Finance management can be tricky in any industry, but it's an especially complicated task in manufacturing. Your company works with tight schedules and fluctuating variables, which can have a big impact on budgeting. How can you manage all that and still maintain a healthy financial profile?
Here are a few best practices to help you out:
1) Consider asset financing
If you deal with customers or business partners who are slow to pay their bills, you may worry about cash flow in your manufacturing organization. One way to address this issue is through asset financing, according to Chron. Asset financing allows you to get funds from your accounts receivable even if a client or partner's payments haven't been made.
While this option can eliminate many cash flow concerns, it's important to research asset financing in its entirety before leaning on it too heavily.
2) Utilize valuable elements of lean manufacturing
Lean manufacturing may not be directly related to finance management, but it does share many of the same goals — like reducing waste and maximizing ROI. Whether you've tried elements of lean manufacturing in the past or are just beginning to explore the concept's many applications, it's worth taking a page out of the lean guidebook to protect your budget.
For example, you may decide that your manufacturing organization is spending too much time on slow-moving tasks. To cut out waste, you could automate some of these tasks and free up employees to focus on more important responsibilities. You would eliminate waste, a foundational element of lean manufacturing, and save money along the way.
3) Calculate the revenue per employee ratio
According to Investopedia, the revenue per employee ratio is found by dividing your manufacturing organization's total revenue by the number of employees in your workforce. A low per-employee revenue could mean you have too many workers — but keep in mind that this number is only one way to measure the value of your staff. Also consider elements such as performance, future potential and the ideas or creativity someone brings to your team.
4) Understand inventory turnover
Another important ratio, according to Investopedia, is inventory turnover. It's measured by dividing the cost of sold goods by the average amount of inventory in your manufacturing organization. Once you've done the math, you can use this number to better understand your ordering and pricing options.
5) Keep maintenance in mind
Maintenance costs can be a significant drain on your budget if allowed to get out of control. For this reason, it's smart to create a maintenance schedule that will keep your equipment functioning properly without wasting resources. It's also wise to conduct regular inspections of your machines, separate from safety or regulatory inspections, to judge whether newer models would be more efficient.
6) Don't forget labor costs
Employees create value, but they also come with costs. Consider the overall price of your workforce, from hiring to training to salaries and benefits — and then do the math to find out how much it costs to lose valuable members of your staff. Don't forget to add up retention costs, too, so you get a full picture of the price of having workers vs. the value they bring to your manufacturing company.