A growing manufacturing business is a cause for celebration in an era of hiring shortages, supply chain chaos, and tariff threats.
It’s also an opportunity to ensure clear visibility into the things driving your growth. Without solid, real-time financial data, revenue growth can mask underperforming areas of the business, including unprofitable products or plants, customer profitability issues, and inefficient production processes.
Below are examples of places where trouble can hide as revenues grow.
Too Much or Too Little Inventory
Manufacturing runs on skimpy margins, and no one wants their profits tied up in inventory. The ideal of never buying more than you need for contracts that are already signed is a difficult balancing act, however, especially when you are growing and depend on parts made overseas that can take months to source.
A thorough analysis of sales trends, demand, and seasonal fluctuations can help you establish the right balance for sustainable profitability.
Incomplete Accounting of Cost of Goods Sold
When business is growing, it’s easy to overlook small things that can inflate your costs. Be sure you understand your direct costs and their impact on gross margin.
A thorough review of costs during growth can uncover opportunities to reduce expenses. Are you so busy that you are having to pay overtime wages, driving up labor costs? Are production demands hiding inefficiencies? Are you overlooking opportunities to reduce or repurpose scrap?
Unprofitable Lines of Business
Growth spurts are especially good at concealing problems in a single location, product line, or account. Solid monthly financials and accrual accounting can ensure you have transparency into profitability, sliced to show what you need to see.
Inflexible Pricing Strategies
Manufacturers are vulnerable to the smallest shift in costs. Commodity prices like steel and plastics can fluctuate constantly, and even small increases can affect profitability, especially under long-term, fixed-price contracts. Effective pricing strategies require close vigilance and regular assessment, even when revenues are growing.
Irregular Maintenance Practices
In times of growth, it can be difficult to interrupt production lines for maintenance. It’s important, however, to view regular maintenance as an investment in your continued growth and to recognize that a scheduled interruption is less expensive than the alternative.
Lack of Strategic Planning
Growth-minded business owners know the importance of forward-looking financial planning, but when you’re in the middle of it, growth has a way of tethering you to day-to-day concerns. Growth periods are an ideal time to check in on your strategic plan.
Is profitability growing with revenue growth? Are you experiencing more bottlenecks in your production processes? Is it time to invest in additional equipment or labor? It’s critical to have the financial reporting you need to find the answers.
How a Manufacturing Accounting Partner Can Help
Growing a manufacturing business requires sound decision-making at every stage. Financials that don’t provide a real-time picture of your financial situation can make it difficult for you to chart a path forward.
One of the best investments you can make in the growth of a manufacturing business is an investment in financial visibility that won’t let you mistake bustle for profitability. Look for an accounting and outsourced controller services provider who can provide you with the reliable financial metrics you need to tell the difference.
Support for Manufacturing Business Growth
The right accounting partner can help with more than monthly financials, providing services to help you grow and thrive. From inventory planning to cash flow projections, accounting software cleanup, tax strategies, and business valuation to fractional CFO outsourcing services, look for an accounting partner who can provide you with the financial tools you need to take advantage of opportunities for growth and avoid obstacles standing between you and your goals.
