are these are some ways that you you're you can, as a product-based business, protect yourself. Does not matter the size of your business. I kind of feel like the larger your company is, the more you need to diversify your and be prepared. Now let's talk about service-based business. Yeah. So now let's discuss service-based businesses. Uh, so some of the positives are that an indirect opportunity could arise. If a client in manufacturing or in the logistics sector, maybe they need local support to adjust to the tariff changes depending on what kind of service it is that you offer. So it could bring you business that you didn't have uh didn't have access to before. However, the negatives to this is that there could be higher client expenses. Manufacturers or or retailers could pass on you. Uh another issue could be an economic uncertainty from these trade conflicts. This that could be to delay your clients from paying you or spending on you. If you've got potential clients that are being affected by these tariffs, whether they're domestic or international. So there's got to be a way in which you can protect yourself. And this is some of those ways. So strengthen your relationships with clients that would be in less affected industries. Chances are, if you're working with, as you said, a microchip company, if you're working with metal manufacturer, if you're a GovCon and you're working with uh weapons manufacturers, you might want to strengthen relationships with those smaller, or not necessarily smaller, but safer clients that would be less affected. And also consider offering scalable service packages to accommodate those tighter budgets. You may start having clients come to you saying, hey, we have to tighten the belt a bit. Have a conversation with them about how you can reduce their spending on your services so that they so that you're still with them when these tariffs come into play. So it's kind of scary, isn't it? Are you getting stressed out talking about this? I am so stressed out. It is stressing me out because you know, my my industry is a is a part of this too, unfortunately. You know, we work, my company works with government contractors, and I'm using some of these as real life potential issues that could happen. We work with local companies, but we also work with some international companies. Now, what's going to happen with them and their needs? You know, it might not even be a negative impact on them, but maybe it makes people put America, Americans or the United States in a negative light, and they'd be like, I don't want to work with the people from the United States anymore. You know, it could lead to that as well. So, you know, granted, we're not talking about feelings here, but feelings are very much a big part of it as well. And however way the country's leader feels about the United States, it trickles down to the citizens as well.

SPEAKER_01 12:51

Well, I think import and export is such a big part of our economy. I think we don't even know all the repercussions because we don't we don't see that end of it. We just consume, right? Um, and so I don't know, everybody'll have to wait and see. But I think, you know, just at least knowing what the potential impact could be is a good time to kind of just rethink the strategy and maybe try to mitigate the risk on your end yourself now.

unknown 13:13

Yeah.

SPEAKER_00 13:13

Yeah. And this isn't the first time that uh Trump has either talked about tariffs or implemented tariffs because in it during his first presidential. He did it in his last term. Yes, during his first presidential term, he implemented tariffs on Chinese goods. And this led to significant disruptions, particularly in agriculture and electronics. So, for example, Harley Davidson faced higher production costs due to steel tariffs. This contributed to its decision to move some of its manufacturing overseas. On the other hand, China retaliated by imposing tariffs on American agricultural exports. And who did this affect? Farmers. Yep. So, you know, a lot of people were hurt, got hurt. So there are some positives to it, but there's also a lot of negatives. So we we got to keep these in mind. So moving on. From here, I want to talk about. Um, well, do you want to discuss some of this before I move on to what other ways in which a small business can be impacted? What are your thoughts? What are your feelings?

SPEAKER_01 14:16

Well, my thoughts on it generally. I mean, it's just, you know, I think like more and more we're feeling like the international economic and political atmosphere affects our business and small business. And I think as I've as I've had gotten wiser over the years, I would like to think it's it's a little bit more apparent to me. Um, and I think we're all like, I guess most recently we can all feel the impact of inflation and whether or not the cause of that is international. Of course, you know, there's a difference there. But we are gonna feel a rise in cost in some shape or form when a tariff goes in place. I do think that's the case. Unless the government decides to provide some kind of credit to offset that, but most likely we're gonna feel it. And it's a trickle-down effect. And I think like the way you're putting it is really interesting because a lot of people, at least even when I was a little bit less wiser, I would think that, oh, this is like a big world issue. Like it has nothing to do with little old me and my little old business, and it's not gonna impact us. But you're absolutely right, like kind of what you said. You may not think that, but you're in a service-based business who works with clients who are then impacted by the international economy, in which impacts their revenue line, which then impacts their ability, their cash flow, which impacts their ability to pay you. So they'll either cut costs or they'll withhold payment from you, which then now impacts your cash flow and your revenue line. So it's uh it's just a such an interdependent and just such a trickle-down effect that I think if we can drive that point across with this episode, I think that's what we are attempting to do. That to help, you know, other small business owners kind of see that and don't think that they're so far removed because that degree of separation is a lot smaller than we think.

