Budgeting and Forecasting Strategies at a Time of Tariff Turmoil: A Guide  for CPAs

April 1, 2025

The ongoing trade dispute between Canada and the U.S. has created an overwhelming sense of uncertainty for businesses, which in turn is impacting costs, revenues, cash flow, and long-term planning.

Business leaders are looking to the technical expertise and strategic insights of CPAs to help navigate this environment. As CPAs look to manage their budgeting and forecasting, they will have to be nimble, agile, and strategic in their thinking.

The impact of additional U.S. tariffs and retaliatory measures by federal and provincial governments will vary for each business. CPAs should review the considerations included in this guide to determine which factors apply to their organization and develop corresponding strategies.

Considerations for CPAs in the budgeting and forecasting process include:

1. Adjusting cost assumptions and supply chain expenses.
2. Revising revenue forecasts and pricing strategies.
3. Reassessing cash flow and working capital management.
4. Updating capital expenditure (CapEx) plans.
5. Assessing the going concern and business continuity risks.
6. Using sensitivity analysis and scenario planning.

For additional guidance, please reach out to CPA Ontario’s professional advisors by email or call 416 204.3106 or 1 800 387.0735 x4456.

Key Tariff-Related Considerations for CPAs in the Budgeting and Forecasting Process

1. Adjusting Cost Assumptions & Supply Chain Expenses

Have you identified any impacted costs on raw materials, goods or services that are subject to tariffs?

According to economist Trevor Tombe, about four out of five of every dollars traded between Canada and the U.S. are intermediate inputs, which are materials and components that businesses use to manufacture other goods. Tariffs will increase these input costs, adversely affecting profit margins. CPAs should evaluate which raw materials, goods and services are subject to the tariffs and assess the resulting cost increases. It is important to consider the potential for cascading cost impacts throughout the supply chain.

Economic uncertainty and a possible reduction in trade between Canada and U.S. can impact investor confidence and weaken the Canadian dollar, leading to exchange rate fluctuations. This creates uncertainty for businesses trading with the U.S. affecting their costs and revenues. CPAs will need to adjust budget and forecast assumptions to account for these possible currency fluctuations. To manage exchange rate risk, CPAs could advise businesses to consider purchasing forward contracts to avoid unpredictable currency fluctuations.

Have you evaluated alternative sourcing strategies to offset the potential costs and uncertainty introduced by tariffs?

One way to mitigate the potential costs imposed by higher tariffs is by replacing U.S. suppliers with suppliers from other countries. Although the initial cost may be higher, utilizing local and regional suppliers could help lower overall costs. It also reduces exposure to the uncertainty and risk of tariffs.

Have you factored increased shipping & inventory costs into your budgets and forecasts?

Tariffs can disrupt logistics and supply chains by adding additional cost pressures to sourcing goods and services across national borders. This in turn will increase shipping costs, potentially changing customer purchasing behaviour. Stockpiling inventory can help mitigate these risks before the tariffs are put in place, or by reducing the required frequency of shipping across borders after the tariffs are put in place. However, stockpiling inventory can, in turn lead to higher warehousing costs, increased financing needs and the risk of inventory obsolescence. Any budgeting and forecasting process should therefore take into consideration the impact of the tariffs on shipping and inventory costs.

2. Revising Revenue Forecasts & Pricing Strategies

Have you assessed customer price sensitivity and its impact on demand?

According to a recent Bank of Canada survey, nearly half of Canadian businesses plan to increase prices due to tariffs. Higher prices can lead to reduced sales volumes, so CPAs should conduct a price elasticity analysis to assess how customers will respond to price increases and estimate potential shifts in demand based on different pricing scenarios.

Additionally, the survey found that over three quarters of businesses that stated they would raise prices in response to tariffs are expecting to pass on more than half of the tariff-related costs to customers.

Retailers responding to the survey stated that they believe they would be able to pass on cost increases if they are transparent that the reason for the increase is tariffs and ongoing trade disputes. CPAs should explore ways to adjust pricing strategies, while maintaining competitiveness and ensuring that price changes are communicated transparently to customers. They should also explore the elasticity of their customer offerings and specifically if there are available substitutes that have not been impacted by tariffs to determine the potential impact on customer demand.

Have you reviewed market expansion & diversification opportunities?

Economist Trevor Tombe emphasized the importance of trade diversification, where possible, as a key strategy for reducing Canada’s economic exposure to American tariffs. There is both a short- and long-term consideration. Likewise, CPAs should explore how new customer segments or geographic markets could help offset the potential of declining U.S. demand and explore opportunities for market diversification to reduce the dependency on tariff-affected goods.

3. Reassessing Cash Flow & Working Capital Management

Have you updated cash flow forecasts?

