How to Achieve Financial Success in a Challenging Economy
By Bridget McCrea
When the economy is booming, some manufacturers might slack off a little in the areas of financial management. The customer pipelines are full, after all, accounts receivables are up to date, and the bills and employees are paid on time, every time.
That same laid-back approach to financial management doesn’t work so well when the economy sours and the business climate becomes more challenging. In fact, those companies that opt to ignore important steps like business planning and budgeting are often the first ones to run into trouble when the spigot dries up.
Right now, most manufacturing-focused firms across all industries are dealing with the second scenario. “A lot of these companies are concentrating on financial survival right now,” says Rick Brenner, principal at Cambridge, Mass.-based business and marketing consultancy Chaco Canyon Consulting. “In fact, it’s the definition of success, at least for the near term.”
Step by step
It’s no secret that times are tough all over for precast concrete manufacturers. The question is, what can a company do to best ensure its long-term success today and in the future? According to Brenner, the first step is to “get introspective” by taking a good, hard look at the company’s financial picture. To get the most accurate portrayal, consider important factors such as sales for the past month, coming month and past quarter (then compare the numbers to prior years to see where the company stands in comparison); accounts receivables and accounts payables; and profits.
“Too many companies are relatively unaware of their true financial pictures until it’s too late, leaving them very little room to maneuver in,” says Brenner. “By taking a proactive stance to this aspect of financial management, you’ll be much better equipped to deal with any challenges that come down the road.”
The precaster who notices ahead of time that payroll is slowly creeping up but isn’t being offset by higher income, for example, can take steps to mitigate a bigger financial problem by simply cutting back employee hours rather than having to institute layoffs. “You can avoid drastic actions by being prepared ahead of time for what might happen,” says Brenner.
In the current economic environment, Brenner advises manufacturers to focus less on setting financial goals and more on reducing negative impact on employees and customers who are also dealing with uncertain conditions. “This may seem like a non-productive goal for companies that just a few years ago were using the prior year’s sales figures to set financial goals for themselves,” says Brenner, “but it’s the best approach to take when things are happening as rapidly as they are today.”
Take the firm that gets a sudden crush of orders and wrongly assumes that the influx means the economy has turned the corner. Knowing his current workforce can’t handle the overflowing work pipeline, the company’s owner rushes out and hires 12 new workers and purchases $100,000 in equipment to fulfill the orders. Two months later, with the work completed, the precaster is left with an extra 12 employees and expensive equipment that will gather dust until the next “crush” of orders comes in.
Does that mean you turn the orders away? Brenner says that could be warranted in some situations. “It’s a hard thing to do, but if you can’t support the expansion needed to get the orders filled, then maybe you shouldn’t be taking them on,” he explains. “The key to financial success in this environment is to go into any ‘new’ commitments cautiously, all the while realizing that rapid changes tend to create the most financial difficulty for firms.”
Every penny counts
As a former CPA with 25 years of experience in the precast industry, Joan Blecha speaks often to NPCA members about the value of good financial management. These days, the points Blecha makes resonate especially hard with precast manufacturers who are doing their best to keep their companies righted in today’s turbulent economy. Precasters have been hit especially hard in their wallets, says Blecha, since the general economic downturn has been compounded by slowdowns in the construction and real estate markets.
To get over the hurdles, Blecha says precasters must establish financial discipline within their companies relative to day-to-day operations. Through the use of automated accounting and customer relationship management (CRM) systems, for example, companies can create “dashboards” that help them keep tabs on all money coming into and going out of the firm on a quarterly, daily and even hourly basis.
“Put everything from your selling price all the way down to per-unit material costs into your automated system,” says Blecha, who tells precasters to shy away from using “per-yard” measurements, as vendors could be relying on other units of measure (such as per-ton). Without that continuity, the system will not provide an accurate picture of the company’s finances. “If you don’t insert your selling prices and cost information on a per-unit basis, then the total numbers – when grouped together – will be meaningless.”
One area that tends to trip up precasters, according to Blecha, is selling price. “They’re slow to pass on cost input increases to their contractors,” she explains. “It’s an uncomfortable exercise for them, but one that’s very necessary in today’s economy, where every penny counts.” Precasters are also challenged when it comes to obtaining market knowledge about the environment that they’re operating in, says Blecha, who advises firms to tap NPCA resources (such as the annual benchmark survey) to fill that void.
“Any precast company that doesn’t participate in this benchmark survey to see its performance measured against the rest of the industry is missing a huge opportunity,” says Blecha, who views the survey as being particularly valuable for one- or two-plant precast operations that lack the ability to compare themselves with other plants. “Precast manufacturing is unique, and measuring a company’s performance against a ready-mix or concrete company just isn’t effective.”
Accountants, CPAs and tax advisors can also prove valuable for precasters looking to achieve financial success in today’s market. For those companies that don’t have a full-time financial professional on staff, Blecha says a good approach is to seek out a third party that already has experience working with precasters. “While our industry is related to the construction industry on some levels (in terms of the selling and marketing process, for example), once you get out onto the production floor, it actually becomes a discrete manufacturing system,” says Blecha.
The financial advisor who understands the dual nature of the precaster’s business is the one who will be able to provide the most assistance to firms looking to achieve success. “The work the financial professional does needs to be relative,” says Blecha, “and must be put in terms that precasters can work with on a day-to-day basis.”
With no promise of an economic turnaround anytime in the next few months, expect more precasters to fine-tune their own financials as a way to weather the storm and prevail in the economic climate. “Even though the environment is working against you in a lot of ways right now, situational awareness is the key to getting through it,” says Brennan. “Know what’s coming, and a have solid plan for dealing with it when it gets here.”
19 Ways to Save Money in a Recession
- Work up a business budget to determine where to cut back on all expenses.
- Sublease your space, share space or rent smaller space.
- Conserve all resources.
- Reduce utility bills by turning off lights, using energy-saving bulbs and lowering heat.
- Lease equipment or subcontract out tasks that can save labor.
- Ask to have finance charges lowered on your charge cards.
- Direct deposit for payroll will cut expenses and time.
- Lower interest rates on loans.
- Check bank statements carefully for added fees that may be charged.
- Cut back on travel and entertainment expenses.
- Cut back on catered parties and go with potlucks instead.
- Only buy inventory that will be sold quickly.
- Negotiate with manufacturers to stock inventory for you
- Give employees financial incentives when business is increased.
- Offer a four-day workweek or hire part-time employees.
- Give titles rather than raises.
- Be cautious and conscious of where all the money is being spent and think about ways to save.
- Have your accountant help you with money-saving financial tips.
- Always consider return on investment (the value you’ll get in return, and when you’ll get it) when you spend money.
Bridget McCrea is a freelance writer who covers manufacturing, industry and technology. She is a winner of the Florida Magazine Association’s Gold Award for best trade/technical feature statewide.