Five tips to manage manufacturing growing pains
When manufacturing sales are increasing and new opportunities can be sensed, it’s natural for thoughts to turn to expanding. However, expansion can be as dangerous to your business as no growth at all.
Unplanned rapid growth can destabilise a business giving its owners a false sense of well-being from growing sales whilst the cost of getting those additional sales eat up more cash than expected. If expansion is on your agenda, there are a few things to keep in mind.
1. Watch your overheads
The biggest danger in expansion is the erosion of profits through uncontrolled spending. Overhead expenses that were under control previously can grow rapidly with a bigger scale of operations – transport, inventory, rent on larger space, and all the rest will ‘chew up’ precious cash.
2. Track your margins
While it might be expected that more sales will return the same profit margin, or even better since costs are spread across a greater number of sales, this is not automatically the case. Additional sales can come with unexpected costs that can actually decrease your margins. Margin analysis will tell you if you are really growing or just running faster to stay in the same place (or go backwards).
3. Employ strategically
With extra production needed it seems natural to hire more people, but a sudden influx of new employees can introduce problems ranging from changing the dynamics in the old team (culture), creating training and quality issues and increased insurance and employee costs.
Consider alternatives to simply employing people such as retraining existing employees to pick up new tasks, taking on contractors or casuals; or maybe even outsourcing some of the work.
Balance your use of casuals against the training investment required and the skills you need to have on tap in the business; temporary people take their knowledge and skills with them when they leave!
4. Don’t underestimate funding requirements
Typically, most small business owners will seek a business loan to expand operations. If the expansion doesn’t go according to plan, then the business can very easily end up going backwards.
Look for low cost sources of funds from providers such as government small business agencies and have a detailed and realistic projection of income and outflows when making the request for funding.
Many advisors will say that “if a business is not growing, it is dying”. There is a lot of truth in that. Wise owners however are aware that growth at any cost will likely mean an early death – an eventuality not even contemplated when that big opportunity presented itself.
5. Plan for strategic growth
For manufacturing businesses who may be wrestling with scaling up, general planning or have ongoing stress, we provide business strategy and consulting services that create clarity, drive profitability and deliver work-life balance.
Unlike other consulting firms, who apply a one-size-fits-all approach, our company offers a suite of end-to-end planning and strategic growth services based on over 30 years of hands-on manufacturing experience and intelligence that ensures a tailored experience and outcome for your business.
Are you ready to be the next success story? Book your free 60 min growth session now. Get in touch.