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Prepare for rising prices
Strategic changes to make now
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You’re such a delicate boy in the hysterical realm
Now that the election is done, I’m reworking my clients’ 2025 plans for things we know and things we can reasonably prepare for.
TL;DR: Stuff will cost more. Individual tax rates will not change until 2026. Inflation is predicted to kick in by mid-year under planned tariffs. Set your contract terms and pricing accordingly.
From January 20, 2025, we will be in a rising-price environment. Tariffs are one of the few things entirely in the control of the president, and we can trust from President-Elect Trump’s last administration that those weren’t empty threats.
Today, I want you to understand how you might need to adjust your pricing, inventory, and budget. I don’t want you locked into an unprofitable contract for the next year or two because this didn’t feel real, or you were processing your feelings, or you heard other countries paid for tariffs. I encourage you to absolutely feel all your feelings while also making sure you’re realistic about next year’s business environment.
My 2025 predictions:
Tariffs will be in place by the end of January for China, by mid-year for most other countries
Consumer prices will go up
Inflation will start to tick up by the second half of the year
Mortgage and lending rates will still go down, but not as much as planned
2017 tax cuts will be extended and potentially expanded for 2026
Owning real estate will become even more tax-preferred
Your team will want raises to offset inflation
Markets are already assuming that we will experience inflation. Mortgage rates are up even more, despite the Fed cutting rates by another quarter point last week. The chief of the Federal Reserve reiterated his commitment to central bank independence by saying he will not step down if requested, and the president cannot yet force banks to loan you money at a loss.
At some point next year, it is almost certain that the physical things we buy will cost more, with President-elect Trump vowing to put a 60% tariff on goods from China. While this will affect about 20% of consumer goods overall, we import 35% of clothing, 50% of home goods, and 80%+ of Christmas gifts.
Now, keep in mind, the Biden administration has maintained most of the pre-existing Chinese tariffs, so we’re not starting at zero. But those were targeted to metals, washers, and solar panels. Some things will get 25% more expensive, others as much as 60% more expensive. Let’s look at the math:
An item you currently import for $5 wholesale will cost $8 to onshore.
The $25 toy you buy for birthdays will cost up to $40.
The cute top you’ll wear twice will go from $39 to $62. And I guarantee the Shein and Temu direct ship loophole gets closed.
Goods from other countries are proposed to have a 10-20% tariff. While the toast and the crunch come from the US, the cinnamon does not. Your $8 cereal will be as much as $9.60, because large companies will feel free to pass through the costs to you. You’re definitely not getting an avocado from Mexico for less than $5.
For those of you who share my wonky streak, check out the Tax Foundation’s short article on the impact of universal tariffs. If you do not: tariffs are bad for growth. And they often inspire retaliation. The things you sell in other countries will be smacked with higher prices, too.
Basically, Americans were mad about inflation so they chose a president who blatantly told us he would jack up inflation. Fun.
What to do?
Let’s start with those of you who sell imported physical goods.
If you have a line of credit or cash reserves, you may be able to pre-order goods before January 20. Here’s some background. To do it, you’ll need to know how much cash you have and whether or not the product can clear customs prior to tariffs taking effect. (We don’t know the date on which the president-elect will sign tariffs into being, so I’m using Inauguration Day.)
You may need to have a conversation like this one. Using cash to pre-purchase inventory means less to pay workers. Maybe you can’t do bonuses this year. Your team might not understand this, because they were told tariffs were paid by the other countries. You get to be the messenger.
It takes time to localize supply chains. It’s hard to make anything entirely within the US from US materials, but you can certainly try. Even swapping something made in China for another country could be worthwhile if you start now. Onshoring or relocating manufacturing typically takes 12-18 months, and fully nationalizing a supply chain and building capacity can take 6-10 years. The US doesn’t have the trained workforce, nor will it be easy to get visas to bring in skilled workers. The first Trump administration crippled visa and green card issuance; we’re barely out of that backlog.
If you’re running a services business, you have two options: raise prices or reduce scope. Raise prices because you’re worth it, and because your inputs will cost more at some point next year. When you evaluate your 2025 prices, include at least 10% to cover the increased costs of things you need to buy, plus at least 5% wage increases for yourself and your team.
If you don’t want to increase your prices, reduce your scope. Shrinkflation is not just for potato chips. Or consider shorter service terms like six months instead of twelve so you have the option to adjust mid-year. On the flip side, if you can lock in an annual service price, it may be worth it to do that.
In terms of borrowing, if you were counting on lower interest rates over the next 18 months, rates will continue to come down, but at a more cautious pace. Inflation means interest rates stay high, although a resulting recession might bring them down. We cannot have nice economic things.
