From Lag to Lead: Boosting Cash Flow in Manufacturing Through Strategic Outsourced Accounting

According to Business Insider, 82% of businesses fail due to cash flow problems. Cash flow is undoubtedly critical to the operations of any business, but for manufacturing businesses like yours, it holds a particular significance. The cyclical nature of production and inventory in your business operations needs constant cash flow to ensure adequate supply for wholesalers, retailers, and ultimately the end user.

There can be multiple reasons for cash flow crunch, including lack of efficient inventory management, inaccurate invoicing, delayed customer payments, and unexpected expenses can rapidly derail your company’s financial stability.

So, how to drive your business from a state of lagging financial performance to a position of industry leadership? Let’s understand better from the discussion between Andrew Thompson and Eric Martinez, seasoned manufacturers at Small Business Expo, Florida, who deal with cash flow issues taking their business from lag to lead.

Revving Up Manufacturing Business’ Cash Flow

Andrew Thompson and Eric Martinez engaged in business building workshops and a series of interactive sessions at Small Business Expo, Florida, the Ultimate Trade Show, Conference, & Networking Event. During interactive sessions with Eric Martinez, “I had no cash flow strategy to scale my business and invest in new things for production,” said Andrew Thompson. “My money was tied up debt, assets, and other expenses, making it harder for my business to grow and make a profit.”

Eric Martinez nodded and said “Absolutely, it’s crucial to be well-prepared for potential hurdles affecting the cash flow for manufacturing businesses like ours. It takes time to produce products, but the raw materials are purchased beforehand, locking up the cash. Plus, the costs of machinery and labor require significant investment before any revenue is generated. When production gets delayed, it’s difficult to free up cash for other investments, resulting in canceled orders and refund requests from customers. We had to make tough, strategic decisions to alleviate cash flow pressures and drive sustainable growth.”

“Exactly, I have been hearing a lot about strategic outsourcing of accounting processes,” said Andrew Thompson. “Embracing outsourced manufacturing accounting benefits can positively impact cash flow from operating activities, investing activities, and financing activities, leaving the manufacturing business with a more reliable and sustainable bottom line.”

“Outsourcing accounting, really? What about the control over outsourced tasks? I am worried about accountability, accuracy, and timeliness of my business financials. What made you decide to outsource manufacturing accounting?” said Eric Martinez.

“I had the same perception for outsourced manufacturing accounting,” said Andrew Thompson. “When I was considering the switch from in-house to outsourced accounting for my manufacturing business, there were questions and hesitations. How will this relationship work? What are the risks? How will I communicate with extended team?

I carefully shortlisted a few firms by considering key factors like expertise and specialization, standardization certification, reputation and references, scalability and flexibility, and communication and accessibility. This thorough evaluation made it easy to choose an ideal outsourced accounting partner for my manufacturing business. It was the best decision for us.”

With a rewarding outsourced accounting partnership, you can really boost cash flow just like Andrew Thompson. How?

You can reduce the burden of maintaining a full-fledged accounting department, gain customized budgets, monitor cash flows, identify cost-saving opportunities, and implement robust controls to safeguard assets and minimize risk. Plus, you can free up internal resources to focus on production, supply chain management, and product development while leveraging the strengths of extended team. There’s more to strategic outsourcing.

The Broader Impact

Here’s the positive impact of transforming your entire financial management and boost cash flow in your manufacturing business:

Streamline Inventory Management

An outsourced accounting partner understands unique challenges of inventory management in manufacturing companies, no matter the size. The extended team helps you to maintain accurate records of purchased and returned materials, work in progress, or finished products, so you can seamlessly maintain the right levels of inventory throughout the production process.

You can make informed decisions about which vendors to buy from, how much stock to purchase, and the timing of those purchases to minimize costs without causing production delays. This enables you to save capital that could lock in unused inventory, greatly reduce COGS per unit, and gain control over dead stock and perishable inventory.

Plus, you can access demand forecasting and planning success through inventory turnover ratio, lost sales ratio, and inventory carrying cost.

Accurate Financials

Your outsourced accounting partner prepares the schedule of cost of goods manufactured, the balance sheet, the income statement, and the cash flow statement by collecting and analyzing data of your cost and revenue. More specifically, with the help of these reports, you analyze and compare sales and revenue with costs, giving you the full picture of your business.

You would have many questions in mind when it comes to the performance of your company. Are sales up? How about gross margins? What is the biggest expense category? Are there any numbers that jump out as unusual? And, the ultimate question, how much money did you make last month?

You get all the critical information from these reports and statements much needed to make strategic business decisions, enabling your company to grow, identify trends, make proactive changes, and improve financial efficiency. Also, eliminate expenses you may incur due to delayed, inaccurate, and unreliable financial reports. The ROI is clear.

Improve Accounts Receivable and Accounts Payable Management

Your company belongs to the industry known for its unique operational dynamics, including extended payment cycles and complex transaction structures. Outsourced accounting companies understand these intricacies, helping you to streamline the collection and payment process.

They implement robust systems for tracking invoices and receipts that can help your business operate more efficiently and improve cash flow. The extended team performs 3-way reconciliation regularly to find discrepancies if any.

Access to Full-service Team at Reduced Cost

The outsourcing service provider provides access to a full-service team who are well-versed in the nuances of manufacturing companies’ operations and committed to accomplishing your daily, weekly, and monthly accounting needs.

By leveraging their specialized financial expertise and insights, you can entirely focus on production activities. Outsourcing manufacturing accounting reduces the burden of hiring, training, and retaining an in-house team, thus significantly lowering operational costs. They ensure compliance with changing regulations while providing real-time, data-driven financial insights.

Plus, you can eliminate added expenses of providing additional benefits like health insurance, paid leave, and workers’ compensation to the extended team.

Efficient Use of Resources

Making efficient use of resources results in significant cost savings for manufacturers. By optimizing processes through outsourced manufacturing accounting services, you can free up valuable time and resources to bring back focus on sales, product expansion, networking, or service expansion.

This shift allows you to leverage the benefits of the technology they use. You can emphasize advanced inventory management, efficiently track stocked items, monitor all inventory changes, and precisely calculate profitability indicators. This approach helps avoid unnecessarily tying up cash for material and labor.

Making the Most of Strategic Outsourced Manufacturing Accounting

The conversation between Andrew Thompson and Eric Martinez underscores that outsourced accounting when done right helps you to improve operational efficiency and cash flow much needed to run your business effectively and grow over time.

Is your business ready to turn the tide on cash flow and unleash its full potential?