Enterprise Minnesota recently published its State of Manufacturing survey results for 2022. You can learn more about the survey here. The survey shows that manufacturers are becoming increasingly concerned about the possibility of a recession and the problems that would come with it. Here are some tips from FMJ’s Manufacturing Team to help withstand these potential difficulties on the horizon.
REVIEW BUDGETS AND OPERATING EFFICIENCIES
Return to Basics.
- Put as many of your business expenses as possible on a variable basis. In other words, make sure that the majority of your costs and expenses are directly related to production.
- Untethered expenses that are not tied to income represent a major opportunity cost.
Limit Travel and Other Similar Expenses.
- Make sure costs and expenses are being incurred only for essential company business related to revenue generation.
Pause and Review Capital Budgets.
- Cash generation and preservation will be critical over the next 18 months.
- New equipment should be evaluated in light of cash needs.
Gather Critical Market Data.
- Think about how your customers will manage their businesses and/or respond to changing conditions going forward.
- Consider a customer survey or some other direct communication to ask customers and clients about their planning and to find out how you can be of service.
- Be ready to adapt and adjust operations, and thus expenses and costs incurred, based on the data you obtain.
REAFFIRM CUSTOMER/CLIENT RELATIONSHIPS
Reach Out Proactively and Personally.
- Call or connect directly with your key customers and ensure them that you will continue to provide services and products.
- Let your customers know about other relevant products or services you offer that they are not buying.
- Ask what else you can do to help.
REAFFIRM SUPPLIER RELATIONSHIPS
Talk to Your Suppliers.
- Identify and review your supply chain.
- How are suppliers planning for a potential downturn? Will you have everything you need to continue production? Can you rely on your suppliers?
- If you have contracts in place, review the terms and see what potential recourse you may have if something goes awry.
Is Now the Time to Renegotiate?
- Suppliers may be excited about securing your relationship going forward. This could be a chance to reevaluate your current deals and performance terms.
Be Ready to Change Suppliers if Necessary.
- We are all painfully aware of the supply chain issues worldwide. Make sure you have the reassurances you need to continue with your current suppliers.
- Research other potential key suppliers.
REAFFIRM BANKING/LENDING/INSURANCE RELATIONSHIPS
Increase Potential Borrowing Power.
- Before potential downturns, it is a good idea to increase potential borrowing power and options if it becomes necessary.
- Do you need to apply for a new line of credit? This can be difficult to do if times are tough.
Review Terms.
- Is there potential for lenders to reduce or cancel a line of credit? This can sometimes happen in a prolonged recession. So, you may want to diversify your lenders.
- Review force majeure clauses and other terms in your contracts (and remember that we are still in a pandemic).
- Consider/review your business interruption insurance cover.
Strengthen Your Cash Reserves.
- Consider funneling more resources into savings, and make sure to keep these cash reserves separate for emergency use only.
Ask Your Lenders What They Recommend.
- There may be some new options or products available, and lenders are working in this space already. See what they suggest, and you can always say no.
Commit to Cyber Security Training and Insurance.
- Cyber Security is an essential consideration, and it is a very real threat facing all businesses.
- Cyber attacks can be catastrophic for businesses, and in times of recession, these attacks can increase.
RECONNECT WITH AND REASSURE EMPLOYEES
The State of Manufacturing Survey also identified employee retention as a major concern for manufacturers. Everyone knows the costs associated with losing an employee and then trying to hire and train a new one. In the manufacturing industry, it can be particularly difficult to find and retain skilled workers. So, it is important to reconnect with employees now to let them know that you appreciate them and you want them to stay.
Prepare Your Team.
- Include key team members in the discussion, and get them ready to help preserve the business for the long term. This includes potential difficult conversations such as pay cuts and furloughs.
- New, strong leaders tend to emerge in times of crisis. Think about who those team members might be, and include them in planning now.
Cultivate Regular Communications.
- Regular communication is the best way to obtain feedback and foster employee engagement. Click here for an article by FMJ’s HR and Employment Team about strategies to boost employee engagement and avoid the “quiet quitting” problems we are seeing.
Give Frequent Thanks and Genuine Recognition, and Show Support.
- Be creative. How can you provide perks and other benefits without increasing costs?
- You may also need to consider employee compensation and see if changes are needed to remain competitive.
- If possible, set up an employee hardship fund to cover basic monthly expenses of employees who may be experiencing a real crisis, e.g., spouse laid off already, can’t pay utility or health insurance bills, etc.
- Encourage planning for employees with families that have school-age children if their school is closed. Whether or not there is a recession, this has become a major issue for parents since COVID because school schedules have become much less consistent.
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