Call it a perfect storm or the worst-case scenario, but a convergence of factors is giving the manufacturing industry headaches in the labor department.

As the industry is moving out of the economic recession and continues to add jobs, older skilled workers ? those who perform advanced procedures other than repetitive assembly ? are retiring or getting close to retirement. What makes that situation worse is that there aren’t enough new ones to replace them.

“That created the perfect storm for the tremendous skills gap that’s out there,” says Chad Schron, manager of Tooling University, an online training site based in Cleveland for manufacturers and vocational schools. “There weren’t enough in the pipeline of new people learning welding, fabrication and machining and entering the work force as employees started to retire.”

Mark Tomlinson, executive director and general manager of the Society of Manufacturing Engineers, sees the skilled worker shortage as an iceberg looming on an uneasy sea.

“We’re just approaching it; we haven’t hit it yet but we know it’s there,” he says. “People are starting to see it. They just don’t know how to deal with it.”

Before companies focus on how to deal with the situation, they need to take a retrospective look to see the trends that have put the manufacturing sector in troubled waters.

Evaluate the factors

While forecasts of a shortage of skilled manufacturing workers first arose in the 1980s, it has been in recent decades that it became reality as the industry evolved from needing low-skilled production-type assembly workers to being highly technology-infused as it follows lean principles.

“If you go on today’s manufacturing floor, it’s extremely high-tech, lots of computers, lots of lasers, lots of robotics, very high-precision, a very clean environment where they’re making some of the advanced aerospace or medical device parts,” Schron says.

Companies who haven’t already heeded that wakeup call need to realize that times are changing.

Technology innovations enabled companies to reduce the number of employees and required higher skills and education levels of remaining workers, says Emily Stover DeRocco, president of The Manufacturing Institute of Washington, D.C., an organization dedicated to improving and expanding manufacturing in America.

The automotive industry, once the sector that provided the lion’s share of jobs in manufacturing, is not as strong as it was a decade ago. Some automotive suppliers did not survive the recession. Many cut their training programs. Those that did survive often diversified into other areas of manufacturing.

“Now there is an increased need to fill the manufacturing jobs associated with aerospace, energy, medical device manufacturing and aspects of transportation,” Tomlinson says.

While many observers acknowledge that manufacturing has led the United States out of the recession, the improvement brings a mixed blessing ? more skilled workers are being needed, but the supply is limited.

“What we’re seeing right now is really a lack of a pipeline, and the disruption is causing us so much pain,” says Jeff Joerres, chairman, president and CEO of Milwaukee-based ManpowerGroup, a work force solutions supplier.

Baby boomers, who have put in their time over the last few decades, are reaching retirement age. U.S. Bureau of Labor statistics estimate that 2.8 million, nearly a quarter of all U.S. manufacturing workers, are 55 or older.

“We are facing a huge replacement requirement for the retiring baby boomers, as well as a huge quality issue in the level of education and skills that are necessary to work in today’s more advanced manufacturing environment,” DeRocco says.

Building up the skilled worker pipeline is taking time because of a number of factors, including a waning interest in mathematics and science fields.

“I think we’ve got a long-term history of not producing enough skilled workers in the area of science and math and technology in this country,” says Ed Hughes, president of Gateway Community and Technical College in Florence, Ky. “We are now seeing some effects of not having students graduate from public and private schools with significant skills in those areas.”

Jim Ferguson, director of training at precision manufacturer Penn United Technologies of Cabot, Pa., agrees.

“There is definitely a skill gap in terms of people’s ability to do basic math at the level we need, which isn’t super high, but certainly, geometry and a little trigonometry are an important part of the package,” he says. “We find very few people are able to pass even a basic aptitude test to be hired.”

Look at it as branding

Companies of any size will likely tell you that branding is important, that image is how people see you ? and correcting an unflattering image takes time and effort.

In an age when innovation occurs regularly and perception is vital to success, manufacturing has been trying to shake off the view that it’s dark and dirty ? to rebrand itself.

“It’s absolutely true that the image and the definition of manufacturing in this country has not kept up with the industry,” DeRocco says.

Indeed, the parents, teachers and counselors who influence students and young people are often given the wrong picture.

“They have an image that either there are no manufacturing jobs or the ones that they know or they think they know are really what they remember as children in their communities,” she says.

Only 30 percent of respondents to the 2010 “Made in America?” survey conducted by Deloitte and The Manufacturing Institute said they would encourage their child to pursue a career in manufacturing ? despite reporting encouraging improvements in their perceptions about the jobs.

The survey reported that respondents feel state and federal leadership, tax rates on individuals and government business policies are the top concerns hampering American manufacturing competitiveness ? and that Americans are less likely to pursue jobs in manufacturing or encourage their children to consider these jobs in the future because of those issues.

In addition, only 22 percent said their school system encourages students to pursue manufacturing careers and only 18 percent said their parents encouraged them to pursue a career in manufacturing.

“Most people in Gen Y out of high school don’t think of manufacturing as a career or as a good option,” says Kika Young, human resources director at Forest City Gear Co. Inc. of Rockford, Ill. “They don’t think of it as glamorous; they think of it as dark and dingy and dirty and aren’t interested in going into that.”

It’s important to break the mold of that outdated image, and some signs of progress are being seen. Appealing to a nobler perception is key to successful image building. So is taking innovative approaches and strategies.

