Making Your Business "Recession Proof" in the Manufacturing Industry

For several years, the manufacturing industry has enjoyed prosperity; however, no business is recession- proof. Already anticipating the impact of COVID-19 on their businesses, proactive businesses are taking steps now to prepare for a downturn in financial performance. They are considering the effect it is likely to have on production, supply chain and market disruption as well as the overall impact. Here are five strategies for preparing for an economic downturn:

1. Monitor cash flow. Reinforce your cash flow management practices now. Plan your cash flow three to six months out, and prepare cost cutting methods or implement other measures in advance of the first sign of a shortfall. To predict the impact of revenue decreases on your operating cash flows, it may be helpful to run simulations.

In addition, review your payment terms with suppliers and customers. Other strategies to enhance your cash conversion cycles include implementing real-time billing practices, offering early-bird discounts for paying within 30 days and facilitating online bill payment for customers.

2. Manage debt. Don’t wait until you’re strapped for cash; negotiate with lenders from a position of strength. Apply for lines of credit or increase your existing credit lines for ready access to working capital when you need it.

3. Create flexibility. To scale down costs quickly when necessary, build flexibility into your operations. Possible strategies include:

• Increasing overtime rather than hiring new employees
• Using independent contractors for cyclical or seasonal work
• Outsourcing noncore functions
• Leasing rather than owning equipment and facilities

These techniques essentially convert fixed costs into variable costs, enabling you to react immediately to changing economic circumstances.

4. Strengthen your supply chain. To help you stay informed about market developments, maintain your product supply and develop strong relationships with your suppliers and vendors. If you currently do not have long-term contracts where a steady material flow is ensured, you may have difficulty surviving the disruption.

5. Invest in smart, consistent marketing campaigns. You need marketing the most during a recession. After all, it’s more important than ever to get the word out about your products and services since you and your competitors will be vying for the same shrinking pool of consumers. Thus, making cost-effective marketing decisions is crucial. For example, depending on your target market, direct mail advertisements and catalogs may be more expensive (and less effective) than social media campaigns, digital advertising and online catalogs that can be updated based on market conditions.

With the economy quickly changing, owners need to continue to take proactive measures to avoid any further potential losses. Not sure where to start? Contact us to learn how your company can minimize the adverse effects of a decline.

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