In our recent blog, Prepare for Profits in 2025, Part 1: Your Cost Structure May Never Be the Same, I shared my thoughts about how policy and economic changes might impact cost structures in 2025. I stressed the importance of monitoring your 5-Line P&L.
This “Part 2” continuation lists 8 things you should do today to help fight the profit pinch in 2025.
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Accelerate Equipment Purchases
If you have the financial capacity to act early on purchases you would make in 2025 anyway, you might consider stepping up now.
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Forecast Your Cash Flow
Talk to your accountant about forecasting cash flow under multiple scenarios so you can plan to have adequate cash reserves or credit lines, Establish a cadence for comparing actual results to budgets by the 15th of each month.
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Watch Out for Hidden Costs of Carrying Inventory
Balance the savings from stocking up on inventory and supplies before tariffs begin with the hidden costs of carrying inventory. Storage costs, interest fees, insurance, obsolescence, and shrinkage will erode your savings. These costs can add as much as 20% to the cost for each year you carry the inventory. You’ll want to factor this against your potential savings.
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Have a Financial Strategy in Mind
What if tariffs trigger higher prices and you’ve used up your pre-purchased materials with no alternative sources? Or what if your cost increases come from higher wages? What’s your strategy? Do you automatically raise prices, or wait it out? How much volume can you lose before your profits are impacted? Wouldn’t it be good to know the answer to this before you take action?
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Assess Pricing Strategies
Regular monitoring of your cost structure reveals how changes in costs or prices impact the volume required to reach your profit goals. You can answer the question, if I raise my prices by X%, how much volume could I lose before profit is impacted? Learn how.
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Get Ready to Be Nimble
When you understand your cost structure and your targeted profit, you can act quickly and decisively. Others who don’t will wait and hope that things will work out. As they put off decisive action, they lose profits. Don’t be like them.
First, commit to this mandate: Profits are not optional. Your business must earn a profit if it is to continue to survive and build value for the future. Your next step is determining your profit requirements for the coming year. Decide now what profits are necessary to:
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Watch for Big Opportunities
Look for opportunities that challenging economies deliver. Do you make a strategic buy of a competitor to purchase equipment? Technology? Market share? Talent? Should you line up funding options now to make this possible? A good relationship with your banker can pay off.
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Make Your Business Loan Worthy
Talk with your accountant now about having tax returns and year-end financial statements (including a balance sheet and statement of cash flow) ready early in the year. Set the expectation of receiving accurate monthly financial reports by the 15th of each month. Your banker will require the former; you’ll need the latter to make smart decisions.
While it’s never a bad time for any of these, I believe the uncertainties of 2025 make these a necessity and could yield a high ROI for those who plan for them.
More Resources
Ready to start plotting your course to higher profits? These resources can set you on your way.
Business Owners and Managers – Are you a business owner or manager looking to make more profitable decisions for your company? Check out Profit Soup Online, 14 courses, available 24/7, including our most popular series, Breakeven PLUS: Your Profit Planning Power Tool.
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