“I don’t think the image is the problem any more,” Tomlinson says. “You see many examples in advertisements, like General Electric’s, that take manufacturing out of the dark and dirty environment,” he says. “The real value right now for the younger generation is that through making things they could change the world. You have to innovate, create and make if you really want to improve everybody’s lives and environment.”

In the end, each level of success builds upon the previous one. For the manufacturing industry, those levels are the employers, workers, educators and economic developers.

“This winning proposition for these sectors has really led to an incredible amount of momentum and support, and not that we don’t have a long way to go, but we think it’s a model that other business sectors can and should be using,” DeRocco says.

SBA loans are available to a wide number of businesses for training and other purposes

There is a common belief about loans guaranteed by the U.S. Small Business Administration that they’re only for small businesses like the corner coffee shop ? and that the loan criteria are very restrictive.

Not so, says Pamela Davis, senior vice president and national sales manager for SBA lending for PNC Bank.

In fact, SBA-guaranteed loans with either fixed or floating interest rates even can be used to retrain employees, and about 98 percent of U.S. businesses would qualify under the definition of small business.

To meet the SBA eligibility criteria, a business must either comply with the Standard Industrial Classification code, found on sba.gov, or alternative size standards based on tangible net worth and average net income.

One of the types of loans available is the SBA Express Program.

“It can go up to $350,000 and can be used for any type of working capital,” Davis says. “It can be reworking of your people, purchasing inventory, if you had to buy computers to help train these people ? everything like that.”

Under that program, loans are guaranteed at 50 percent by the SBA against default. Part of SBA’s flagship 7(a) loan program, the Express Program, offers an accelerated turnaround time and lower interest rates for borrowers.

Businesses turned to SBA loans for longer and more creative terms than conventional bank loans to the amount of $22 billion in 2010. Guidelines were revised in 2009 and 2010 so more businesses could obtain capital to survive and grow.

For businesses seeking larger loans, there is the SBA 7(a) Preferred Lender Program that can go up to $5 million.

“That can be used for a lot of different things,” Davis says. “You have to qualify under prudent lending criteria, but it can be used for literally anything you can think of. You can buy equipment, you can use a portion of it for working capital or an addition to the building or if you wanted to hire more employees because you wanted to send some over into Germany to do processing there.

“Any program that creates jobs in my mind is a great program.”

How to reach: PNC Bank, www.pnc.com

Innovative strategies are aimed at providing manufacturers with skilled job candidates

As the shortage of skilled manufacturing workers continues to worry companies, creative ways to fill the need are on the increase ? and are starting to show signs of progress.

It’s no surprise that candidates with potential are in high demand, enrollment is rising at technical schools and training programs are adding teachers. Competition for students can get intense.

“When we recruit students for manufacturing, it’s the same student that other people are going after for engineering technology, for information scientists ? those types of things,” says Ed Hughes, president of Gateway Community and Technical College. “We think we’re in a better position to compete with them now that we have our new advanced manufacturing center.”

As creative and varied as the approaches are, the common thread is to nurture a future employee whose career pathway is aligned to credentials. Having industry-recognized skills certifications ? like those automotive repair technicians have ? applicable across advanced manufacturing and related fields give employees the opportunities to move among careers rather than be at one job in one industry that may experience a downturn.

“Credentials provide a third-party validation that the individual has the general workplace and the technical skills to succeed in an entry-level job as well as an advancement path within their employment,” says Emily Stover DeRocco, president of The Manufacturing Institute, which conducts efforts in 25 states to deploy certification systems.

Grooming potential workers is starting as early as possible. The Society of Manufacturing Engineers Education Foundation offers a complete K-12 program.

“The foundation puts on over 300 one-week day camps in middle schools and high schools across the county to show the value of math and science in making things,” says Mark Tomlinson, executive director of the Society of Manufacturing Engineers. “The hope is that they then go back into their school lives and consider jobs in the process of making things rather than just jobs in the service sector.”

Foundation scholarships to the tune of $600,000 a year also entice those entering manufacturing, education or educational programs related to manufacturing.

Challenging the traditional “man’s world” of manufacturing is another approach to tap a hidden source of potential workers. A program conducted by the College of Engineering and Engineering Technology at Northern Illinois University in Rockford, Ill., focuses on middle school girls selected by their science and math teachers.

Dividends are in the making. Brian Cluff, vice president of Star SU, a gear-making machinery supplier, hopes that his 13-year-old granddaughter Alexi might follow in his footsteps as a result of her enrollment in the NIU program.

Companies with apprenticeships or training programs that had been cut to save money during the 1980s and 1990s are rejuvenating the practices. Penn United Technologies of Cabot, Pa., an employee-owned precision manufacturer, set up an in-house apprenticeship program that blossomed into a 17,000-square-foot learning facility where employees are trained.

Similarly, Jergens Inc., a Cleveland manufacturer of holding and clamping systems, started a training program for employees that evolved into Tooling University, now used by 1,200 companies to train employees through 400 online classes.

Machine tool manufacturer MAG IAS of Erlanger, Ky., began an apprenticeship program with Gateway Community and Technological College in 2007 that provides 100 percent company-paid tuition to successful candidates.

Even a good, old-fashioned job fair can bring results.

Forest City Gear registered 120 people at the Rockford, Ill., manufacturer’s recent job fair. The company was willing to take unskilled laborers and train them, but only 30 were cleared for interview. A dozen were hired. Four had no skills, five had some skills and experience and three were skilled and needed only minimal training.

