| Winter 2005 |
Manufacturing/Distribution Advisor
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Managing Growth in an Upward-Moving Economy
There's an overall increase in economic activity, but reality on the
ground is more complicated.
As the economy continues to improve, some manufacturing sectors are growing,
others are sluggish. Productivity and hiring have increased in recent months,
but the latter hasn't matched the former. That means orders are picking up, but
companies - until they're sure the growth is sustainable - are hesitant to build
their workforces too quickly.
The Standard Gap
This gap is well-established. Business is, by nature, conservative, a
critical survival trait most of the time. But erring on the side of caution has
historically delayed decisions that must be made when the economy changes. The
risk of delay, of course, is that a firm will be unable to meet rising demand.
Above all, a company facing growth needs a realistic forecast of its cash
position. Spending will climb; so will receivables. Inventory will expand,
particularly if your customers can dictate just-in-time requirements, but you
can't. This is not the time to go cash-poor.
Fine tune your receivables. Invoice quickly and be proactive. Routine,
friendly calls on 30-day bills can head off problems. And remember, unless
quick-pay discounts are offered, vendor payables amount to free financing. Use
float time to the point you can without damaging a relationship.
Proactive Credit Management
Don't neglect your lines of credit. The price of money is still low, and
borrowing to finance growth can make sense—if your receivables and payables
are both growing, and you can't stretch your vendors further. But even if you
absolutely need to buy more stamping presses tomorrow, don't expect a bank to
fix things overnight.
Successful growth also requires full and open communication between marketing
and accounting departments. Accurate cash and P&L forecasts are possible only
with realistic input from those pushing the goods
Both departments are capable of Pollyanna optimism or sad-sack pessimism. And
though an unrealistically low sales projection may appear to lead to a pleasant
surprise—higher-than-expected sales—these will have come at the expense of
cash and production planning.
Accurate Information Throughout
This need for objective, accurate information must be communicated
consistently throughout the organization. If current systems aren't up to the
task, a company must find other ways. Pricey enterprise resource planning (ERP)
tools aren't the only resources out there.
Finally, be sure sales efforts are aligned closely to your goals. Salesmen
should sell what you want to make, and promise delivery only when you can
fulfill it.
Businesses haven't had to deal with an upward-moving economy for a while, and
how soon we forget. Don't be caught unawares. Figure out who your prospects in
your niche and industry are, and then assemble the cash and human resources your
production needs require.
In a growing economy, will you be able to match production with marketing
success? Our firm can help you get into position. If you'd like to talk about
it, please give us a call.
Editor's Note: Bober, Markey, Fedorovich
& Company has available significant valuation expertise to help our clients objectively challenge their acquisition targets. Please call your partner / manager contact if you would like assistance in this area.
Manufacturing/Distribution Advisor is produced quarterly by Bober, Markey, Fedorovich & Company's
Manufacturing/Distribution
Services Team. If you would like additional information about the services that we can provide to manufacturers and wholesale distributors, please call or email our team leader, James E. Merklin, CPA, M.Acc. at (330) 762-9785 or
jimm@bobermarkey.com.
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