There is no doubt that over the past 18 months, the COVID-19 pandemic and the Government’s restrictions and support packages have greatly impacted the manufacturing sector.
The pandemic has brought many challenges across the sector, although, not all business have suffered the same. Some were forced to close for long lengths of time, whereas others saw an increased demand for goods and services. Whilst the Government’s support packages seen in the form of the furlough scheme, loans and grants have helped protect jobs within the sector, support is ending soon. As restrictions are being relaxed across the UK, business leaders looking to take back control of their business have a difficult journey ahead of them, so where should they look to start to start taking back control?
With the furlough scheme ending, the government is hoping that most furloughed workers will be able to return to work. In addition, capital repayments are already kicking in for many with Coronavirus Business Interruption Loans (CBILs) or Bounce Back Loans (BBLs), and many businesses are now seeing their cash outflow increase. There is no doubt that the manufacturing sector has found that trading conditions have become more challenging, as they are currently being affected by a double whammy of a lack of available materials and skills shortages. Supply chain disruption, which is continuing to erode margins as well as affecting cash flow and business performance, is another major cause of frustration for the sector, especially for businesses that source goods or raw materials globally.
Some manufacturers have already found themselves in an improved market position, based off adopting a positive, entrepreneurial mindset during the pandemic. Although, sustainable growth remains a challenge for many businesses, working toward that goal requires balancing long-term goals with short-term decision making to achieve a clear business strategy.
To help business owners in the manufacturing sector get back to the top if their game, we have compiled the top 7 tips:
Strong leadership has arguably never been more important to manufacturers than it is right now. Business owners that approach their role in a positive way have been more successful at forging strong relationships with customers and suppliers as well as employees. As the market rebounds and demand levels climb, business owners will be well placed to leverage these relationships and stay clear of any short-term risk factors that could undermine their business performance in the future. However, do not assume that customers and the supply chain are robust. Maintaining close communication and undertaking credit checks will help mitigate cash-flow challenges and business interruption.
To plan effectively, business owners need accurate and timely financial information based on where the business is now and where it is looking to be in the future. As costs increase, business owners need to know if there will be sufficient cash to fund their strategic growth plan, or whether additional resources are needed. If they fail to prepare a financial model that produces a Profit and Loss Account, Balance Sheet and Cashflow with the ability to quantify the impact of a variety of business scenarios, they could fall into the overtrading trap as growth returns, leading to financial difficulties.
With activity levels increasing in the industry, many business owners are planning for future growth. Costs are slowly rising and as support initiatives are withdrawn there will be some cost increases that are more difficult to predict than others, e.g. costs associated with skills or materials shortages, so businesses should to remain cautious around budgeting. Plans must be robust and take a realistic view of demand-led resource requirements.
Retaining and Recruiting Skilled Talent
Effective leadership can help businesses to retain skilled staff and recruit the new talent that they need, giving them a competitive advantage. Business owners should aim to stay close to workers and look to understand the effect that the pandemic has had on them as individuals and collectively. It may be necessary to introduce a wider range of rewards, as well as flexing policies to give workers what they want.
Remain Cash-Flow Positive
Remaining cashflow positive as the business grows is likely to be the biggest challenge for many manufacturers. It is important to bear in mind that growth plans must be sufficiently funded, and, at the same time, financial commitments must be met on time. Many businesses have already started making capital repayments on their CBILs or BBLs loans. In addition to this, some have struck an agreement with HMRC to defer PAYE & NIC, Corporation tax and VAT liabilities. These payments must stay on track and any tax due on current earnings must also be paid in full, or the agreements they have secured could be withdrawn.
Take a Reality Check
The COVID-19 pandemic has created unpredictable trading conditions for many in the sector, so it is important to sense check the financial models used to forecast demand and business performance. For example, businesses may think that they will be able to recruit additional resource as they scale their operations but may not have considered how the mindset and expectations of workers have changed during the pandemic. Equally, will they be able to source the materials they need to increase production, at a time when supply shortages are becoming more prevalent.
Trading conditions in a post-pandemic and post-Brexit carry a greater risk of disruption. Business owners shouldn’t rely on the view that their supply chain or customers are as robust as they were before. Reviewing insurance cover now ensures that you are able to make sure your current cover is still sufficient for your future plans, as it is likely these have changed according to the COVID-19 pandemic and the resulting changes to working arrangements.