NOVEMBER/DECEMBER 2019 OPINION
Making the investment
With manufacturing SMEs predicting a period of growth in the coming
years, they should be looking to ‘supercharge’ their business now
BY COLIN O’FLAHERTY, GENERAL MANAGER, GLOBAL COMMERCIAL SERVICES UK, AMERICAN EXPRESS
The manufacturing sector is a vital
force in both established and
developing world economies.
According to the OECD there are
2.1 million manufacturing businesses in
Europe (equating to nearly 10% of all nonfinancial
enterprises), employing over 30
million people (https://bit.ly/2RrYYvB).
And, despite the current uncertainty in
the UK, manufacturers continue to expect
steady business growth in the months
and years ahead. Recent research from
American Express found that senior leaders
in small and medium-sized manufacturing
businesses across the globe predict an
average revenue growth of 8% over the next
three years.
According to our research, almost 30%
of SME leaders say that getting access to
the funds they need to drive growth is a
challenge. But in the manufacturing sector in
particular, plans for expanding and exporting
often come with significant financial barriers.
This is especially true for new entrants, who
often require substantial upfront investment
in machinery and technology to get their
business off the ground.
The good news is that there are some
essential steps manufacturing SMEs can
take to make sure they avoid the financial
pitfalls that might stop their business
reaching its full potential.
These steps work together to lay a
foundation to create positive cashflow,
which enables manufacturers to free up
cash from within the business, rather
than needing to rely on external sources
of funding.
So, what are the steps manufacturing
SMEs should take?
Step 1: Keeping track of
your spend and sales
For any business, the first and most
important step in taking control of your
cashflow is to accurately track and forecast
payments and outgoings.
At American Express, we recommend
updating your cashflow forecast on a
regular basis to ensure that it stays as
accurate as possible. This will provide you
with a clear picture of the funds available
for investment and expansion - and allow
you to take steps to remedy any areas
of concern early. To help with this, we
also suggest putting in place cashflow,
alongside the usual profit, targets.
Step 2: Making the transition
to electronic payments
While a growing number of manufacturing
businesses use business cards and other
online business payment solutions, a
large share of transactions occurring in
the sector still take place via paper-based
processes. These more traditional methods
not only often equate to added cost but
can also increase the burden on the finance
department. This can divert attention away
from activity that can directly fuel growth.
Electronic payments, on the other hand,
are faster and cheaper to process. They also
give better oversight of payments and can
be tracked in real time. In a sector where
87% of businesses plan to increase spend
this year, the impact of making the digital
transition on cashflow could be huge.
Step 3: Making supplier
payments work for you
In a sector where the smooth running of
supply chain networks is crucial to the
operational success of a business, the
effective management of supplier payments
can go a long way in helping to maintain
positive cashflow.
A key way of doing this is creating a
strong relationship with suppliers and
customers. This could include agreeing
payment terms that work for both parties
and putting in place initiatives to encourage
timely payments, such as rewards or
discounts on future sales.
Supply chain financing can also be
used to improve cashflow by businesses
who traditionally have longer payment
terms. This option sees a third party make
payments on behalf of the buyer, meaning
that they can access capital until the end of
the agreed billing cycle.
In the manufacturing sector, expansion
can be difficult – with the associated costs
leaving many business leaders and would-be
entrepreneurs feeling unable or unwilling
to commit to the challenge. But, with
some careful planning and clever tactics,
manufacturers can make better use of what
they have – setting themselves, and their
sector, up for success in the future.
Are you an SME looking ahead to growth? How have you prepared financially for this?
We want to hear from you. Email: chris.beck@markallengroup.com
www.manufacturingmanagement.co.uk 13
vectorfusionart /stock.adobe.com
SME manufacturing
firms predict a revenue growth
of 8% in the next three years.”
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/www.manufacturingmanagement.co.uk
/stock.adobe.com
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