Still, it’s reason to hold future such events, says Human Resources Director Kika Young.

“We ended up needing more workers even after that,” she says.

Published in Akron/Canton

Having a strong relationship with your accountant can help strengthen your business, so don’t be afraid to spend a little money to meet with them.

“Sometimes spending some money with your accountant to sit down and examine aspects of your business produces some large returns because sometimes there are some things that are happening that have gone for many years and the owner can’t see it because he or she is not objective,” says Mike Dubin, Philadelphia office managing partner for McGladrey & Pullen LLP.

Building a strong relationship requires ongoing communication and interaction.

“They have to have a relationship beyond just the business meeting,” says Don Misheff, Northeast Ohio managing partner for Ernst & Young LLP. “The presence of the informal relationship and informal interaction enhances the ability to have a working relationship beyond merely a formal relationship.”

Misheff says your accountant has to have a thorough understanding of your company’s culture and long-term business strategy. Sharing as much as you can about these helps enhance their ability to serve you.

Another way to build your relationship with your accountant is to approach tax planning as a year-round process instead of a once-a-year necessity.

“Tax planning is important throughout the year, and too many times, we don’t get to tax planning until the end of the year or we don’t get any at all,” says Donny Woods, president of the National Society of Accountants.

He says they look to the accountant to pull off some kind of miracle, and Steve Christian, managing director of Kreischer Miller in Philadelphia, agrees. He says he prefers having monthly conversations with clients, but at the very least, tax planning should start in the fall.

“That’s when all the planning and taking advantage of opportunities takes place,” Christian says. “After you get past the first of the year, when you get into the preparation phase, really all you’re doing is keeping score because any actions you had to take were during the previous year.”

Meeting with your accountant throughout the year to share projections and goals can help the two of you game plan to maximize opportunities and minimize taxes.

“Coming full circle, minimizing taxes enhances cash flow,” Christian says.

How to reach: Ernst & Young LLP, www.ey.com; Kreischer Miller, (215) 441-4600 or kmco.com; McGladrey & Pullen LLP, (215) 641-8600 or mcgladrey.com; National Society of Accountants, (800) 966-6679 or www.nsacct.org

Published in Cincinnati

As the world slowly moves out of the great recession, banks are starting to lend more, but they’re still cautious. The best way to ensure the financing your business needs is to work with your accountant to make your organization more attractive to lenders, which starts with good business planning.

“All organizations should have a business plan — their road map of what they’re going to be doing in the future, especially a new business or an immature business,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.

Having a plan is critical to convincing someone to loan you money, whether it’s a bank or a venture capitalist.

“If you’re looking for financing, you have to make the business case that, ‘I have a good plan for running this business, and I have a good plan for repaying you,’” Scott says.

Planning also makes you look more put-together. Steve Christian, the managing director of Kreischer Miller in Philadelphia, says lenders don’t like surprises.

“Know your needs in advance,” Christian says. “Don’t call your lender a week before you need something, because it’s just evidence that you’re not the greatest planner in the world.”

Christian says to also be upfront with your accountant and lender about both the good and bad in your business.

“A lot of owners aren’t engaged in communicating bad information to the lenders for fear of the unknown, but actually it increases your credibility with the lender,” Christian says.

In addition to planning, demonstrating control is critical for impressing lenders, according to Mike Dubin, Philadelphia office managing partner for McGladrey & Pullen LLP.

“The last thing a banker wants to see is that the stewards of the business — and that could be the president, owner, CFO or COO — don’t have control and don’t have understanding,” Dubin says. “The minute there is a suspicion that there is a lack of control or lack of understanding what’s going on or a lack of full knowledge to exactly what’s taking place in the business, that’s the first thing that will turn off the banker.”

Dubin suggests setting up Sarbanes-Oxley-type controls for your organization, even if you’re private. For example, having segregation of duties decreases the likelihood of fraud in the business, and lenders notice those things.

“What makes lenders feel good is making sure that the control environment works properly, and accountants certainly have the skill set to be able to help owners do that,” Dubin says.

Another way to increase your chances of getting funding approval is to have accurate, professional financial statements.

“What turns off a banker immediately is when there’s a company that has internal financial statements that appear to be not professionally produced or appear to not be correct or may not be complete,” Dubin says.

This is where a reputable accounting firm can help you look more attractive to lenders.

“Dealing with the right accounting firm adds credibility to the financial statements and to ‘the ask’ — whatever it is you’re asking for,” Christian says. “It’s incredibly important to engage a reputable, well-respected accounting firm because they can assist in better terms, better conditions, and it adds credibility.”

Donny Woods, president of the National Society of Accountants, agrees but says, like with approaching lenders, to give your accountant a few weeks’ notice to prepare financial statements.

“You can’t just walk in and say, ‘We need these financial statements tomorrow,’” he says. “We have clients who will do that and think all we have to do is push a button and print report, and it’s just not quite that easy. … When you are doing financial statements, you don’t need to be rushed. You need to be able to have time to consult with the client to make sure that the information you are including is correct and there’s some analysis that has to be done, and it can be time consuming.”

Beyond these things, your history is important when it comes to getting financing, as well.

“They need to watch their cash flow and make sure they pay their bills on time,” Woods says. “They need to have a good payment track record. Those are the things that lending institutions are looking at.”

