The End of the Penny: How Small Businesses Will Absorb the Cost of Change

President Donald Trump’s recent directive to halt the production of pennies has reignited discussions about the coin’s relevance and the broader implications for the economy. While the move aims to reduce government expenditure—given that each penny costs approximately 3.69 cents to produce—small business owners must consider how this change could affect daily operations.

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Potential Impacts on Small Businesses

For small business owners, every cent matters—literally. With the potential elimination of the U.S. penny, businesses that rely on cash transactions will face an unavoidable shift in pricing structures, rounding policies, and customer expectations. While this may sound like a minor inconvenience at first glance, the ripple effects could extend beyond cash drawers to pricing psychology, operational changes, and even customer trust.

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Countries like Canada, Australia, and New Zealand have already eliminated their lowest-denomination coins, opting for rounding practices that simplify transactions without significantly impacting the economy. But for U.S. businesses, particularly small retailers and service providers, the transition requires careful planning to avoid pricing confusion and consumer pushback.

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Here’s what small business owners need to consider as they prepare for a future without pennies.

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Pricing Adjustments and Rounding Practices

With the elimination of the penny, businesses conducting cash transactions would need to adopt rounding practices to the nearest five cents. The most commonly used approach, which Canada implemented in 2012, follows these general rules:

• Rounding Up: Prices ending in 1, 2, 6, or 7 cents round up to the nearest nickel.
• Rounding Down: Prices ending in 3, 4, 8, or 9 cents round down to the nearest nickel.

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This means a cup of coffee priced at $2.97 would be rounded up to $3.00, while an item priced at $4.94 would be rounded down to $4.90. While digital transactions remain unaffected, businesses dealing with high volumes of cash sales—such as convenience stores, coffee shops, and farmers’ markets—must determine how to handle pricing adjustments while maintaining fairness for both customers and the business.

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One consideration is whether to adjust pre-tax prices so that after-tax totals naturally round to the nearest five cents, a strategy some Canadian businesses adopted after the penny’s phase-out. Another option is absorbing minor rounding losses as a customer service incentive, much like how many retailers already round down to avoid dealing with pennies in change.

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Operational Considerations for Small Businesses

Beyond pricing, the removal of the penny means small businesses must adapt their operations to ensure smooth transactions and prevent unnecessary disruptions.

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Point-of-Sale (POS) System Updates: Many POS systems will require software updates to automatically apply rounding rules for cash payments. This ensures consistency across transactions and prevents employees from manually adjusting totals, which could lead to errors or discrepancies in cash handling. Businesses using older systems may need to invest in upgrades or adopt digital payment solutions to minimize reliance on cash.

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Employee Training and Customer Communication: Frontline employees will need clear guidance on how rounding policies work and how to explain them to customers. Without proper training, confusion at the register could lead to frustrated customers who feel they’re being overcharged.

Business owners should also consider displaying clear signage at checkout areas explaining the rounding policy, much like Canadian businesses did after their penny phase-out. Transparency will be key in maintaining customer trust, especially in businesses where cash transactions are frequent.

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Customer Perception and Trust: Consumer reaction to pricing changes is often unpredictable. While most people won’t balk at a few cents of rounding, the perception of fairness matters. A study from Canada’s penny elimination found that while most consumers quickly adapted, some expressed initial skepticism about whether rounding would disproportionately favor businesses over customers.

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For U.S. small businesses, avoiding negative customer sentiment will require proactive engagement. Steps to build trust include:

• Educating Customers: Posting notices near registers explaining rounding policies and providing a brief FAQ can help prevent misunderstandings.
• Maintaining Fairness: Ensuring that rounding is applied equitably—both up and down—reinforces trust and prevents concerns about price manipulation.
• Emphasizing the Benefits: Businesses can highlight the efficiency gains from eliminating pennies, such as faster transactions and less reliance on loose change.

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Conclusion

While the end of the penny won’t dramatically shift the economy overnight, small businesses will need to be intentional about how they implement changes to pricing, technology, and customer engagement.

The elimination of the penny may seem like a small change, but for businesses dealing in cash transactions, it’s a shift that requires preparation. By updating pricing structures, training employees, and proactively addressing customer concerns, small business owners can navigate the transition smoothly while ensuring that they don’t lose pennies—or customer goodwill—in the process.

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Sources

Inc.

CNBC

CNN

Canada.com

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