recession proof manufacturingYou’ve likely heard the steady drumbeat of news that 2023 may see a global recession. Whether that prediction comes to fruition depends on myriad variables. However, as a manufacturing company owner, it would be foolhardy to overlook the economic factors. While no business is recession-proof, there are strategies to implement today to prepare for a possible financial downturn in the future.

Here are five to consider:

  1. Monitor cash flow. Shore up your cash flow management practices now. Project your cash flow three and six months out and have plans in place to cut costs or implement other measures at the first sign of a shortfall. It may also be helpful to run simulations to predict the impact of revenue decreases on your operating cash flow.

In addition, review your payment terms with suppliers and customers. Other strategies to improve your cash conversion cycles include implementing real-time billing practices, offering early-bird discounts for paying within 30 days and facilitating online bill payment for customers.

  1. Manage debt. It’s best to negotiate with lenders from a position of strength, rather than waiting until you’re strapped for cash. So apply for lines of credit or increase your existing credit lines today for access to working capital when you need it. Also consider paying down debt during prosperous times to help your business weather the next recession.
  2. Create flexibility. Build flexibility into your operations so you can scale down quickly if necessary. Possible strategies include:
  • Increasing overtime rather than hiring new employees,
  • Using independent contractors for cyclical or seasonal work,
  • Outsourcing noncore functions, and
  • Leasing rather than owning equipment and facilities.

These techniques essentially convert fixed costs into variable costs, enabling you to react immediately to changing economic circumstances.

  1. Strengthen your supply chain. Develop strong relationships with your suppliers and vendors to help you stay informed about market developments and get deliveries when supplies are short. Consider entering into long-term contracts to ensure a steady flow of materials.
  2. Invest in smart, consistent marketing campaigns. A recession is when you need marketing the most. You and your competitors may be vying for a shrinking pool of customer demand, so it’s more important than ever to get the word out about your products and services.

It’s also important to make cost-effective marketing decisions. For example, depending on your target market, direct mail advertisements and catalogs may be more expensive (and less effective) than social media campaigns and online catalogs that can be updated based on market conditions.

Not sure where to start? Contact us to brainstorm ways your company can minimize the adverse effects of an economic downturn. We’d be pleased to help.

© 2022

Headshot of Kim Zagar

Kim Zagar, CPA
Principal
Director of Private Business Advisory
kim.zagar@hwco.cpa

 

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