Scott says you also have to demonstrate the strength of your customers to lenders if you want to get financing.

“You have to have strong customers to have a strong business,” she says. “You could sell product all day long, but if your customers that are buying the product are not in a good position, you’re not going to collect your money.”

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; Kreischer Miller, (215) 441-4600 or www.kmco.com; McGladrey & Pullen LLP, (215) 641-8600 or www.mcgladrey.com; National Society of Accountants, (800) 966-6679 or www.nsacct.org

Published in Cincinnati
Monday, 02 May 2011 13:03

How to improve your cash flow

When it comes to building a strong business, one of the biggest keys is to make sure you have a strong cash flow, and your accountant is one person who can help you with that.

“When you’re looking for cash flow management, you’re trying to control the things that take up your money, which would be accounts receivable, accounts payable and inventory,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.

It may seem like a basic business concept, but Donny Woods, president of the National Society of Accountants, says you’d be surprised how many people don’t take business basics seriously.

“A lot of folks spend money, but they don’t pay attention to their financial statements, or they don’t pay any attention to their cash flow analysis they should be getting on a daily basis,” he says. “They just spend money. Unfortunately, then when they get to the accounting, we find that they’re in real trouble.”

To avoid getting your business into a situation like that, start by creating a financial plan.

“Good planning is the best thing you can do for any cash management policy — knowing what your bills are, having a budget, having a forecast and planning things out to know where you are at any point in time is very important,” Scott says.

With your accounts receivable, it’s important to process invoices daily — the sooner you get the invoice in the mail, the quicker it’s in your clients’ hands and the faster you receive your money. Aggressively pursue past-due accounts, and if you don’t have a credit policy or collection policy in place, work with your accountant to create these.

“[The] squeaky wheel gets paid, so having a very aggressive pursuit at past-due accounts is important,” Scott says.

When it comes to your accounts payable, you want to hold on to your money as long as you can. Scott suggests negotiating favorable terms with your vendors.

“If you can negotiate terms like ‘30 days after receipt of goods,’ it’s more advantageous than ‘30 days from shipment day,’” she says. “Looking at what you can negotiate with your vendors is good.”

Another key to good cash flow management is monitoring your inventory levels. She says it’s important to find a balance so you’re in a just-in-time mode.

“You don’t want much of it, because it sits on your shelf and doesn’t earn you money, but you don’t want to have too little of it because you don’t want to lose sales,” Scott says.

When it comes to cash flow, you also have to keep great records.

“A lot of people write checks and give you nothing but the name of the payer or payee and the amount, and they don’t give you any information about that check,” Woods says. He says you can never give your accountant too much information.

“They should be keeping not only a good check register, but they should be keeping receipts, and a lot of clients don’t do that,” Woods says. “Particularly, smaller clients view the check as the ultimate record. That is not the ultimate record. The ultimate record is the receipt. That is the proof. That is the information about what took place in the transaction.”

Beyond just keeping track of your receipts, Woods says you have to makes notes about what those receipts are part of in the bigger picture.

“Those receipts are not self-explanatory,” he says. “If I get a utility receipt, I know what that is, but how about if I get a receipt from someone for supplies? Maybe all it says is supplies or it’s a service of some kind, and it’s not readily identifiable on the receipt what kind of service is.”

He says this is particularly problematic when it comes to companies using consultants, contractors or freelancers. Companies may submit receipts for these services, but he needs far more information, such as is that person incorporated or not? That determines whether or not he issues a 1099 form to them at the end of the year.

“Those are the kinds of things I have to educate the client about so that we can make sure that they comply with all the federal regulations and state regulations,” Woods says.

While creating a better cash flow comes down to a lot of internal practices, Scott says it’s also important to watch external factors and plan for how it could affect you internally.

“You have to do alternative scenario planning,” she says. “What happens if this happens? What happens if that happens? Staying on top of what’s going on in the economy in general is very important because there are unforeseen things that could happen.”

For example, right now energy is very expensive, and that will ultimately affect your cost of goods because your vendors will have higher shipping charges, so staying on top of the economic outlook is crucial. The AICPA provides a quarterly economic outlook survey that can help you with that.

As you look at all these different factors, it’s important to not try to figure it all out on your own. Instead, use your accountant as a resource to help you navigate these waters.

“They should be asking what are the best practices in various companies that their accountants see as far as days in receivable, collectability, inventory management, those types of things — what are best practices that they can follow?” says Don Misheff, Northeast Ohio managing partner for Ernst & Young LLP.

He says it’s not necessarily a daily discussion you should be having, but the experts agree that it’s not a once-a-year conversation either. Depending on the size of your organization, it could range from monthly to quarterly to even semiannually. By having these conversations and seeking out expert help, you can improve your cash flow and, ultimately, your business’s overall strength.

“Cash flow is the lifeblood of any company,” Misheff says. … “Cash flow and cash management — the companies that do it great survive tough times. During a recession, you see the good ones strengthening their balance sheet with cash reserves and managing debt levels.”

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; Ernst & Young LLP, www.ey.com; National Society of Accountants, (800) 966-6679 or www.nsacct.org

Published in Cincinnati

As you make your business stronger financially, you may start looking at growth opportunities abroad. In doing so, you may also see all the challenges that present themselves — differences in not just culture but business practices and financial regulations, as well — and decide it’s just too much work.

