In the past year, manufacturing employment in the Dallas/Fort Worth area has dropped by 2 percent. This statistic alone seems negative, but the overall outlook for manufacturing is trending positive with increased focus on innovation, simplified supply chains, diversification into customer-focused services and creativity with materials performance and fuel sourcing. It’s still a challenging industry, but this real or perceived lull in growth is the perfect time to assess the structure and vision of your company. Strengthen the basics with strategic planning to be ready for what’s next.
Strategic Planning
A slower year or two for revenue may be the opportune time to pursue a transfer of assets to the next generation. If earnings are down 15-20 percent, for example, savings on the transfer and estate tax can be significant if owners act now.
Also, if year-to-year revenue continues to be flat or even less than the previous year, your CPA can help you consider reporting an operating loss and cleaning up the books through carrybacks and refunds from years when revenue was higher.
Even if the company is in good financial health and sustaining a moderate profit, now may be a good time to revisit the company vision, your business model, your KPIs and your tools for tracking them. There are many more integrated solutions that tie the sales side of the house to supply chain, to production and all the way through to realization. Leaders should take time now to explore and demo these various management tools.
Manufacturing Tomorrow
Significant global growth in manufacturing is forecast mainly in Southeast Asia, India, the Middle East and Eastern Europe. By 2025, it is expected that a new global consuming class will have emerged in these developing economies as wages rise and demands for more goods and services increase.
As these manufacturers mature, they will have to focus on reducing costs, appealing to a broader base of customers and finding more skilled workers. In the end, all manufacturers will have to respond faster to market shifts based more on a global pulse than what is happening in their backyards.
In established markets, customers are already dictating variation in products, after-sales customer care and advanced or more environmentally friendly materials. These buyers are doing the majority of research on their own, interacting with the producer only briefly, then hitting the submit button. If they have a bad experience, they report it on social media. Producers are serving increasingly knowledgeable customers who want it their way…or they will go somewhere else.
On the supply side, manufacturers will continue to deal with volatile resource prices and a shortage of highly skilled talent. Difficulty obtaining supplies, regulatory and labor risks and lack of public infrastructure will influence the location and relocation of production facilities.
All of these predictions point to the need for manufacturers to be tech-savvy and globally aware. Even if home base is Dallas/Fort Worth, the market is the world. Work with advisors who recognize this shift. Get your financial and strategic house in order to invest in tomorrow’s opportunities.
If you have any questions about how to add operational efficiencies, reduce taxes or plan for transfer of ownership in your manufacturing operation this year, talk to the manufacturing team at Cornwell Jackson.
Gary Jackson, CPA, is the lead tax partner in the Cornwell Jackson’s business succession practice. Gary has built businesses, managed them, developed leadership teams and sold divisions of his business, and he utilizes this real world practical experience in both managing Cornwell Jackson and in providing consulting services to management teams and business leaders across North Texas.
