Preparing Your Manufacturing Business for Uncertain Economic Conditions
As concerns of an economic downturn continue to loom, businesses of all sizes in the manufacturing sector are bracing for challenges. However, despite these difficulties, it's still possible for organizations to avoid problems from external factors by enacting a strategic plan. These economic cycles happen every seven to ten years, and can be spurred on by many factors such as a pandemic, supply chain disruptions, inflation, or decreases in consumer spending. It's important to focus on formulating and executing a plan that will allow your business to grow and thrive regardless. This is an ideal time to beef up your defense mechanisms and increase your foothold in the marketplace and capture a larger share of market opportunities.
The manufacturing environment has changed dramatically in recent years. Businesses now must adapt to unpredictable conditions and be cognizant of global trends that have the potential to disrupt operations. Regulatory changes, geopolitical tension, and new technologies are just some of the external factors that influence businesses of all sizes. Despite these challenges, the manufacturing industry is poised for growth. There are some steps you can take to ensure that you're prepared to thrive in the face of economic challenges in the first quarter of 2023, including how to address operational hurdles, how to optimize talent to boost your bottom line, and whether or not your exit strategy plan should change.
Using data to fuel your business decisions
Operating expenses are projected to continue rising in 2023, meaning profits will decrease if you're not prepared. To make wise business decisions, you need to have timely financial and operational information, which you can gather by reviewing key metrics every week. Some indicators to watch include revenue, gross profit, and cash flow. Trends over time will reveal more about the kinds of trends your company is seeing over time. Meanwhile, consider how increased capital costs will impact how quickly your company grows, while supply chain disruptions can put pressure on your ability to deliver for your clients. Take advantage of this opportunity to discuss financial and operational goals and outcomes with your leadership team, how you're performing now, and where you want to be.
In an uncertain economic climate, manufacturing organizations need to make the most of their resources and focus on what they can control. Everyone in your company should have 2-3 key performance indicators (KPIs) that they are accountable for. When coupled with the right incentive compensation structures and clear communication with employees, it will drive the right employee behaviors for company-wide success.
Now more than ever, it's imperative that you take steps to ensure your manufacturing business remains profitable and cash flow positive. Create a cash dashboard that gives you at least a 13-week cash flow forecast, which will allow you to routinely identify potential cash shortfalls and give you enough time to correct them through more aggressive collections or work with vendors to get some additional credit terms. It will help you make well-timed decisions on when you can spend needed cash for additional staff, capital expenditures, or operating expenses.
Look to trends and be proactive
Manufacturers need to prepare for a variety of different financial and operational scenarios. Take time to understand potential hurdles and see the numbers, then adjust your business accordingly to create the best possible outcomes for your company.
Consider what might happen if your supply chain is disrupted further by a natural disaster. Or, what if you need to get products from one country to another, but it's delayed for months by customs. Think about these scenarios, run the numbers and decide how you’ll respond. This can be a difficult exercise to undertake, but anticipating the worst-case scenario and knowing how you can combat it and attack it will drive better performance and profitability in your company.
Accountability, motivation, and talent retention
A strong, strategic plan will educate your employees on how they can contribute to the goals of the business, but it's only as good as the communication efforts you initiate to motivate them. Today's employees are demanding more from their employers - things like better benefits and flexible scheduling -- but in return, you need to require higher levels of performance from them.
The key to maximizing employee performance is to create an environment that motivates and inspires your employees. You need to communicate with them regularly so they understand their role in the overall business strategy. If you're not actively communicating with your employees, then they won't know what's expected of them. Discover whether they need a confidence boost to get them in the right direction, or if a more serious intervention is necessary. When these factors align, your company will see an increase in sales and profits as a result of improved retention rates and increased productivity.
Spending too much time ‘in’ the business and not ‘on’ the business
Running all aspects of a manufacturing company is no easy task. Between managing various aspects of your business, like human resources and finances, you may find yourself struggling to juggle the demands of your daily tasks. If this sounds familiar and you're looking for ways to save time and money, consider outsourcing functions that are not core to your operations. In most cases, outsourcing will help you save money by reducing costs while freeing up time so you can focus on areas that are central to your operation.
Overcommunicate with your clients
During an economic downturn, it's important to get aggressive from a sales perspective and over-communicate with your clients. You should understand areas that they may be concerned about and any problems they are anticipating. You can discuss expectations and how your product or service might be impacted - whether it's supply chain issues or something else, and how you can create a strategy with them to navigate through it.
Selling As An Exit Strategy
If you are considering selling your business, the best time to do it is when the economy is strong; however, this can be hard to predict. But it could be a legitimate option if your company has endured a pandemic and you’re not sure you can face a recession or other unpredictable upheaval.
Although market conditions are affecting the industry, that doesn't mean you can't sell during a downturn, especially if your specific business is still showing strong results. M&A activity in industrial manufacturing is projected to be driven by mid-market corporations and private equity portfolio companies seeking to expand their platforms and programs, according to PWC. The right advisory team can help you understand if now is the appropriate time to pursue an exit strategy or if you would be better positioned to wait.
If you're ready to sell your business, it's important to stay on top of market conditions and go through the exercise of determining whether you are in a strong position to sell your business. Having an advisory team in place can help you understand if it's the appropriate time for you to pursue an exit strategy at a good valuation, or if you might be better positioned to wait.
As business leaders, it's critical that we understand and plan for the financial environment in which our company operates. A strategy focused on preparing your company to weather any storm and continue to grow profitably is one of the best ways to protect your organization during times of economic uncertainty.
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