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Planning for a Manufacturing Recession

There is room for much debate among economists about whether we are in, or on the brink of, another recession. Last month, Reuters reported that US manufacturing may already be in a recession based on the Institute for Supply Management’s monthly report. New orders dropped significantly from a year ago, more manufacturers reported a decrease, rather than an increase in new business, and February was the fourth straight month that U.S. Manufacturing contracted.

I’m not here to give an opinion on whether we’re in a recession. For some manufacturers, sales soared during the pandemic and beyond as consumers flocked to the grocery store or embarked on long anticipated home improvement projects, while others saw sales recede as apprehensive buyers cut back on discretionary spending. Regardless of whether companies flourished or struggled during the pandemic, many are still haunted by the memory of how the great recession impacted their business and may be looking for ways to help mitigate the impact. Here are some action steps to consider as you hope for the best and plan for the worst:

Secure Additional Financing

Even if you don’t need it at the moment, now may be the time to work with your bank, especially for those manufacturers who have seen an increase in sales over the last few years as lenders look favorably on strong cash flow and income. Securing an available line of credit will ensure adequate liquidity if you encounter a slowdown in business.

Evaluate Your Product Offerings

Are there product lines that are draining valuable resources that could be rerouted to your most profitable lines of business? Or, investing in a new product that you have been considering?

Consider an Acquisition

Navigating a recession can be even more challenging for small manufacturers that haven’t yet built up the reserves or are carrying significant debt that is subject to rising interest rates. Suppliers, or even competitors spooked by an impending recession, may be more willing to engage in conversation.

Devise a Back-up Plan

I expect most manufacturers are approaching 2023 with a conservative profit plan. But what’s the plan if things are worse than anticipated? Do you know what projects will need to be put on hold or what expenses will need to be curbed if sales drop or costs continue to soar? It doesn’t need to be down to every detail, but having a high-level plan to react will allow for the ability to pivot quickly should the need arise.

Communicate

Make sure there is clear and transparent communication up, down, and sideways. Have open and honest communication with the board and/or outside investors about concerns and realistic forecasts to avoid unexpected surprises. Today’s workforce is craving communication now more than ever. Employees want to know what the plan is, how it could impact them, and whether their job is stable. Without clear communication, employees are left to their own assumptions which most likely will not be accurate and could lead to avoidable workforce vacancies.

For more information regarding our manufacturing experience, be sure to visit our Manufacturing Services page and don’t hesitate to reach out to a member of our manufacturing team.


About the Author

Shalane Cohen

Shalane is a Principal at McKonly & Asbury. With over 15 years of experience, she is a leader in the firm’s external Audit and Assurance Segment serving middle-market, closely held businesses. She assists her clients with financial s… Read more

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