In 2025, businesses across the world face a period of heightened uncertainty. Global trade tensions, fluctuating tariffs, and changing political landscapes—particularly under the influence of the Trump presidency—are creating a volatile environment for supply chains. These disruptions impact everything from procurement costs to customer satisfaction, threatening both operational efficiency and profitability.
Given these uncertainties, it’s essential for business owners to take proactive measures to protect their financial health. One of the most important tools for navigating this unpredictable landscape is accounting. Through detailed financial forecasting, risk management strategies, and real-time data analysis, accountants can help businesses mitigate the impact of these risks, ensuring that the financial side of operations remains resilient.
What is Supply Chain Risk?
Supply chain risk refers to the potential for disruptions within the supply chain that can cause financial or operational harm. These risks can arise from a variety of sources, both external and internal, and can impact the movement of goods, services, and information. Understanding and managing supply chain risks is critical, particularly when global events such as trade wars or new tariffs threaten to disrupt established patterns.
Key Components of Supply Chain Risk
- Economic Risk: Includes risks tied to the economic environment, such as inflation, currency fluctuation, or shifts in demand.
- Geopolitical Risk: This encompasses political events, such as changes in government, trade policies, or instability in supplier countries.
- Logistical Risk: Issues related to the physical movement of goods, including transportation delays, supply shortages, and infrastructure failures.
- Supplier Risk: The possibility that suppliers will fail to deliver on time or meet the required quality standards.
Impact of Supply Chain Risk on Financial Health
- Cost Increases: Unforeseen disruptions can lead to higher procurement costs, which can erode profit margins.
- Operational Disruptions: Delays in receiving materials can lead to production stoppages, which impact revenue.
- Cash Flow Instability: Unpredictable costs and extended lead times can affect cash flow, making it difficult for businesses to meet their financial obligations.
Recent geopolitical events, such as the ongoing U.S.-China trade war, demonstrate how quickly these risks can materialize. In 2018 alone, the U.S. imposed tariffs on more than $200 billion worth of Chinese goods, which raised costs for many businesses reliant on Chinese imports. These risks have far-reaching effects on profitability and long-term sustainability.
How Do Tariffs and Trade Wars Affect Your Bottom Line?
Tariffs and trade wars can create significant financial pressure on businesses by increasing the cost of imported goods and materials. Businesses that rely on international trade for their raw materials, components, or finished products are particularly vulnerable to these disruptions.
Impact of Tariffs on Cost Structures
- Cost of Goods Sold (COGS) Increase: Businesses importing goods subject to tariffs will face higher costs, directly impacting their COGS.
- Price Increases: To maintain margins, businesses may have to pass these increased costs onto customers, potentially affecting demand.
- Profitability Erosion: Even with price adjustments, companies may not be able to fully offset tariff-related cost increases, resulting in lower profitability.
Example: Impact of 2018 U.S.-China Tariffs
- The imposition of tariffs led to a 25% increase in the cost of Chinese-made steel and aluminum.
- U.S. manufacturers, including Ford, reported an estimated $1 billion in additional costs due to tariffs.
How Accounting Can Help Mitigate Tariff Risks
Accountants can help businesses navigate these cost increases by adjusting cost structures, forecasting potential price changes, and incorporating tariffs into financial models. Below are several accounting strategies to mitigate the financial impact:
- Adjusting Financial Forecasts: Accountants can integrate tariff-related cost changes into financial projections, helping businesses understand potential impacts on profitability.
- Cost Structuring: Reassessing suppliers and considering alternative sourcing strategies may help businesses reduce exposure to tariff-related price hikes.
- Scenario Planning: Accountants can run different scenarios (e.g., “worst case” vs. “best case” scenarios) to forecast the financial impact of various tariff levels.
Financial Planning for Supply Chain Disruptions
Here’s how accounting teams can support businesses in preparing for tariff-related risks:
| Action | Impact | Accounting Role |
| Diversify suppliers | Reduces reliance on tariff-impacted countries | Accountants assess cost implications of new suppliers |
| Hedge currency exposure | Protects against currency volatility | Accountants advise on hedging strategies for imported goods |
| Update financial forecasts | Better alignment with reality | Accountants integrate updated data into cash flow forecasts |
How Can Accurate Financial Forecasting Mitigate Risk?
Accurate financial forecasting is crucial in today’s volatile environment, particularly when managing supply chain risk. By projecting future financial outcomes, businesses can anticipate and plan for potential disruptions, allowing them to respond quickly and minimize impact.
Why Financial Forecasting Is Important for Risk Management
Forecasting helps businesses anticipate the effects of external risks, like tariffs, trade wars, or changes in consumer demand. It’s not just about projecting sales but also about preparing for what could go wrong, which is key in managing risk.
- Forecasting Helps with Cash Flow Planning: By estimating the financial impact of potential disruptions, businesses can ensure they have enough cash flow to weather a storm.
- Cost Adjustments: Forecasts allow businesses to incorporate changes in cost structures, such as higher import tariffs, and predict how those changes will affect profits.
Key Elements of Financial Forecasting for Supply Chain Risk
- Sensitivity Analysis: This technique helps accountants test how different scenarios (e.g., changes in tariff rates) could affect financial outcomes.
- Scenario Planning: Businesses can use multiple forecasting scenarios to understand how different supply chain risks may impact their financial stability.
Example of Financial Forecasting in Action
- In 2020, businesses that had incorporated forecasting tools saw better cash flow management and adjusted strategies more effectively during the pandemic. Businesses with solid cash flow forecasts had higher chances of surviving the supply chain disruptions caused by lockdowns.
The Role of Accounting in Risk Identification and Management
Accounting plays a key role in identifying and managing risks within the supply chain. By using financial data, accountants can spot potential problems before they become major issues, allowing businesses to take proactive steps to mitigate risks.
How Accounting Identifies Supply Chain Risks
- Financial Data Analysis: Accountants use financial statements to identify red flags, such as increasing cost of goods sold (COGS) or declining profit margins, which may indicate a supply chain issue.
- Vendor Payment Trends: Monitoring payment trends and late payments can highlight financial instability within the supply chain.
- Inventory Valuation: Anomalies in inventory levels or valuation can signal potential disruptions in the supply chain.
Reporting Financial Exposure
Accountants can provide detailed risk assessments by calculating financial exposure due to disruptions, helping businesses understand the scope of potential losses. This includes assessing risks tied to:
- Currency Fluctuations
- Supplier Instability
- Tariff Increases
These financial insights allow businesses to develop targeted risk management strategies, such as negotiating better contracts or diversifying suppliers.
Conclusion: Preparing for the Future of Supply Chain Risk Management
As we move through 2025, businesses must navigate an unpredictable supply chain landscape shaped by geopolitical tensions, fluctuating tariffs, and policy shifts. These uncertainties can impact profitability, disrupt operations, and strain financial stability.
Accounting is crucial in managing these risks. By leveraging financial forecasting, identifying potential risks through data analysis, and implementing strategic risk management practices, accountants help businesses safeguard their financial health. They enable proactive responses to disruptions, ensuring long-term resilience.
To stay competitive, businesses must be agile and prepared. Now is the time to strengthen financial management strategies and collaborate with accountants to build a robust risk management plan for the challenges ahead. By doing so, companies can better navigate the uncertainties of 2025 and beyond.
If you are looking for a great accountant to help you stay competitive, reach out to MB Accounting and let’s work together to optimize your business!