“It’s just those first three to six months that are often challenging, frustrating and frightening, to certain degrees, and sometimes people say it’s just not worth it, but in today’s world, it is worth it,” says Bob Celata, executive vice president of PNC Bank. “The amount of economic growth outside the United States is huge.”

The key is to reach out to resources that can help you successfully prepare for and navigate international territory.

“Clearly, they should, first and foremost, speak with their primary bank and determine whether or not their primary bank has the skill set to assist them on the global side,” Celata says.

Another great resource is the U.S. Department of Commerce, which has programs ranging from basic to highly sophisticated to help organizations with these initiatives. Additionally, Celata says it’s important to talk to your accounting firm, which can help you with a lot of the logistics, and often trade organizations can assist with these endeavors, as well. These different resources combined can help you recognize the challenges and differences you may encounter.

“You have to be aware that there are different cultures,” Celata says. “Many countries take a break in the afternoon for a couple of hours. You have to be aware of the time differences in the world and communication networks.”

You also have to recognize that some payment services may work differently. For example, here, you may be able to do a wire transfer until 6 p.m., but in some countries, if it’s not submitted by mid-afternoon, then that transfer will go the next day.

“As companies look to do business overseas and they start to expand in individual countries, they just have to be prepared to think about it a little bit differently than they would in the United States,” Celata says. … “Once they have two or three cycles of the same transactions, it actually becomes pretty standard and pretty methodical, and it’s just continuing to follow the rules.”

How to reach: PNC Bank, www.pnc.com

Published in National

Having a strong relationship with your accountant can help strengthen your business, so don’t be afraid to spend a little money to meet with them.

Sitting down and examining aspects of your business produces some large returns. Sometimes there are things that are happening that have gone on for many years and you can’t see it because it’s hard to be objective when you are close to the business.

Building a strong relationship with your accountant requires ongoing communication and interaction, and it needs to go beyond just a business meeting. An informal relationship and informal interaction enhances the ability to have an even better working relationship.

Your accountant has to have a thorough understanding of your company’s culture and long-term business strategy. Sharing as much as you can about these helps enhance their ability to serve you.

Another way to build your relationship with your accountant is to approach tax planning as a year-round process instead of a once-a-year necessity.

“Tax planning is important throughout the year, and too many times, we don’t get to tax planning until the end of the year or we don’t get any at all,” says Donny Woods, president of the National Society of Accountants.

If you aren’t planning all year long, don’t look to your accountant to pull off some kind of miracle. Most accountants prefer having monthly conversations with clients, but at the very least, tax planning should start in the fall. If you do this, you will maximize your ability to plan and take advantage of opportunities that can save you money.

Once you get past the first of the year, all you are really doing is keeping score, because any actions you had to take were during the previous year.

Meeting with your accountant throughout the year to share projections and goals can help the two of you game plan to maximize opportunities and minimize taxes.

In the end, minimizing taxes ultimately enhances your cash flow.

How to reach: National Society of Accountants, (800) 966-6679 or www.nsacct.org

Published in Akron/Canton

As the world slowly moves out of the great recession, banks are starting to lend more, but they’re still cautious. The best way to ensure the financing your business needs is to work with your accountant to make your organization more attractive to lenders, which starts with good business planning.

“All organizations should have a business plan — their road map of what they’re going to be doing in the future, especially a new business or an immature business,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.

Having a plan is critical to convincing someone to loan you money, whether it’s a bank or a venture capitalist.

“If you’re looking for financing, you have to make the business case that, ‘I have a good plan for running this business, and I have a good plan for repaying you,’” Scott says.

Lenders don’t like surprises, so know your needs in advance. Don’t contact your lender a week before you need something, because it will be evident that you are not the greatest planner, making you less attractive to the bank.

You need to be upfront with your accountant and lender about both the good and bad in your business. Being honest about bad information can actually increase your credibility with the lender.

In addition to planning, demonstrating control is critical for impressing banks. The last thing a banker wants to see is that the president, COO or other top executive doesn’t have control and doesn’t have an understanding of the business. The minute there is a suspicion that there is a lack of full knowledge to exactly what’s taking place in the business, the banker will be much less likely to work a financing deal with your company.

One way to reassure a banker is to set up a Sarbanes-Oxley-type control for your organization, even if you’re private. For example, having segregation of duties decreases the likelihood of fraud in the business, and lenders notice those things. Your accountant can help you set up a control environment that is appropriate for your business and attractive to your banker.

Another way to increase your chances of getting funding approval is to have accurate, professional financial statements.

Bankers dislike internal financial statements that appear to be not professionally produced or appear to not be correct or are incomplete.

This is where a reputable accounting firm can help you look more attractive to lenders.

Dealing with the right accounting firm adds credibility to the financial statements and to ‘the ask’ — whatever it is you’re asking for. It’s incredibly important to engage a reputable, well-respected accounting firm because they can assist in getting better terms for your loan, and working with a respected firm adds credibility to your request.

Donny Woods, president of the National Society of Accountants, says, like with approaching lenders, to give your accountant a few weeks’ notice to prepare financial statements.

“You can’t just walk in and say, ‘We need these financial statements tomorrow,’” he says. “We have clients who will do that and think all we have to do is push a button and print report, and it’s just not quite that easy. … When you are doing financial statements, you don’t need to be rushed. You need to be able to have time to consult with the client to make sure that the information you are including is correct and there’s some analysis that has to be done, and it can be time consuming.”