SPEAKER_00 16:00

So I thought about this. I thought about when I was when I was writing the script, um, which I mean, I think everyone knows behind the scenes that there's gotta be a script. When I was writing out our script and writing out our outlines, I was thinking about what I talked about in the first uh in the beginning of our discussion about how a service-based business or a product-based business could be affected. But then I was thinking, well, how can I really truly connect this to our listeners? I want to give everyone a um real time or a real example. So I decided to create two examples. I'm using a web design studio as a service-based business scenario so that hopefully those of you in a service-based business can can really feel connected to what kind of positive and negative impacts this could potentially have on you. So um we're gonna use a scenario, as I said, of a web-based um a web, excuse me, a web design studio. Okay, so the impact of tariffs on such a business, imported hardware like laptops, tablets, software subscriptions that are sourced from overseas could increase the operating costs for your studio. Now, from there, it could also, it could also impact your outsourced work. Now, if the studio, if your studio is outsourcing development work to international freelancers or agencies, which is very, very common, the tariffs or trade restrictions could lead to either increased service costs or might negate your ability to use them anymore. So that could really hurt your business. Now I'm gonna give you the good news. The good news is that if you are a company that pushes toward buy American, but this could encourage other businesses to hire local service providers. This could create more demand. And if you were using international freelancers, perhaps now you will pivot towards students who are trying to get their foot in the door, interns that could potentially do the same work, potentially for the same cost, same price that you were paying the international freelancers for. And now you'll have a you'll be less dependent on imports. But your service-based business, your web design studio, doesn't typically require a lot of physical goods. So the overall impact of the tariff could be limited for you. So that that sounds good, right? Now I'm gonna go back to the higher and price higher prices for the imported laptops, tablets, or any other essential tools that you use. This could start eating into your profit margins. This might not even just be your profit margins. If you are renting a studio, or rather, if you are leasing a space for your studio, and that is maybe owned by an outside company, which a lot of businesses, or rather, a lot of buildings are owned by international companies. This could potentially impact you. Many software as a service, SaaS tools are built internationally, and now that could become more expensive. And uh a client who is being affected by tariffs might then decide that they don't find you to be an essential. You're not essential anymore to them. And that could cause you to lose clients. So if you are a web design studio or if you are in, as I had said before, marketing or bookkeeping, this I feel like you can plug and play any kind of service-based business, right? So, what can you do? You can buy refurbished equipment. So you could save on your hardware by per purchasing a refurbished laptop uh from trusted suppliers. You could replace expensive software with free or low-cost open source alternatives like uh Adobe Photoshop. You can secure recurring revenues by locking in existing clients with discounted annual packages. Now I know that a lot of this is repetitive, some of the things that I mentioned before, but here I'm giving you more of a real-world business issue that you can mitigate in some ways, navigate around. So, next I'm gonna talk about uh a product-based company, and I thought of using a furniture store uh because I feel like furniture comes from both local and international uh places from wholesalers. Tariffs on imported raw materials like wood, metal, even textiles, it could totally drive up the production cost. If your business is relying on imported tools or finishing components, your costs are going to rise exponentially. The good news is that customers, customers may start to turn to local furniture stores as opposed to buying internationally. And when I say international, I don't mean that they're going to an international company. I mean, it could even be something like Amazon. Maybe they're not going to buy from Amazon or Wayfair anymore. Now they're going to walk into your store. Also, you get an opportunity to say this is 100% American-made, and this could be your positioning your product that way could be a great way for you to market your business and market your product in ways that maybe you didn't have as much foot uh as much leverage in. So I don't want to focus too much on how your margins may shrink. However, if it is possible for you to pass some of these costs onto your customers without reducing demand, especially in a competitive market, you may want to consider that or see if you can find alternatives in order to protect your company. And also consider uh implementing a recycling program for leftover materials so that you can repurpose them into smaller products or promotional products. So, yeah, I think that every company needs to start considering how to how to protect themselves from potential tariffs. As I mentioned before, diversify. However, you might not quite know what your Budget is and Tiffany is going to talk about ways in which you can budget your company for 2025 and get a better sense of where you are strong and where you might be weak.

