With the current economic situation, some manufactures have had delays in production, reductions in orders, and temporary closures. Depending on the size of the company, you may have received a PPP or EIDL loan, or you may be weathering the times on your own. Regardless of your situation, we put together the following actions you can take to help your organization remain profitable:
Monitor Accounts Receivable
Collections need to be a high priority because your customers may be experiencing a downturn. Stay in contact with your customers and if they cannot pay in full, work out weekly or monthly payment arrangements so you will still have cash flow.
Check Inventory Levels
Make sure you have enough to meet demand but consider limiting production for inventory items that have uncertain demand. If you rely on prior history for your forecasting, you may have a hard time forecasting under current conditions. Have you set minimums and maximums for inventory items in your software? Now may be a good time to either do so or evaluate the levels you have set to see if they still make sense. Consider selling low turnover or obsolete inventory at a reduced price to raise cash.
Consider Technology Improvements for Your Industry
If you have good cash liquidity, you may want to take advantage of possible discounts available for manufacturing equipment upgrades, implementing improved warehouse technology, updating your CRM capabilities, exploring robotic process automation, or other technology improvements that may increase efficiency. An investment now may help you remain profitable in the future.
Evaluate Pricing and Margins
Have you looked at your profitability by product or product line lately? Do you know what your margins are? In a downturn, it is particularly important to make sure that the sales you are generating are profitable. By evaluating your margins, you can decide if you need to raise prices, look for other suppliers of raw materials, or discontinue some nonprofitable products. Some accounting software products have built-in reports that will help you analyze your margins. For others, you may need to export data and analyze it.
Ensure Standard Costs are Accurate
If your standard costs are inaccurate, your margin analysis will be affected. Standard costs and their components should be evaluated periodically for accuracy and relevance.
Keep it Up
We understand that the COVID-19 crisis has imposed significant challenges to all businesses. We encourage you to continue evaluating your organization’s current financial health to ensure it can weather this crisis and be well-positioned when the economy starts to rebound.
If you have questions or would like assistance with implementing any of these suggestions, please contact your Blue & Co. advisor today.