Are you a Ball Bearing Manufacturer or a Banker?
Statewide, financial restructuring comprises approximately 27% of the services that SEWN provides free of charge to small- to medium-sized manufacturers. Yet many of our manufacturers act as bankers rather than makers.
And this problem is not unique to Pennsylvania-based manufacturers. A recent study produced by Material Handling and Logistics (MHL) indicates that “in 2016, public companies had more than $1 trillion unnecessarily tied up in working capital.”
What is the root cause of this working capital shortage? Too often, manufacturers act as bankers. They pay their bills on time, but are loathing to encourage their customers to do the same.
The more expensive the raw materials, the worse this situation becomes.
Take, for example, a metal working manufacturer. He receives a large order to produce all of the support beams for a new apartment complex under construction in his community. The job looks great from the sales side of the balance sheet. But from the profit side, things appear a good deal shakier. The initial cash outlay for the raw materials is astronomical. Production to the exact specifications of the builder may take months. Accounting requests payment within 30 days of delivery, but that 30 days often extends to 60 or 90 days.
All of a sudden, that wonderful sales contract looks considerably less profitable as the manufacturer has his working capital tied up in the initial purchase of the raw materials for which he has paid in a timely manner, production costs including salaries, utilities and equipment maintenance which, again, were paid in a timely manner. Yet the customer has not reimbursed him for his “loan”.
Your restricted cash flow then prevents you from bidding on and fulfilling other contracts, leaving your machines idle and your workers out of work.
One way to help resolve this issue is to begin looking at overdue accounts and start collecting on them. After all, the bank is not at all shy about collecting its mortgage payments on time. Why should a manufacturer be reluctant to collect on its accounts?
A second action item is to pay the bills on time, but not necessarily the same day on which they were received. Holding onto the money until a bill is actually due means that your bank account earns interest on that money, providing a bit of extra cash.
A manufacturer makes things. A manufacturer is not a bank.
SEWN (Strategic Early Warning Network) provides guidance for you through these and many other financial restructuring issues. Our talented Regional Directors will help you gain a clear understanding of your cash flow, productivity, pricing, bidding and other processes that will help you to regain sound financial footing. After all, you chose to be a maker, not a banker. Let us help you achieve your company’s goals.
For free, professional succession planning and many other small manufacturing enterprise services in the Southeast region, call Greg Olson, SEWN Regional Director at 215-776-0130 to set up a no-cost, no-obligation consultation regarding your business transition. Or, if you prefer, you can email Greg at sewnse@steelvalley.org with your questions. And be sure to visit our web site at www.steelvalley.org for more information regarding all of SEWN’s services, our newsletters and success stories, and interesting, relevant blog articles to help you navigate today’s manufacturing environment.
SEWN was founded in 1989 to support the region’s manufacturers and preserve jobs. The Department of Labor embraced and sponsored the program in 1993 to protect Pennsylvania companies and jobs. Since then, we have expanded to five regional offices, helping hundreds of companies and saving thousands of jobs statewide. Today, SEWN is one of the most cost-effective jobs programs in the United States. Over the last five years SEWN’s job saving services have saved Pennsylvania more than $34.8 million in unemployment benefits (over $836 million if jobs/payroll multipliers are included). Since its inception, SEWN has contributed to the retention and revival of more than 900 industrial enterprises within Pennsylvania, impacting more than 20,000 jobs.