SPEAKER_01 22:13

Yeah, I mean, for one thing, I feel like um budgeting or forecasting probably one into the same if you think about how you're gonna set it. But I think it's just a good practice. Regardless if you have a a year coming up that has a lot of um potential unexpected changes, every business at the start of the year, if not before the start of year, should really consider doing a projection for the next year, which eventually gets converted into a budget that you can use. And so when we say projection, we really mean, you know, estimating what revenue you think you're gonna have next year, um, or this year rather, if you're talking about 2025 and you're doing this in 24, um, what kind of potential uh expenses, hirings that you think you're gonna have, especially if you're you know really trying to hit it out of the park and you're thinking that, hey, I'm gonna grow 50% in my revenue. Well, you probably need some kind of expense to support that growth, right? So with an increase in revenue, you have an increase in probably labor somewhere. Somebody's gotta be doing the work. Even if you're not a service-based company, everybody has labor, usually the largest line item. But um, if you're a product-based company, then you probably have costs, just uh cost of goods sold. So things that go into making your revenue. So that cost needs to increase with your increased revenue. And then other things that you would think would be a byproduct of you trying to capture more revenue. So it'll be like marketing cost, right? That you'll probably use to capture more revenue. Maybe you have more sales costs, maybe you have to hire salespeople, or you have to do some more sales activity that's gonna give you more cost. So a projection is great for all of this so that you kind of know what your bottom line is going to look like. So it's not just about revenue, revenue, revenue. What's key is your profit margins because that's really what's gonna sustain your business at the end of the day. So you gotta be able to kind of lay that out for the next 12 to 18 months if you can. And it's your best guess. The whole idea is, and this is what gets me all the time, and I think it's a very outdated thinking, is that if somebody sets a budget, and this is why I don't always like to use the word budget, I always like to say it's a live projection, only because when people think budget, they think, I'm gonna set my number for the year, divide it by 12, and then you know, every quarter is gonna be that neatly even to compare it to the next quarter, right? Nobody's businesses function that way. Um, even if you are a business with like recurring revenue where all your clients are on annual contracts and they pay you every month, yada, yada, yada, if you're thinking about growing, things are gonna change in probably quarter three or quarter four. So it really should be really live, something that you can constantly tweak, refine, and play around the numbers with to see what scenarios you have. Um, if you don't have somebody to do that for you, don't worry. As long as you're good in Excel, you'll be fine. And what if you're not? Kidding, kidding. Get somebody to do it for you if you're not great in Excel. But it is something you can set up in Excel. So it's not, and it doesn't have to be anything fancy. You're thinking about 12 months, and then you have revenue and expenses, and you list out your biggest ones, right? That have the most impact, and then you go from there. So put in the best numbers you think. And you'll make some assumptions that'll happen with every single, every single kind of projection, and that's okay. Um, just kind of make your best guess, and as you go along every month, you just want to keep that updated, right? So if we go from top to bottom, so this is basically your projection can be is basically your profit and loss. So you're projecting what your profit and loss will look like for the next 12 months. If you go from the top, let's start with revenue. So, how do you guess what kind of revenue you think you're gonna make for this upcoming year? One, you can look at history, which is always good, if you have history. If you don't have history, it's just a fun game of guessing, but be realistic. Don't don't hockey stick it, if you know what I mean. I'm gonna make a billion dollars. We're gonna go zero for like and maybe like a little bit for the first like six months, but after six months, I'm gonna be at a million, right? Okay, maybe a little bit unrealistic there, right? But be realistic, be aggressive, set really good goals that you can stretch yourself with, but you know, don't do it in a in a way that's gonna stress yourself out or be completely unattainable. So you can look at the past if you have a past to look at. If you don't have a past to look at and you're still not sure what it's gonna be, then look at other companies that are like yours historically by industry, right? So maybe a company that is in your industry, about the same size, in the same year of business, see how they grow. Is it a modest 10% increase in revenue? Is it 20%, 30% in revenue? See what your industry can do, and at a minimum, try to meet the same. Now, for our businesses out there that have seasons to them, which Savon and I know all too well about, because we have clients who have seasonal businesses, which means that maybe in the summertime your business explodes and is really busy, and then in the winter time your business really slows down to a very slow, you know, dripping halt. That's okay. Work that into your projection, right? Work it so that maybe you take let's just nice round numbers. Maybe you want to make a million dollars in revenue next year. Well, when you set up your projections month by month, make sure that maybe quarter two, those months, are making a lot more revenue out of that uh a million. Maybe you make 50% of your revenue quarter two and quarter three. So that's what you would want to do for your projection is to put in quarter two and quarter three five hundred thousand dollars total. And then the other of it, you know, is split between the other quarters. Although I guess we should say 75%, otherwise that's half the year. Right. You know what I mean. I know. I know, they know. They know, they know what I mean. Yes, exactly. So that's you know, certainly something that you can do on your own, and like I said, just kind of be realistic about it. You know, it's kind of fun to play with numbers, but it is a real business after all. So let's talk about the expenses. So there is cost of goods or cost of services, and then there is also your regular day-to-day overhead expenses. So if we talk about cost of goods, like we said, if you are increasing your revenue, your cost of goods probably should go up with it. Otherwise, that's a great business model to be in. If your revenue can go up, but your cost doesn't have to.

