Despite hurdles in the industry and a volatile market the past two years, the manufacturing industry has seen surprising growth. The Kellogg School of Management Northwestern University found that there has been a dramatic rise in cash held by U.S. companies, rising from $1.6 trillion in 2000 to $5.8 trillion on hand today.
What generated the higher cash levels?
We know some of this is fueled by PPP loans and other government funding, but numbers show that the manufacturing industry has truly expanded.
Causes for growth in manufacturing include:
- Record sales and prices – Increased quantities were sold at increased prices.
- Good planning – Everyone expected demand to die down the past few years. Though it did in certain industries such as hospitality, manufacturing demand grew.
- Delayed spending – Banking on the worst, manufacturers put capital expenditures on hold and tightened the belt on expenses.
This combination has put manufacturers in a better spot than they anticipated. “The most common thing we’re hearing from manufacturers is, ‘I’m doing better than I thought I would be. How do I capitalize on this?’” says Justin Mentele, Pinion manufacturing market leader.
Below we share the top five strategies to transform record levels of cash into opportunities of growth for the future. These have all emerged from discussions with manufacturers across the U.S. over the past five months.
5 strategies to transform your cash into growth
Strategic planning and problem solving
This is one of the top items manufacturers are talking about right now. The landscape for manufacturers has been better than expected these past two years and many have more money to invest due to scaling back their overhead and saving more than usual. Now the question is where to invest that money – what is the strategic direction to not only continue growing, but also to prepare for the next downturn? Strategic planning and problem solving helps you identify your goals, focus and direction.
Tax strategies and entity structuring
Though it’s not as fun as strategic planning – tax strategies and entity structuring are just as important. Over the past five years, new legislation has created many opportunities most companies have not taken advantage of. These include are strategies to help you preserve cash and enhance your entity structure. Though they are easy to implement, they can be complex to understand.
“We need to set ourselves up for growth, but we also need to have the mechanisms in place to allow our businesses to thrive in the correct entity environment,” explains Mentele.
Mergers and acquisitions
In manufacturing, it is much more common to see acquisitions than it is to see mergers, but both are good strategies for growth. When it comes to expanding with new products, customers, or geographies – the easiest way is to acquire someone that is already in that space or producing the product.
Though it’s easy to grow through acquisition, it is not easy to grow well. The conversation needs to revolve around keeping the company culture strong and quality high. This part of acquisition is difficult, but if done well, it is extremely powerful.
Sustainability and ESG
When you hear the word “sustainability”, your mind may go to environmental issues. But sustainability is much more than just the environmental impacts. When we talk about it, we really consider it as ESG – environmental, social, and corporate governance. The three-fold impact.
What steps and adaptations are you taking to ensure your company moves toward sustainability? Whether it’s your supply chain of raw materials, your labor pool, your distribution channels on the backend, or the customer demand for your products – what are you doing to improve your impact? This should be a priority as consumer preferences lean towards sustainable brands.
There are two areas of succession planning to think about: ownership and management. As the boomer generation retires, there is an opportunity to pass the baton of both ownership and management to the next generation. Training and development should focus on business acumen, technical expertise in the relevant field and interpersonal and leadership skills.
“Succession planning is an opportunity to grow not only your business but your legacy as well,” says Mentele. “Don’t drop the baton when it comes time to transition your business.”
Connect with a Pinion manufacturing advisor to learn how you can make the most of current growth and properly prepare for downturn and uncertainty in the future.