If tariffs result in higher costs and lower sales, businesses face a risk of cash shortfalls. Forecasts should be adjusted to reflect decreased cash inflows including the potential of delays in receivables as well as changes in cash outflows due to increased costs of manufacturing or purchasing inventory.

Have you reviewed supplier contracts for payment terms? Do you require short term financing, and if so, have you secured it?

As financing becomes more difficult for some businesses to access, businesses may require additional credit lines or financing to manage liquidity gaps from normal operations. For existing credit facilities, debt covenants should also be monitored to ensure that businesses are compliant as non-compliance may expedite payment of such credit facilities.

If your organization is facing short-term cash flow pressure, you should evaluate what options are available to manage the cash shortfall. That includes negotiating longer payment terms with suppliers, monitoring government support programs that help businesses with financing difficulties, and exploring alternative financing options such as lines of credit or trade finance to manage cash flow more effectively.

Additionally, where possible, exploring options for bulk purchasing could potentially secure better pricing and improve overall cost efficiency.

Have you optimized inventory levels?

Excessive stockpiling of inventory could lead to high carrying costs or obsolescence of that inventory. While just-in-time inventory management could offer a possible solution to mitigate these risks, it’s a prospect with its own inherent risks. Companies will need a flexible approach, stockpiling critical components while using just-in-time inventory management where possible. Each company’s risk profile is unique, and their approach to inventory should be as well.

4. Updating Capital Expenditure (CapEx) Plans

Are you delaying or reevaluating large investments?

In the Bank of Canada survey, almost half of responding businesses claimed to have plans to scale back capital expenditures and even hiring, due to the impact of tariffs on profitability and liquidity. CPAs advising such organizations should consider how delaying expansion plans or capital-intensive projects will impact their business’ long-term viability. Additionally, organizations should prioritize investments with a high return on investment that can help offset any increase in costs.

Are you assessing asset impairment risks?

If businesses experience sales declines due to tariffs, CPAs may need to test for asset impairments and evaluate how the tariffs affect financial reporting under various accounting frameworks, such as International Financial Reporting Standards (IFRS) and Accounting Standards for Private Enterprises (ASPE).

5. Assessing the Going Concern & Business Continuity Risks

Have you determined if tariffs threaten business viability?

CPAs need to consider that, if cash flow is severely impacted due to tariffs, businesses may struggle to meet their obligations and continue their operations for the foreseeable future. As part of this assessment, CPAs must take into account all available information about the future of the business which is at least, but not limited to, twelve months from the balance sheet date.

This includes analyzing whether the business has sufficient liquidity and financial resources to sustain operations, such as access to credit facilities, the ability to restructure debt, and potential cost-cutting measures to mitigate financial distress.

If the business’ financial statements are prepared on a going concern basis but material uncertainties related to events (e.g. tariffs) or conditions may cast significant doubt upon the entity’s ability to continue as a going concern, those uncertainties must be disclosed. Such disclosure provides transparency to investors, lenders, and other stakeholders regarding the business’ financial stability in the face of tariff-related risks.

Have you ensured adequate financial statement disclosures and measurement?

Material uncertainties due to tariffs may require businesses to disclose the financial risks of tariffs, including impairment risks and business continuity risks, in the company’s financial statements. CPAs will need to consider adjustments to depreciation/amortization, valuation models and impairment testing, and ensure that financial statements accurately reflect the company's financial position.

6. Using Sensitivity Analysis & Scenario Planning

Have you modeled multiple scenarios?

Every business is unique and in the current uncertain environment, adapting to constant change can prove to be a challenge. CPAs need to be agile in their approach to conducting sensitivity analysis and scenario planning, and may consider using the following rubric as a guide:

Base Case: A moderate impact on the business, with manageable cost increases.

Worst Case: A severe impact on the business with declining sales, profit margin erosion and liquidity issues.

Best Case: Successful adaptation to the changing environment through successful pricing, sourcing and cost control strategies.

Have you tested different assumptions?

The state of play on trade with the U.S. can change daily or even hourly requiring CPAs to test multiple assumptions about the potential impact of tariffs. For example:

• How does a 5%, 10%, or 20% increase of various costs impact profitability?
• What happens if sales decline by 10% to 30%?
• How long can the business sustain negative cash flows before requiring financing?

Conclusion

Pervasive uncertainty, spurred by the trade war, will make budgeting and forecasting a challenge for any business. In this moment, mitigating risk and building financial resilience will be critical.

By using budgeting and forecasting strategies to be proactive, and complete steps like adjusting cost structures, revising revenue assumptions, optimizing working capital, and conducting scenario analyses, CPAs can help their businesses navigate a dynamic and changing world.