unknown 28:37

Right.

SPEAKER_01 28:39

Where do I do that at? Yeah, if you have that business, feel free to drop us a note and let us know what business you're in because that was amazing. So the cost is usually people are pretty, I feel like usually like uh business owners are pretty good about estimating their cost because like they can tell exactly what goes into providing their service or their product. So that's a pretty tangible like estimate that most people can make. I think where it gets a little fuzzy is everything beyond that. So, how do you estimate the cost of what it takes to run your business? So there's some basic categories of cost in there. We can talk about sales and marketing. So if you think you're gonna increase your revenue, your sales and marketing is probably gonna increase with it. And some of that goes into, I think Savannah, you have uh so kindly mentioned this in our script. If nobody knows we have a script, we have a script, right? But there is a customer acquisition cost, right? And a lot of that is sales and marketing. How much do you have to pay to get every new customer to increase your revenue by how much you want to that year? Yes. So that is part of a cost that you want to consider. The other cost you want to consider beyond that is also, well, it depends on you. Some people break out business development costs, maybe you want to break that out, but I like to lump it all within sales and marketing mostly, because it just kind of makes sense. There is also your back office cost. So your accountants, your lawyers, your HR, if you have people, those kind of costs may or may not fluctuate. So if you have your accountant locked in in a nice flat monthly retainer, then you know, it's to your benefit because as your business increases and gets busier, maybe their retainer will stay the same. Um, same thing for your legal costs and the HR cost. Um, HR probably will increase if you decide you want to hire more people. And then your legal costs, I don't know. Depends on what, you know, maybe like in the middle of the year, you decide that you may need to go out and say, contract for a property or something like that that requires an extra legal advice, then those kind of you know costs would increase. And so these are things that you can put in your projection so you can really time it if you do know what month it's gonna happen, and you can see exactly what your margins will look like for that.

SPEAKER_00 30:58

You can put those under professional fees because you might have, you know, you might have uh an attorney, you might have uh an accountant, you might have uh and if you're if you're purchasing land or a building or whatever, you might have a real estate agent. Um so you know, whatever whatever those professional fees are, that that that to me is is a part of it. Also uh to consider when you have uh client acquisition, there's also what it costs you to pay your team to onboard that new client, because oftentimes you're the one who's consum who's uh absorbing that cost, not you're not necessarily charging the client to onboard themselves. So remember to keep that in mind.

SPEAKER_01 31:40

Yeah, you aren't. I mean, in an ideal world, you're building that into your cost already. Like you're building that into your pricing. And I think that's also the thing that brings up a good point that if some if you're sitting there and you're kind of diligently, and mind you, this is a big brain exercise, right? It is exhausting and it is hard sometimes, especially if you're not used to doing it. So I would strongly advise our listeners and any business owners to really have somebody do this with you, somebody who is well versed in finance for small businesses, to walk you through this and do it with you to kind of test the assumptions and the estimates you're making so you get something accurate. But for business owners who are pretty diligent about this, this is the reason, this type of exercise is the reason why they know how much the cost really is to service every customer. Because they see it and eventually they'll adjust their prices and they'll adjust the prices to be able to capture some of this onboarding costs to the customer and be able to still make good margins. But you only know that, you only know, like you only know that if you're measuring it. And you're actually looking at your numbers regularly.

unknown 32:41

Right.

SPEAKER_00 32:42

Right. Because you could also be, if you're just throwing a number out in the air and thinking this sounds like a good amount to charge people, you don't really know whether or not you're making anything at all. Or if you're not getting clients, maybe you're overpriced. It's true, right? And that's why historicals are great.

