Manufacturing: Learning lessons and looking to the future

Manufactures have had a challenging time over the past few years; uncertainty over Brexit, the global pandemic and the myriad of issues that created including declining revenues, volatile raw material prices and staff shortages to name but a few. The only certainty during this period is that the world is uncertain. In order for manufacturers to navigate through these times and look to the future with confidence robust and flexible business planning has never been more important.

In an increasingly volatile world business plans need to be continuously updated. They should be suitably flexible to give decision makers full information of the future financial impacts caused by volatility in key inputs to their business models. In going through this process opportunities and weaknesses can be identified and action taken accordingly to fully plan, take advantage of or mitigate against the risks identified.

A robust business plan also ensures Directors meet their statutory obligations regarding their responsibility to assess the ability of their company to continue as a going concern and also forms the basis to make complete and accurate disclosures in the financial statements around their assessment.

A scenario driven model

The base business model should be stress tested by performing relevant scenario analysis, where the base model is re-run with reasonable possible changes to the inputs for example:

• Order volumes
• Raw material prices
• Inflation
• Wage inflation and recruitment costs
• Currency fluctuations
• Taxation legislation
• Freight costs
• Timing of other key cashflows
• Covenant compliance

Some other considerations when scenario planning:

Revenues:

• Do you have flexibility in contracts to be able to adjust prices if underlying costs move?
• Can the timing of this be incorporated into your scenario planning?
• How sensitive is demand to price increases?

Cost base:

• Do you know what your fixed cost base is and how quickly these could be reduced in the event of a forced temporary closure?
• Can hedging be adopted to fix volatile prices (raw materials, currency etc)
• Impact on inflation on people costs
• Changes in arrangements with landlords as Covid relief measures come to an end

Key cashflows:

• Timing of repayment of borrowings (including CBILS)
• Availability and timing of additional funding
• Working capital requirements e.g. inventory levels increased to mitigate against raw material shortages vs cash lock up

How we can help

We have a range of processes to assist manufacturers in getting back on track, visualising and achieving future goals and the expertise to advise on the tax and accounting issues that derive from the necessary change.

We can use our technology to monitor performance and project the impact of it on your future revenues and cash flows to predict pinch points and facilitate corrective action and help you seize on opportunities.

We can also provide different levels of engagement depending on your business need. Our service can cover from simple PDF reports, an interactive dashboard with access to see tailored KPI tracking and cashflow enabling you to drill in to information, to scenario planning sessions using digital analysis to support decision making across many areas of business.