Beyond these things, your history is important when it comes to getting financing, as well.

“They need to watch their cash flow and make sure they pay their bills on time,” Woods says. “They need to have a good payment track record. Those are the things that lending institutions are looking at.”

Scott says you also have to demonstrate the strength of your customers to lenders if you want to get financing.

“You have to have strong customers to have a strong business,” she says. “You could sell product all day long, but if your customers that are buying the product are not in a good position, you’re not going to collect your money.”

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; National Society of Accountants, (800) 966-6679 or www.nsacct.org

Published in Akron/Canton
Monday, 02 May 2011 11:23

How to improve your cash flow

When it comes to building a strong business, one of the biggest keys is to make sure you have a strong cash flow, and your accountant is one person who can help you with that.

“When you’re looking for cash flow management, you’re trying to control the things that take up your money, which would be accounts receivable, accounts payable and inventory,” says Carol Scott, vice president of business, industry and government for the American Institute of Certified Public Accountants.

It may seem like a basic business concept, but Donny Woods, president of the National Society of Accountants, says you’d be surprised how many people don’t take business basics seriously.

“A lot of folks spend money, but they don’t pay attention to their financial statements, or they don’t pay any attention to their cash flow analysis they should be getting on a daily basis,” he says. “They just spend money. Unfortunately, then when they get to the accounting, we find that they’re in real trouble.”

To avoid getting your business into a situation like that, start by creating a financial plan.

“Good planning is the best thing you can do for any cash management policy — knowing what your bills are, having a budget, having a forecast and planning things out to know where you are at any point in time is very important,” Scott says.

With your accounts receivable, it’s important to process invoices daily — the sooner you get the invoice in the mail, the quicker it’s in your clients’ hands and the faster you receive your money. Aggressively pursue past-due accounts, and if you don’t have a credit policy or collection policy in place, work with your accountant to create these.

“[The] squeaky wheel gets paid, so having a very aggressive pursuit at past-due accounts is important,” Scott says.

When it comes to your accounts payable, you want to hold on to your money as long as you can. Scott suggests negotiating favorable terms with your vendors.

“If you can negotiate terms like ‘30 days after receipt of goods,’ it’s more advantageous than ‘30 days from shipment day,’” she says. “Looking at what you can negotiate with your vendors is good.”

Another key to good cash flow management is monitoring your inventory levels. She says it’s important to find a balance so you’re in a just-in-time mode.

“You don’t want much of it, because it sits on your shelf and doesn’t earn you money, but you don’t want to have too little of it because you don’t want to lose sales,” Scott says.

When it comes to cash flow, you also have to keep great records.

“A lot of people write checks and give you nothing but the name of the payer or payee and the amount, and they don’t give you any information about that check,” Woods says. He says you can never give your accountant too much information.

“They should be keeping not only a good check register, but they should be keeping receipts, and a lot of clients don’t do that,” Woods says. “Particularly, smaller clients view the check as the ultimate record. That is not the ultimate record. The ultimate record is the receipt. That is the proof. That is the information about what took place in the transaction.”

Beyond just keeping track of your receipts, Woods says you have to makes notes about what those receipts are part of in the bigger picture.

“Those receipts are not self-explanatory,” he says. “If I get a utility receipt, I know what that is, but how about if I get a receipt from someone for supplies? Maybe all it says is supplies or it’s a service of some kind, and it’s not readily identifiable on the receipt what kind of service is.”

He says this is particularly problematic when it comes to companies using consultants, contractors or freelancers. Companies may submit receipts for these services, but he needs far more information, such as is that person incorporated or not? That determines whether or not he issues a 1099 form to them at the end of the year.

“Those are the kinds of things I have to educate the client about so that we can make sure that they comply with all the federal regulations and state regulations,” Woods says.

While creating a better cash flow comes down to a lot of internal practices, Scott says it’s also important to watch external factors and plan for how it could affect you internally.

“You have to do alternative scenario planning,” she says. “What happens if this happens? What happens if that happens? Staying on top of what’s going on in the economy in general is very important because there are unforeseen things that could happen.”

For example, right now energy is very expensive, and that will ultimately affect your cost of goods because your vendors will have higher shipping charges, so staying on top of the economic outlook is crucial. The AICPA provides a quarterly economic outlook survey that can help you with that.

As you look at all these different factors, it’s important to not try to figure it all out on your own. Instead, use your accountant as a resource to help you navigate these waters.

Ask your accountant about what best practices they see in various companies that they work with as far as days in receivable, collectability, inventory management, and those types of things.

It’s not necessarily a daily discussion you should be having, but the experts agree that it’s not a once-a-year conversation either. Depending on the size of your organization, it could range from monthly to quarterly to even semiannually. By having these conversations and seeking out expert help, you can improve your cash flow and, ultimately, your business’s overall strength.

Cash flow is the lifeblood of any company. The companies that do it great survive tough times. During a recession, good companies strengthen their balance sheet with cash reserves and managing debt levels.

How to reach: American Institute of Certified Public Accountants, (888) 777-7077 or www.aicpa.org; National Society of Accountants, (800) 966-6679 or www.nsacct.org

Published in Akron/Canton
Tuesday, 01 March 2011 10:43

Manufacturing outlook

Uncertainty.

