How Can Small Manufacturers Manage Their Financials Better?

Small manufacturers don’t have the same problems as larger competitors. For instance, access to financial products is not always as easy to achieve, especially for smaller companies without much history behind them.

Also, for newer businesses, a lack of well-rounded business experience can hamper owners/managers who went from taking an active role in another manufacturing company to be the CEO of their venture. This is a bigger step than most appreciate at the time. It can leave gaps in the knowledge required at the top, especially on the financial side.

Here are some suggestions for how smaller manufacturers can manage their finances better.

Avoid Overbuying to Get a Discount

While it may be appealing to purchase a larger consignment for a deep discount – skip it.

Keeping as much of the liquid financial resources within the business as possible is beneficial for later periods when spending is necessarily increasing (or income is declining unexpectedly).

Bulk discounts are useful, but they’re best utilized by larger companies with deeper pockets. For smaller or newer manufacturers that understand their sector requires considerable funds compared to an internet-only venture, staying flexible is key.

Apply for and Maintain a Business Line of Credit

Taking out a business loan is difficult to settle on when you don’t yet know how the money will be spent. It seems like a waste to have the money in place and be paying interest and other fees for that facility. And yet… you don’t want to wait too long to ask for a loan if the business needs it later.

One solution is to apply for one or more lines of credit. These are financial lending arrangements where the company can draw down part or all of the facility (and repay it) as needed. It keeps the costs as low as possible while offering true flexibility. A win-win.

Use Labor Carefully and Flexibly

Depending on the type of goods being produced, it could be a somewhat seasonal business.

Many products sell well in certain months but disappoint in others. Indeed, few product lines sell consistently all year round. Usually, the sales are predictable in their ebb and flow once you’ve been through several years in business.

Be prepared to use labor flexibly to reduce staffing costs. Ensure that the company doesn’t have too many hands-on-deck when it’s not required. This avoids maintaining higher expenses, which are particularly costly during low revenue periods.

Document the Processes to Reduce Training Requirements

In keeping with keeping labor levels flexible, it’s necessary to create clear procedures and to set up training for every role within the manufacturing department (and maybe other departments too).

The purpose of the documenting process and training is to allow the company to flexibly add new people and get them up to speed much faster. When this is done well, staff will be more productive and with few costly mistakes too.

With most manufacturing companies, they’re cash-intensive businesses. As such, getting a firm grasp on all aspects of the financials is necessary to steer in the right direction.