Avoiding the Mistakes Manufacturing Growth Can Hide

Nick Roell

Aug 21, 2024

Running a successful manufacturing business requires so many things to go right, from navigating hiring shortages and global supply chain logistics to market forecasting and the challenges of digital transformation. When your business is growing, it’s cause for celebration.

But it’s also a good time to make sure you have clear visibility into all the things driving your business. Revenue growth can be a sign things are going well, but without solid and real-time financial data, it can mask areas of the business that are underperforming. Examples of this could include unprofitable products or plants, customer profitability issues, and inefficient production processes.

Below are a few examples of places where trouble can hide when revenues are growing.

Inventory

Manufacturing tends to run on thin margins, and no one wants all their profits tied up in inventory. The ideal situation however – never buying more than you need for contracts that are already signed – is a difficult balancing act, 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.

Cost of Goods Sold

When business is growing, it’s easy to overlook small things that can inflate your costs. Make sure you understand your direct costs and the impact they are having on gross margin.

A thorough review of your costs in times of growth can reveal opportunities to drive expenses down. 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

Growth spurts are especially good at concealing problems in a single location, product line, or account. Solid monthly financials and accrual accounting can ensure that you have transparency into profitability that can be sliced to let you see what you need to see.

Pricing Strategy

Manufacturers are vulnerable to even subtle shifts in costs. The price of major commodities like steel or plastics can fluctuate constantly and even small increases can make a dent in profitability, especially if you’ve signed long-term contracts at fixed prices. Good pricing strategies require close vigilance of your costs and regular assessment of your pricing, even in times of revenue growth.

Maintenance Practices

In times of growth, it can be difficult to interrupt production lines for maintenance, especially if it’s just routine. No one wants to throw a wrench into a period of booming production. It’s important, however, to view regular maintenance as an investment in your continued growth and to recognize that a planned interruption is a lot less expensive than the alternative.

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 yoking you to day-to-day concerns. The reality is that times of growth are an ideal time to check in on your strategic plan.

It’s important to have the financial reporting you need to answer important questions: 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?

Do You Have the Right Manufacturing Accounting Partner?

Growing your manufacturing business requires sound decision-making at every stage of your business. If you’re relying on financials that don’t provide a real time picture of your financial situation, it can be difficult to chart a path forward.

One of the best investments you can make in the growth of a manufacturing business is an investment in the kind of financial visibility that won’t let you mistake bustle for profitability.

At Kirsch CPA Group, we have decades of experience helping growth-minded manufacturing businesses streamline their accounting and financial processes for better and more agile decision-making. Our services are holistic and forward-looking, aimed at moving you closer to your goals with a comprehensive suite of accounting, business advisory, and strategic tax services.

Strategic Accounting Help for Manufacturing Business Growth

We can help you with more than your monthly financials: our services are designed to help you grow and thrive. From inventory planning, cash flow projections, accounting software cleanup, tax strategies, business valuation, sales forecasting, M&A support and more, we can provide you with the financial tools you need to take advantage of opportunities for growth and to avoid obstacles standing between you and your goals.

Learn more about holistic manufacturing accounting services