Manufacturers warned of potential dangers in 2011

News Article - 03 December 2010
Category: Business

Manufacturing companies have been warned that 2011 may prove a 'dangerous year' due to a combination of financial issues that will strike from January onwards. Numeritas, the business planning and forecasting specialists, said these problems could be severe enough to push many profitable but unprepared firms into insolvency.

Stephen Aldridge, Managing Director of Numeritas, said the combination and timing of these financial issues - rather than their individual severity - will stretch the cash flow and working capital of some manufacturers to breaking point.

Some of the pressures manufacturers will face include:

• One per cent increase to employer's national insurance
• VAT rise from 17.5 per cent to 20 per cent
• An increase in variable costs, particularly raw materials costs
• Increased orders
• Exchange rate movements causing issues with exports orders and imported items
• Customer insolvency
• Customers taking longer to pay

Mr Aldridge went on to warn companies against complacency in the post-recession climate:

"It may sound odd that in the current environment increased orders could be bad news when, of course, they are the lifeblood of a business. However, it is well known that more companies go insolvent once a recession is passed its worst and orders are picking up. This is because manufacturers overstretch their working capital through spending too much on inputs such as raw materials and labour, but do not have the working capital to last until payment is received. This is a particular danger area in 2011."

Manufacturing companies risk significant damage to cash-flow if pre-emptive action is not taken before the start of next year. Tightening up internal operations and improving profitability will increase the robustness of a firm's financial position and allow it to more easily cope with financial challenges throughout 2011.

Access manufacturing and production software offers significant advantages. The project and job costing module allows actual costs to be linked to specific works orders or jobs and compared with up to ten pre-set budgets. Companies can therefore track costs more efficiently and ensure action is taken if a budget is exceeded.

For more information on how Access manufacturing software can help, please contact us on 0845 345 3300.

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