Energy price increases, supply chain disruptions, inflation and regulation changes have amplified financial struggles in the manufacturing sector, leading to a stark 20% increase in insolvencies.¹
In particular, the worst affected manufacturing sectors are those working with fabricated metal products and the repair and installation of machinery and equipment.²
To help manufacturing business owners take control of their finances and build resilience, Henry Spencer, Operations Director at BPI, the UK’s leading Asset Disposal Specialist, outlines strategic approaches to raise funds, reduce costs and navigate the current turbulent economic climate.
A robust financial plan to anticipate upcoming sector-specific changes, such as new laws or regulations coming into play and anticipated materials shortages, is vital to help business owners prepare for future challenges.
Reducing operational costs and raising funds are also essential to the longevity of a manufacturing business, as recent gas and electricity price increases have heavily impacted the energy-reliant sector. Compared to last year, prices in Q2 2023 for heavy fuel oil have increased by 27%, while average costs for electricity have increased by 18%, representing a huge leap in monthly operational costs.³
Evaluating production processes, optimising workforce efficiency, reducing energy usage out of hours and raising cash flow by selling unwanted or unused equipment are all key steps to help reduce overheads and accommodate soaring utility expenses.
Business owners can also exploit a rising interest in pre-owned manufacturing tools by selling surplus or unused equipment and machinery. Manufacturing business assets can be auctioned online for a quick capital infusion, which could be used to pay for more efficient equipment, improved premises or investment in automated technology to speed up production and maximise profits.
For businesses going through a period of financial pressure, restructuring or relocating their operations can offer cost-saving advantages. Selling redundant machinery and equipment can help create space and generate cash flow quickly, giving business owners the flexibility to consider reducing the size of their premises or locating to a new geographical area to save on overhead costs.
Alternatively, additional cash flow can be used to create an emergency fund to help buffer against any unexpected costs in anticipation of further price increases.
Business owners can gain a higher return on investment when selling assets by taking advantage of government support schemes, such as the Business Asset Disposal Relief. This allows owners to pay a reduced tax rate of 10% when disposing of certain business assets, ultimately generating more cash flow for the business. For more information, visit the official government website to determine your eligibility and speak to a trusted financial professional to support the application.
Henry summarises: “As we approach 2024, it is essential for manufacturing business owners to take decisive steps to safeguard their company’s security and financial well-being.
“Regularly reviewing business assets is an easy way to identify unused equipment. Working with an asset disposal specialist, like BPI, can support business owners looking for a fast, hassle-free capital influx. This is especially important if a company is undergoing a notable financial decline, as freeing up cashflow and space can significantly contribute to business resilience and sustainability.”
You can find out more about how to protect your business from insolvency here: https://www.bpiauctions.com/news/how-to-protect-your-business-from-insolvency/
Sources:
- https://www.gov.uk/government/statistics/monthly-insolvency-statistics-september-2023 (Gov.uk data comparing January 2023 – September 2023)
- https://www.gov.uk/government/statistics/monthly-insolvency-statistics-september-2023 (CSV file, table two. Data shows 28 insolvent fabricated metal products companies, and 17 insolvent repair and installation of machinery and equipment companies.)
- https://assets.publishing.service.gov.uk/media/651d7540e4e658000d59d961/Quarterly_Energy_Prices_September_2023.pdf (Gov.uk data comparing average prices of quarter 2 2023 vs the same period in 2022 for the manufacturing sector.)