If there’s one word that describes the manufacturing sector moving forward, this is it.

“There’s macroeconomic uncertainty, public policy uncertainty, uncertainty in terms of the value of Chinese currency, and that is going to make the business sector — particularly in manufacturing — very cautious when it comes to capital investment,” says Edward Hill, dean of the Maxine Goodman Levin College of Urban Affairs at Cleveland State University.

There are signs of better days ahead, with more orders coming in and North American factories running at higher capacity than in the past few years.

“A big barometer for manufacturing is auto sales, and auto sales just took a dive the last couple of years, but it’s picking back up and demand is back up,” says Eric Burkland, president of The Ohio Manufacturers’ Association. “The good news is, the economy has clearly turned and demand is picking back up, but the cost pressures globally remain just incredible, so that dampens the hiring.”

Chuck Hadden, president and CEO of the Michigan Manufacturers’ Association, says that things are slowly turning around.

“We’re one of the sectors that are doing a little bit more hiring out there — not a lot, but we’re starting to get some hiring,” Hadden says. “There was a lot of uncertainty toward the end of the year — what was going to happen with federal taxes, elections, and that uncertainty is now gone. We know what’s going to happen with those things, and now people can start moving forward, and I’m optimistic at the direction we’re going.”

While no one can say for sure what the next 12 months will bring for manufacturing, there are two things that the experts agree on: Success in the sector will be driven by diversification and innovation, something Jim Nicholson, vice president of chemical maker PVS Chemicals Inc., will attest to.

“This year, we are really working on continuing to expand our customer base — we’re looking for new markets that we traditionally have not served and adding those markets to our customer base, and we’re making investments in new kinds of people, with different kinds of experience, specifically related to market and marketing,” Nicholson says. “We think this is going to be a pretty good year for manufacturing.”

Diversify

Diversification has been critical the past few years and will continue to play an integral role this year.

“If you’ve made it through, you’ve probably figured out a way to diversify your company from one product to another product so you’re not reliant on one business sector,” Hadden says.

But he says it’s time to take it a step further in 2011.

“Let’s diversify your customer base so you’re not totally reliant on one customer in that business sector,” Hadden says. “Find ways to expand your business that way, still doing what you ... do best but find more customers. It’s a big world out there, and there’s no reason why we can’t be competing in a lot of markets out there.”

He says one of the keys to effectively doing this is to look beyond America’s shores.

“Our biggest growth opportunity for us as manufacturers that we haven’t taken advantage of is finding customers in other countries that we can help supply,” Hadden says. “I think that’s the biggest tone that we’re going to try to set this year. We all know we can’t rely on one or two customers anymore. … If you’re making a part here for an auto company, why can’t you be making it for someone in Germany or Japan or India?”

Hill agrees that diversification overseas is important because of the growing demand that will come from those markets.

“There is a lot of opportunity out there, but the opportunity is going to be based first on international markets, particularly in growing, developing economies,” Hill says. “It is really important for American manufacturers to really pay attention to international markets.”

For example, one of the biggest markets that American manufacturers need to be involved with is China, but it’s not because of cheap, offshore manufacturing.

“They should be looking seriously at China, because it’s an incredibly growing demand and middle class that’s going to drive global sales for years,” Hill says.

Diversification also means that you have to look at other ways to position your expertise and capabilities in the market.

“Companies are continuing to look for new markets and new ways to use their knowledge and their capital for new products,” Burkland says.

But when you look at the global economy and look at your industry and look at your business, you could get dizzy from seeing everything that could potentially happen. That’s when you have to choose a few things to focus on in your diversification efforts.

“Survey, and then pick a couple that are likely winners,” Nicholson says. “Trying to do everything is logistically impossible.”

The way Nicholson and his company decided was by looking at the products they know really well and then looking at applications where they felt their products weren’t well represented. Finally, they looked to see if they could move into those markets with their products.

“Again, [it’s] trying to leverage what you know into a new market. It’s very hard to get into a new market where you know nothing about the product and where you know nothing about the market,” Nicholson says. “You have to choose to either serve a market where you know something about the product or serve a market where you know something about the market and need to develop the product. There’s too much risk and investment to try to solve both those problems at once.”

Innovate

One of the other keys for manufacturers to find success this year is to focus on innovation.

“That’s the trick today — cut costs but don’t cut innovation because innovation is the path toward future profitability,” Burkland says.

Giorgio Rizzoni can explain why innovation is so critical. Rizzoni is the Ford Motor Co. chair in electromechancial systems, as well as a professor of mechanical and electrical engineering and director and senior fellow for the Center for Automotive Research at The Ohio State University. He says that if you and a friend have the same laptop, in theory, you both have the same battery in that laptop, even though you could each get a different capacity out of that battery.

“You sort of adapt to whatever you have,” Rizzoni says. “It doesn’t matter, from a consumer perspective, that that one battery in your computer or cell phone has whatever performance it has, and if the variability is plus or minus 10 percent, who’s going to tell, right?”

While it may not matter in electronics like your laptop or your cell phone, it does make a big difference in larger items where batteries are needed, such as electric cars. In one of those, you have hundreds or thousands of battery cells.

“Some of them can range up to $15,000 a pack,” says Suresh Babu, associate professor for materials science and engineering and director of the NSF Center for Integrative Materials Joining Science for Energy Applications at The Ohio State University. “A pack means many batteries in it. That means you have to make sure these batteries last longer.”

