By Dennis McLaughlin (CPA, Shareholder at Clark Schaefer Hackett)
Manufacturing industry watchers are eager to spot business trends before they’re widely observed. And everyone’s ready for evidence there’s light at the end of the dark, economic roller-coaster we've been riding. We want to read the manufacturing tea leaves to know what’s ahead.
In pursuit of this knowledge, onlookers will ask manufacturers the basic question, “How’s the health of your business?”
I know I do. In fact, as chair of public accounting firm Clark Schaefer Hackett’s manufacturing and distribution industry group, I recently conducted a comprehensive survey of businesses in the sector. The questions were professionally crafted to elicit key information, to reveal the breadcrumbs on the trail that manufacturers continue to tread.
We compiled the data from a multitude of thoughtful responses, and they painted a fascinating picture of the state of the manufacturing and distribution industry. I’ll be sharing the insights over several entries here at MadeinDaytonBlog.com.
But good answers often prompt further questions. When it came to business health, the responses seemed contradictory.
Why would 57% of responders describe the health of their business as “maintaining” or “declining,” in a year when 80% indicated their revenue had grown in the past 12 months?
Turns out, business health, like beauty, is in the eye of the beholder.
I’m an accountant. When I think of business health, my mind goes directly to financial statements. If there’s more black than red in the ledgers, the health of that business is growing. But you owners know differently, I’ve learned. When you can see the whole picture, including the horizon, your perspective changes.
Strong revenue growth may mean your business is facing new challenges. Maybe you don’t feel confident you’ll find enough skilled help to maintain the growth trajectory you’re predicting. Perhaps your raw material costs are on the rise. Strong revenue today can’t mitigate the problems you face if your expenses are rising tomorrow. And I wouldn’t be surprised if future political uncertainty played into some responders’ reticence to embrace a “healthy” self-image.
How do you define your own business health? And at what point will a history of revenue growth be enough to allay any concerns of what’s happening on the horizon? Owners, management, and other industry specialists, please share your insight. We want to understand your tea leaves!