Advanced Financial Management for Manufacturers – Driving Sales and Profitability

Profitability and sales in manufacturing companies can be increased through the use of sophisticated cost accounting, operational and financial management tools and strategies. Understanding true product and customer costs and margins, developing accurate overhead rates, analyzing labor, using cost-volume-profit analyses, and devising purchasing and pricing strategies are some of the tools Rick Perrin uses to help drive manufacturing profitability and sales. These concepts can be applied to any manufacturer, even those that are very profitable.

As a Madison based CFO and strategic business adviser who has worked and consulted with over 30 manufacturers over 40 years, Rick has learned that three things, from a financial standpoint, have the greatest impact on increasing the profitability, sales and valuation of manufacturing companies:

1. Understanding the true profitability of products and customers. (Many get it wrong or just don’t understand it.)
2. Accurate and comprehensive monthly financial reports that show management exactly how, why and where it made and lost money.
3. An effective Planning Process to drive profitability (using 1 and 2 above to provide the insight needed) and to identify, vet and drive well thought out growth strategies.

Most small and mid-market manufacturing firms do not maximize sales and profitability because their bookkeepers, controllers and many of their CFO’s have not been educated and trained on advanced financial and operational tools and strategies for manufacturing, and their CPA’s do not have the hands on operational knowledge and experience to help them. Many small and mid-market manufacturing company Owners and CEO’s don’t realize they are receiving inaccurate or incomplete financial, costing and margin information, leading to lost sales and profits. Every large manufacturer in the world uses these strategies.  Rick brings these tools and strategies to small and mid-market companies and mentors their Controllers and CFO’s so they will have these skills going forward.

Rick Perrin is the Madison based Partner with B2B CFO^®,  a national firm with over 120 strategic advisors.  As a full time CFO, Rick played a lead finance and operations role in doubling sales and profits at two mid-market manufacturers, each in four years.  In addition to accounting and finance, Rick led IT, quoting and pricing, and purchasing, logistics and warehousing operations. As as a strategic consultant, Rick has helped over 90 companies, including almost 30 manufacturers. Rick’s passion is helping owners increase cash and the value of their companies, and when ready, to help them successfully and profitably sell or exit their businesses. Many of Madison’s top bankers refer Rick to their clients to improve financial management and profitability.

Troy Berg, prior WMEP and WMC Board Member and owner of Dane Manufacturing, an INC-5000 winner, wrote: “Dane was recognized as an INC- 5000 company three years in a row, 2007-2009 and once again in 2013 (fastest growing, privately held companies in America). This could not have happened at Dane without Rick Perrin’s talents and the B2B CFO^® business model.”

If your profitability is not at the very top of your industry, please contact Rick for a free business analysis, or just to discuss how applying advanced financial and operational strategies can help you to improve your manufacturing sales and profits.  A 2-3% increase to your bottom line could greatly improve cash and the value of your company, especially important if you are looking at exiting or selling your company in the next 1-5 years.

CASE STUDIES

$20 Million Equipment Manufacturer

The company designs and manufactures large engineered-to-order water treatment systems and smaller stock water treatment machines for industrial plants. Financial statements were prepared outside of the company by a small CPA firm. Management had little insight into margins and profitability as the only costing was material related.

• Brought accounting in-house in two months.
• Developed costing practices to identify and improve low margin stock products.
• Developed new overhead rate methodology for ETO equipment to more accurately cost large systems.
• Implemented dual rate costing to allocate overhead using both material & labor for more accurate pricing.
• Developed strategic pricing models.
• Developed a profit plan system to manage expenses and tie costing and pricing to reach a profit goal.
• Created easy to assemble financial & operations reports with detailed financial analysis and KPI’s.
• Trained the accountant to understand advanced cost accounting and help management drive profitability.

Benefits: Increased sales, profitability and Company value. Accountant trained on advanced financial concepts including margin optimization and financial reporting to improve profitability.  He now has many of the skills of an advanced level CFO.

$7 Million Metal Plating Company

The company has ten + process lines for applying various metal coatings to customer parts. Metals include gold, silver, nickel, tin and others. The large plant includes an expensive water treatment facility. Financial statements and reports provided little insight into profitability. In its 50-year history, management, outside CPA’s and consultants had not been able to develop methodology to efficiently and effectively allocate the substantial costs, so management had little insight into the profitability of their processing lines and products.

• Improved labor and material tracking to lines.
• Began tracking overhead rates on a monthly basis.
• Developed methodology for and began tracking the profitability of each manufacturing line and type of finish.
• Gained an understanding of where margin is earned and they now can take actions to enhance profitable products and improve poor lines and products.
• Improved inventory management and control.
• Developed comprehensive monthly financial and sales reports for driving profitability improvement.

Benefits: Increased sales, profitability and Company value. Strengthened financial management. Internal accountant was trained on advanced financial management and handles everything on his own.

Fast Growing Food/Pharma Company

The company was 10 years old and growing fast. The plant has multiple rooms with expensive equipment for processing customers’ pharmaceuticals and food products. Plant/equipment/overhead costs were 75% of Cost Of Goods Sold. Equipment cost, utilities and room size varied greatly by job and there was a lot of excess capacity. No methodology had been developed to allocate all of this overhead to jobs so there was little to no understanding of job profitability and how to price jobs.

• Developed unique overhead allocation method for allocating the vast overhead to jobs.
• Built a robust quoting and pricing model to more accurately cost and price jobs.
• Gained a better handle on expenses.
• Built a profit plan to tie everything together to hit a profit target.

Benefits: Easier, more accurate pricing and a better understanding of job profitability. Ability to understand cost relationships and allocations as capacity and volumes change. Improved long-term profitability and company value.

For more information, contact Rick: rperrin@b2bcfo.com, 608-576-3773