SPEAKER_01 32:57

I think that, you know, we all know that accounting is a lagging indicator. I hear that all the time. And it's true, it's about keeping score of what already happened. But history can serve great lessons if one, you're capturing the information and data points correctly to look back and be like, what went well and what didn't go well. So then you can put it into your projections for the new year and adjust as necessary. This is where numbers really work for you. And I think a lot of people lose out on that opportunity because one, they're not scorekeeping the past well. So chalk it up to either haphazard bookkeeping or just not great accounting support. And then two, they don't want to take the effort and the real hard work to project for the new year and ask themselves the hard questions. How much are you gonna grow? Can you realistically support it? Do you need to hire more people? How much is that gonna cost you? All of that should go into your projection. Speaking of how much things are gonna cost you, the other thing that a lot of people underestimate that should be into projection and also part of their cost is French. So that's also one of the cost categories is French, which is the employer taxes you have to pay for having employees, the PTO and holidays that you pay your employees as a benefit. These are all costs to your business. Um, and if you are not capturing that separately or correctly, like if you just think, you know, I'm gonna have a contract here and you know, Susie is going to support this contract, she only cost me about $45 an hour. No, no, no. Susie cost you about like $55, $60 an hour in real life. After you add in all the taxes and benefits, if you're not using that to decide what your prices are, then you're basically eating that cost. Probably cost you can.

SPEAKER_00 34:42

I know it's not uh I know it's not perfect math, and I get this, but in my head, I always just double. Uh so if I'm gonna, if I'm gonna, I don't know, if I'm gonna pay somebody $25, I know that it's gonna cost me an extra $25. So it's really more like $50. Can I, can I afford $50 an hour? You know, that using that hourly as an example to make it a little more, you know, to make it make a little bit more sense. But I always double it in my head because it's not just the to me, it's not just the taxes and all that, but there's also the the times when Yeah, there are the times when maybe they they shoot you an email or they walk into the office and be like, I I don't I'm not a hundred percent sure on how to do this. Um, can you show me? And you're so you're training them on your dime, uh something that they don't know how to do, you know, like little things like that. Um it adds up. Yeah, it really really does.

SPEAKER_01 35:38

Yeah, and that's why if you capture your cost properly in your books and as well in your projections, then you know these numbers really well. And last but not least, to just tie it back to the whole tariff conversation we're having. If you know some big event is coming down a road, you can use your projections to basically play scenarios and see, hey, what would it look like if, let's say, in August the tariff goes into play and we see the trickle-down effect by November? Like, what would change? Um, what would my bottom line look like if I increase my cost, if I don't move my um pricing for my customers? Well, if you look at it and you're like, whoa, that is a huge like drop in margin, then at least now you have time to be able to pivot and decide what you can do to position your company better. And that's what's so powerful about projections and why I'm so busy right now doing all that for clients.

SPEAKER_00 36:30

But that's why January and December is so busy. It is such a beneficial way in protecting your um protecting your company because uh I remember during COVID that January and February, I did what I normally do, which is my budgeting for 20, well, at that time 2020. And when everything shut down, I was worried that many of my business clients were going to go out of business. And so I changed the numbers in order to see how well we can float. Turned out, turned out to be a more profitable year for me than I thought it was going to be. So it was a happy surprise. But I did protect myself through that budgeting exercise just in case things did not turn out as well as I thought as like if I thought they were not gonna turn out well whatsoever, and I was wrong. But it's okay for me to be wrong in that way. But you know, I think it's great.

SPEAKER_01 37:28

You were wrong in a right way.

SPEAKER_00 37:30

I was wrong in the right way, I was wrong because I thought it w I was gonna lose so much business, and so I prepared my company for that, ended up getting a lot of business out of it. But that's what I'm saying with these tariffs, much better for you to be overprepared. And and then what if it turns out nothing like that? That's okay. You're overprepared for that matter. Yeah, yeah.

SPEAKER_01 37:49

And it's like a safe environment to play with your numbers because that at the end of the day, business is business, business is about money, business is about profit. If you don't even know your numbers, which is what business is based on, then how you know you're just you're just waiting for blind luck, yes, uh, which is a terrible position to be in and completely unnecessary. And the last thing I will say about this is if you have never done a cash flow projection, not cash flow projection, I'm sorry, if you've never done a PL projection before, then you know, you start simple. You don't have to go into all the various categories, just go with the big categories and start playing with the numbers and then have that discussion with whoever on your side that you feel comfortable to talk about small business finance with. So that could be your CPA, that could be a very uh well-versed um bookkeeper or accountant. But if anything, I would say this is just always a great exercise to do with somebody else because your head could be a very optimistic place.