From a cash-flow perspective, if things are good, set up a business line of credit now. A real one, not a Kabbage loan. While quick lending options are great for emergencies, you have to repay a fixed amount of interest. You need a true line of credit underwritten with a banking partner that allows you to borrow money whenever you need it, put it back, and borrow it again, at a set rate of interest. I’ve borrowed the same $5,000 about 10 times this year. I can fund it into my general checking in two minutes, any time, and the cost per day is better than paying the 1% fee to express clear funds from my processor.
If you were thinking of taking an SBA 7A loan, get that application in. The maximum loan is $5 million to be repaid over 60 months, with a capped interest rate. While Congressionally-approved spending is guaranteed once allocated, an administration can adjust terms and guidance on loans. The Biden administration has been supportive of the 7A program and it’s well-funded. I expect changes by June 2025. SBA loans are underwritten through a bank or SBIC community lending partner, which can help you prepare your application package. Find a lender here.
Finally, in a volatile environment, take the time to write at least a 12-18 month strategic financial plan. Include your expected revenue, gross margins, operating budget, and fully-loaded staffing costs (employees and contractors). As things change, you can use your model to test what-ifs in minutes instead of days (or not at all). When the rules are changing quickly, your speed to take decisive action matters. Grab some time with me if you want to talk about it.
There are a lot of other things we don’t know, which will get clearer over the 10 weeks ahead of the inauguration. And I will be writing about them. But foremost, we have to stay in business, because missions require money. You do not need the stress of eroding profitability. Rather than be frozen by what-ifs, let’s prepare our companies and financial livelihoods for whatever comes next.
Tomorrow: November AMA
Got a tariff question? Thinking about whether it’s worth paying more for that PPO plan? Winding down a company, or starting one in January? Bring those questions tomorrow!
My subscriber AMA is back on Thursday, November 14, at 10 AM Pacific. Bring your end-of-year and benefits questions. If you can’t attend live, submit questions here.
File your BOI
If you own an LLC, S-corp, or C-corp, or a company outside the US that sells here, you have until December 31 to file a business owner information (BOI) form. While services are offering to help for $150-$200, it’s free to file yourself directly with FinCEN. It’s a fairly simple form with good instructions, and should take you less than 10 minutes. File your BOI here.
If you’re starting a new company, complete a BOI within 60 days of your incorporation.
Week 4 of 10 Weeks to Close
For reference, here’s the checklist.
S-corp compliance: if you’re an S-corp, or an LLC taxed as one, you need to pay yourself a “reasonable” amount of W-2 wages annually. What is “reasonable” is largely between you and your tax professional. (We have lots of rules of thumb, no definitive guidelines.) Help them out by sharing your year-to-date profitability and determining what you need to do to get compliant by December 31.
Annual renewals: The info above should help you with pricing annual renewals and corporate budgeting requests. Review your pricing and offers and reach out to your clients to get their budgets.
Pipeline cleanup: Make sure you have enough qualified leads and active deals to meet your Q4 goals. A good estimate is 2.5-3X your revenue target. It’s a great time to find out what’s up with current customers, past clients, “not right nows,” and lapsed leads. What’s changed for them?
Media Kit
Shopify: We’ll find out in January whether TikTok is banned, and X might not be a place for you anymore, especially with its new terms of service taking ownership of your posts. Building an audience on someone else’s platform means you’re subject to their whims. If one of your goals is to start or build your own list, start here.
CDF Law: Have employees or contractors in California? We have a bunch of 2025 legal changes, as always. On November 20, join a free webinar from my team at CDF Law to run down 2025 employer compliance. Learn more and register here. They send out the replay and materials and will not harass you with a marketing call.
Men’s Health: A new study shows people under 40 are experiencing more cancers and generally showing faster cellular aging than earlier generations. While the causes aren’t yet clear, take this nudge to schedule your preventative care check-ups, regardless of family history. In particular, if you’ve been irregular for a while, ask for a colon cancer screening. Most insurance companies cover an annual at-home mail-in test. Yeah, that is what you think it is.
WSJ: Women are opting back in to wearing hard pants. I didn’t believe it either, but fall collections are filled with structured blazers and waistbands. Dressing up for work and having a clothing budget is apparently a whole thing again. (If that link doesn’t work, here’s an open podcast version.) Are you sticking with Team Athleisure or returning to Team Dry Cleaning?
Thanks for reading! Have a topic in mind? Thoughts on today’s newsletter? Hit reply or email me at [email protected].