UK manufacturers are operating in a challenging and fast-moving environment. Many businesses continue to face pressure from many different factors: rising operating costs, wage increases, energy price volatility, supply chain disruption and skills shortages.
In this environment, manufacturers need more than basic bookkeeping. They need a finance function that can provide reliable data and a meaningful analysis that can provide forward-looking insight. For many businesses, outsourcing part or all of the finance function is becoming an effective way to access this expertise without the cost and commitment of building a larger in-house team.
Key benefits of outsourcing
A strong outsourced finance function can help manufacturing businesses gain better control over their numbers, improve reporting and make more informed commercial decisions.
For manufacturers, this starts with accurate stock management. Stock is more often than not one of the largest assets on the balance sheet, and one of the most difficult areas to manage. This can involve multiple areas such as raw materials, work in progress, finished goods and obsolete stock, which all need to be recorded and valued correctly. Poor stock data can quickly lead to distorted margins and profits, then having the domino effect of poor decision making.
We can help manufacturing businesses ensure they have accurate stock management systems, track ALL costs appropriate to the production process (packaging, direct labour, consumables) and report this data accurately by product and customer so the owners can make informed decisions on areas such as the following:
- Which products are actually profitable?
- Which customers generate the best margins?
- Are labour and material costs being recovered properly?
- Where is cash tied up in stock or work in progress?
- Are price increases needed to maintain margins?
- Are production inefficiencies affecting profitability?
These questions are particularly important in the current UK economy, where manufacturers are having to manage fluctuating demand, higher employment costs and pressure on margins.
Automation – Better Data & Fewer Errors
Many manufacturing businesses still rely on manual spreadsheets and disjointed systems, stemmed from processes that have grown organically over time. While these may work in the early stages of a business, they can become a barrier to growth as the company grows and becomes more complex.
By using automated software, outsourced finance teams can reduce manual data entry and can aid by removing duplication and limits the risk of human error. Processes can also be designed so they cannot easily be overridden, ensuring a degree of consistency and control.
Ane example of this would be within the different control system: purchase orders are matched to supplier invoices or stock movements linked to production records. This creates a reliable audit trail, and management can feel greater confidence toward the numbers.
Automation also allows finance teams to spend less time processing data and more time interpreting it. This is where outsourcing can add real value, as an outsourced finance team can help identify trends and risks, therefore providing insight to supports better decision making.
Cloud software and integrated finance systems
Along side the use of automation, efficiency can be improved within systems and processes by moving to online cloud software, with some of the key benefits key benefits:
- live visibility of accounting data from anywhere;
- improved document storage and approval workflows;
- better links between finance, stock and production systems;
- faster reporting;
- the ability to operate with less paper, or become completely paperless
Cloud software has improved the ability to connect accounting platforms with other products that are pivotal for the first staged of bookkeeping, to the end reporting. For example, the implementation of invoice scanning and bank feeds can produce efficiencies in day to day bookkeeping, and integration with forecasting tools and reporting to assess performance and position.
For manufacturers and the key decision makers, the real benefit is not just having information in the cloud. It is having finance, operational and commercial data working together – allowing a wider picture of the business, not just a snapshot of one division or product.
A cost-effective alternative to building a larger internal team
Recruiting and retaining skilled finance staff can be difficult, particularly for smaller and medium-sized manufacturers. Moreover, an in-house finance team will also likely require investment in training and wider employment obligations.
Outsourcing can provide access to a broader team of specialists at a cost that is often comparable to employing staff directly. Flexibility can be provided, as a full-time Finance Director, or bookkeeping may not be required – instead, expertise can be provided different points in the month or year. Through Outsourcing, the level of support can be scaled up or down as the business changes. This is particularly useful for manufacturers experiencing growth, or managing seasonal demand.
Further benefits of outsourcing to manufacturing businesses
Although systems have improved there are still benefits to outsourcing some, or all, of a company’s finance function. For example, manufacturing businesses can vary from a monthly review of their data to managing the complete bookkeeping and management accounts function. We provide a ‘FD Service’ for clients who need stronger support and direction in their finance function but do not need a full time Finance Director.
Our manufacturing clients value our input into cash flow planning. We use their data to show the business’ working capital requirement (how much cash operations absorb from purchasing raw materials to receiving payment from customers) and demonstrate the impact of improved efficiencies in procurement, scheduling and debt collection terms. We then work with you to help unlock and implement these changes.
If you would you like more details of the range of Menzies Outsourcing solutions and how this could give you more confidence in your accounting system and financial results, please contact Phil Wright on 01489 566700 or email pwright@menzies.co.uk.
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