SPEAKER_00 38:44

It can. It could also be a very pessimistic place, right? Like it could be you're you're going to be looking at your company from the inside out, and you need somebody who's looking at it from the outside in. Yes, somebody who is objective. So right.

SPEAKER_01 38:56

So give it a try, right? And uh see where it takes you. But highly recommend it.

SPEAKER_00 39:02

Yes, I absolutely highly recommend it as well. And um, to that point, I think that you should also consider taxes because there are a lot of businesses out there that maybe do not pay employees through payroll and end up or conventional payroll that end up owing a ton in payroll tax. Uh, sales tax might not be set up correctly, maybe even payroll taxes are not set up correctly. But whatever it may be, these are hidden costs that that come and bite you in the butt. So take those into consideration as well.

SPEAKER_01 39:34

Well, I would say that one of the bigger well, it depends on what you have though. Property tax may also be a consideration and your local tax. Um but then we get into a little bit of cash flow discussion when we talk about income or business tax. So not to overcomplicate it, but at least figure out what the bottom line is supposed to look like.

SPEAKER_00 39:54

Right, right. Right. Well, the only reason why I say tax is because I have had clients who have not taken tax into consideration and then they're like, oh, that's not the right number. So that's what I mean. Um without reading. Yes, absolutely. All right, so in each episode, we like to connect a famous example to our discussion to help you relate our talking points on a more global, well-recognized scale, revealing the dots between the living room startup and the success story on the cover of Forbes. Sometimes we use exact examples of either famous persons or successful persons, us rather successful business owners of today or in history. And sometimes we just use examples of people or situations, experiences that have inspired us and have inspired today's discussion.

SPEAKER_01 40:41

All right, this is a fun one. Let's talk about Cuban cigars. Uh, we all know Cuban cigars are a little hard to come by, especially here in the States. Um, but did you know in the 1960s uh there was an actually an embargo on Cuban cigars because of a rift between Castro and Kennedy. What do you mean? A president doesn't like any other president?

SPEAKER_00 40:59

What do you know? I swear, we're all just chess pieces in their games. But anyway.

SPEAKER_01 41:04

In the 60s, the Cuban government actually nationalized US owned properties, leading to the US government to retaliate with trade and travel restrictions. So just for everybody who doesn't know, nationalized means that the government basically took back the properties that were owned by US within their country. And it became owned by Cuba. So President Kennedy called his called in his head of press, which is Pierre Salinger, uh, for an evening meeting in February of 1961. Oh, you gotta love this. I wonder if they had some cigars where they were talking. So while this is going down, he did ask him to secure about a thousand of his favorite cigars. The Petite Upman. Did I say that right? Upman? Yes. Upman? Yes. In the morning, when President Kennedy asked for an update, Salinger informed him that he was able to obtain 1,200 of them. And when the president reached down, opened a drawer of his desk, and pulled out the documents pertaining to the embargo, within a minute he signed them. That was well prepared. Setting himself up for success. Alright, so well, it took a while to go into effect. In effect, in fact, it took a whole year before the embargo actually took effect. In February of 1962, President John F. Kennedy announced a complete embargo on all imports from Cuba, including Cuban cigars. Therefore, this crushed the hopes and dreams of Cuban people, their relatives, as well as the entire cigar smoking population in the U.S. And now you know why those things are really hard to get your hands on. Very.

SPEAKER_00 42:41

And we're we're still frenemies.

SPEAKER_01 42:43

I mean. Oh, come on, yes, of course. I mean, come on, just look at the history. I mean frenemies is a good way of putting it though.

SPEAKER_00 42:50

Yeah. Yeah, like we are anyway.

SPEAKER_01 42:52

Well, I mean, I think like the Kel Kennedy time, you know, like Cuba, like, there was just a lot of turmoil. It was not.

SPEAKER_00 43:00

I mean, this was like right after the Cuban Missile Crisis. Wasn't it? Wasn't this right? I actually don't recall what year Cuban Missile Crisis was. Somebody's gonna correct me. I'm sure of it. Isn't it? I don't know. I don't have to do shall I look it up.

SPEAKER_01 43:18

I know you had the whole uh I know you had all the whole Bay of Pigs situation. Oh yeah, it is pregnancy. Presidency, pregnancy, presidency. Oh no, I was totally wrong.

SPEAKER_00 43:28

It was in October of 62. So this was like right around the same time. Yeah, it was around the same time. Who knows? Henry is like, no more Cuban cigars, and then an occupation.

SPEAKER_01 43:43

I just love the fact. I love the fact that he like stocked up on a whole bunch of them. Although not a bad strategy. If you think about it, if you know something is gonna be scarce because of tariff, it may not be a bad strategy to stock up on them and then, you know, those things have value. They're a little bit more scarce, so didn't hear that from me, anyways. Moving on.

SPEAKER_00 44:04

Do we go to jail for insider trading? Anyway, any hoozles. Uh, so I have something wonderful to talk about too. Uh, gross farm income in 1919 amounted to 17.7 billion dollars by 1921. Exports to Europe had plummeted, and farm income fell to 10.5 billion dollars. That is insane. This was the first time an American our American economy had suffered rather than prospered after a war. And we had seen quite a few wars by then, right? And other sectors of the economy wanted to avoid a similar fate. So during World War I, European agriculture was disrupted. This led to an increased demand for American agricultural products. How and and uh for obvious reasons, right? Like Europe was in turmoil, they were in a massive war on their own land. Although the US was also involved, it wasn't on our land. So our farmers really made out. However, when the European countries resumed production after the war, US farmers faced a surplus of goods. They had all these goods that Europe didn't want anymore, and therefore they had to slash the prices of these goods. And granted, this is agricultural goods, so if they weren't able to sell them, they rotted and then there went the money. So a tariff was proposed to protect them by limiting foreign competition. Hearings were held by Congress, which led to the agreement that no country could undercut the price charged by American companies. The difference in production costs was calculated by the newly appointed tariff commission. Another agreement was the American selling price. This allowed the president to calculate the duty, the tax, which was based on the American price of the good, not the imported good. The bill also gave the president the power to raise or lower rates on products if that was recommended by the tariff commission, which is what we have seen in our known uh lifetime. We've seen this happen. It's quite interesting. Anyway, so the Fordney McCumber Tariff of 1922 went into effect, and this raised tariffs on imported goods to protect domestic industries like manufacturing and agriculture. This was pointed towards them. And this was seen as the shining response to the economic struggles that the American farmers and manufacturers had had. Now, on one hand, the tariff supported American farmers and manufacturers by reducing the competition from cheaper foreign imports. It stimulated domestic uh production and employment. However, on the other hand, other nations responded by imposing tariffs on American goods because they were like, um, excuse me, sir, if you're gonna raise the prices on us, we're gonna raise the prices on you. And this was pointed towards agricultural products. Now, these policies worsened international economic conditions. It contributed to global trade instability, and many historians and econom uh economists say that this was the link to the Great Depression. Which I believe. Uh that triggered a tariff war against other European countries that traded with the United States. As US tariffs were raised, uh other countries followed. And according to the American Farm Bureau, farmers lost more than 300 million annually as a result of this tariff. So who won? Nobody won.

unknown 47:33

Yeah.

SPEAKER_01 47:34

Any kind of war. Nobody wins.

SPEAKER_00 47:36

Nobody wins. Nobody won. So it's gonna be very interesting to see bringing it back to today and back bringing it back full circle. It's gonna be interesting to see how President Trump's proposal for uh the tariff on foreign goods, which is especially on steel and aluminum, is going to affect us.

SPEAKER_01 47:52

So yeah, I think so.

SPEAKER_00 47:53

I think it's going to be sorry, go ahead.

SPEAKER_01 47:59

Yeah, I was gonna say that it uh Yeah, it's gonna be a I wanna say it's unprecedented, but I feel like it is definitely something we haven't seen before. So it is history in the making of what will happen, especially since everything is so volatile as far as the relationship between the countries, like the major countries. So, and I mean, come on, US and China has always been on this, you know, totally precipice of love and hate, you know.

SPEAKER_00 48:29

Well, love and hate China, love and hate India, love and hate Russia, love and hate Cuba, love and hate Germany, love and hate like so many, there's so many countries that we really should be playing better in the sandbox with. So I don't know. I kind of feel like both the policies that he's recommending or he's pushing, and the policies of your um are both ill illustrations, I guess, of the tension between short-term domestic benefits and long-term global consequences.

SPEAKER_01 49:00

Yeah, and you're really hoping, and I haven't heard too much about the other side of it, is you're really hoping that some part of that plan is an offset somewhere, right? It's got hopefully there's some kind of offset. It may not be a direct offset, but for example, there's more tax credits on certain things so that US citizens are paying less taxes overall to be able to offset like the increase in prices. So you really hope there's some middle ground that has been worked into this entire plan and it's not just a one-sided let's raise tariff. And I don't think it is. I think that, well, I don't know, to be quite honest. I was gonna say that you would have faith that that is the case, but we've also seen the past presidencies and terms that sometimes the thinking is very one-sided and there's unintentional or not well thought-out consequences. So you hope that with something that's coming out this aggressive and would would affect so many countries and large industries, that there's already been working in the plan of some way to offset the burden that Americans are gonna feel because of this. And, you know, I don't know. I'm optimistic, regardless of who's in the presidency seat, I'm optimistic that there are smart people who's gonna figure it out. But part of me also wants to laugh when I say that.

SPEAKER_00 50:11

So I know, right? My blueberries already cost too damn much. I cannot afford $10 blueberries. Please make the cost of these.

SPEAKER_01 50:20

Hope for the best, hope for the best, but plan for the worst. Make sure you do your projections for the for your company and for your life, for yourself too. For your personal side, too. Yes, do it both ways.

SPEAKER_00 50:32

So and in saying that, there is a saying that goes, put your money where your mouth is. And so we're gonna drill down a little bit further and connect what we've discussed at a granular level to tangible sources you can take to get you to that next level. Have you any suggestions?

SPEAKER_01 50:49

Uh yeah, I was just kind of thinking about it. I mean, for listeners who are kind of like, where do I even start with these kind of uh projections? Easiest way, assuming the fact that your books don't suck, right? Is I would just print out from your QuickBooks, which is probably what most people are using, is a 12-month PL month by month. So run it for January um 1st, uh 2024 through December 31st, 2024. Uh, run it so that it totals by month, export that, take out the numbers, and put new numbers in for 2024. That might be the easiest way to just kind of start your, you know, foray and to making your own projections.

SPEAKER_00 51:31

I agree. I agree. I also suggest that you do that. I also find if you want to do this kind of projection that is going to include your personal as well, or you know, you can just set up your business on it. Rocket Money is a great app to use to help you find and identify uh areas in which you could save money. I've been using the Rocket Money app for uh about a month now just to kind of see, test it out. I really like it. It tells you how much each of your subscriptions are costing you. Could you maybe let this one go or that one go? Hey, did you know that you're paying for two different Apple subscriptions? It also alerts you when there's a large expense coming up. Uh, there's a lot of ways you can use. Yeah, Rocket Money is really great for the average person to learn how to budget better because I I can't expect every personal or is it business? No, no, no. I have both my business and my personal connected to it. Got it. Very nice. Yeah, and I have always so for me, for example, I we're remote, right? So I have always thought so long as I spend less than what rent would be, I'm okay. Right? Because I have I pay for a lot of different things for us to be remote. And there were some expenses that I was like, maybe I don't need that. Maybe I don't need that. I always thought I needed that, but maybe I don't. Wow. Like I am paying more than I would be paying for in rent. So I have cut out some subscriptions that I'm like, oh my gosh, I I forgot all about that. When was the last time I got charged for that? You know, that kind of stuff. It's it's really cool. I I really like it. Obviously, do your own research on rocket money, but it is and it is connected to rocket rocket mort. It is connected to like all of that. It's it's just like how QuickBooks is an in part of the Intuit family. So, you know, if you're looking to buy a new place or if you're looking to invest, you can also put goals in there. So you can put a goal in there that your goal is to be able to purchase a thing, or your goal is to have X amount of money in the bank, whatever your goal is. It has a few different things that you can set it up as and break it down in quarters or months. I want to make X amount by this month. So you can use both the spreadsheet and the app to to break it down in more consumable ways for you and not stress you out, but really, really prepare you for what may or may not happen. Either way, you're right. Prepare, prepare, prepare, and just expect the worst. Prepare for the best.

SPEAKER_01 54:09

Let's see if that'll be the theme for the first time.

SPEAKER_00 54:10

Prepare for the worst, expect the best.

SPEAKER_01 54:12

Huh? I say that could be the theme for the year is to be prepared. Absolutely.

SPEAKER_00 54:18

Yes. So, and on that note, please hit the like buttons and the follow buttons and all of the thing buttons and tell all of your friends about us. Uh, our show is on all of your preferred podcast platforms, social media and YouTube. Not quite sure about TikTok right now, so we'll get back to you on that. But we'd love for you to also share our episodes. All of our links are posted below. And until next time, mind your business, behind your business. Like I said, I'm gonna come out with a jingle because all great successes start small. Thank you. Bye bye. Bye.