And that’s where innovation is critical. If you have that 10 percent variability in those batteries, it makes a huge difference and is a serious liability to the car and its cost of maintenance.

“There’s an old adage that a chain is only as strong as its weakest link,” Rizzoni says. … “There’s an analogy there — if you have weaker cells, they will bring down the body of the entire battery pack so the ability to manufacture cells with a high degree of repeatability and quality is a very important thing.”

Improvements to these batteries aren’t happening on an annual basis either — they’re changing monthly. And the saying is that as the automobile industry goes, so does the rest of manufacturing go, and the auto industry is innovating at a rapid pace, so by rule, the rest of manufacturers will be, as well.

But innovation in the automobile industry will go beyond making better batteries. As it strives to reduce the mass of its vehicles, it’s looking for lighter-weight materials to help, and finding lighter materials will also help other manufacturers.

“The more you’re able to find new ways, lighter ways, more resilient ways, more flexible ways, more whatever the characteristics of the materials, that leads to opportunities in product innovation,” Burkland says.

Rizzoni says some of the new materials that are getting implemented in automobile manufacturing are plastics, aluminum, magnesium and high-strength steel. But new materials also mean more changes in the industry.

“One of the challenges that has surfaced when you start working with similar materials is that now you’re trying to join a piece of plastic to a piece of steel, for example, so joining techniques become, possibly, a real challenge,” Rizzoni says.

This is where you have to look at what you traditionally do and throw it out the window. Kevin Arnold is the business development manager for advanced energy for the EWI Energy Center, which helps manufacturers in the energy sector and other industries improve their productivity, time to market and profitability through new, innovative technologies. He says, for example, that if GM built every battery for its electric vehicles to Six Sigma standards, which for years was the gold standard of quality, none of the cars would run, because they would all have bad welds in them.

“You’ve got to get so many decimal places out of quality,” Arnold says. “This is a challenge. That’s part of the growing pains we’re seeing now is that what was considered good enough for many years is now not quite good enough, so it’s looking at the fundamentals, understanding and controlling them and ongoing monitoring to ensure that you’re within limits.”

Look at the processes in your organization and find ways to make them better — even if it’s something that’s been the same way for decades.

“What manufacturers have to be open to is don’t take processes that seem simple, like welding, for granted,” Arnold says. “Welding is a fundamental manufacturing process that’s been around for 100 years, but it’s often one of the least understood processes and one of the first that could go out of control and cause problems. Ensuring that they have the right expertise on staff to look at their processes, understand the variables and understand that what they’re doing is with increasing levels of scrutiny.”

The experts recognize that the money is likely not there in your organization for you to throw out your assembly line and start with something newer and better though, so that’s why they’re working to help manufacturers find ways to cost-effectively innovate.

“All of [the processes] have to be mature,” Babu says. “Mature means not only from the science aspect but also from the industry aspect — how can we implement them in an existing manufacturing line. That’s the biggest challenge.”

But it’s a challenge worth exploring because the way to succeed this year is to push your product and process innovation efforts to the limits.

Resources: Center for Automotive Research — The Ohio State University, (614) 688-3856 or car.osu.edu; EWI Energy Center, (614) 688-5000 or ewienergycenter.com; The Maxine Goodman Levin College of Urban Affairs at Cleveland State University, (216) 687-2000 or urban.csuohio.edu; Michigan Manufacturers’ Association, (800) 253-9039 or www.mma-net.org; NSF Center for Integrative Materials Joining Science for Energy Applications — The Ohio State University, (614) 247-0001 or www.matsceng.ohio-state.edu/faculty/babu; The Ohio Manufacturers’ Association, (800) 662-4463 or www.ohiomfg.com; PVS Chemicals Inc., (313) 921-1200 or www.pvschemicals.com

Looking ahead:

Manufacturing has led the economic comeback, but will it last?

When you look at the brightening economic picture, manufacturing has played a major role in the comeback. The biggest question facing the sector is simple: Will the good times last?

Robert Dye, vice president and senior economist for PNC Bank, says the odds are in favor of manufacturers, but there are still risks.

“It is my expectation that we continue to see strong growth but not as strong in the last year or so,” Dye says.

The overall recovery in the U.S. will eventually reach across all economic sectors, including service and construction.

“When I look at price conditions for manufacturers, I’m concerned about a profit squeeze as energy and higher commodity prices drive producer prices up,” he says. “Those prices will not be able to be passed through to the consumer at this point. Even though there are currently strong profits, there is potential for profit erosion down the road.”

Companies that make consumer goods should also see better times ahead.

“I do expect the consumer sector to show ongoing improvement through 2011, as we saw consumers bounce back in 2010, with strong retail sales and a strong holiday shopping season after three disappointing seasons in a row,” Dye says. “Measures of consumer confidence are improving and job creation should improve through 2011. Manufacturing sectors that will be able to take advantage of that will be the consumer-focused sector.”

There are also potential risks in the consumer sector, as well: Foreign debt woes could increase the value of the dollar, hurting exporters, unemployment is still high, and the housing market is still weak.

“We are still in uncertain times, and manufacturers will face cross currents in the year ahead, but most of the wind will be at their backs,” Dye says. “But the lingering risks are still with us.”

How to hire in 2011

While most manufacturers are seeing things on the upward swing, hiring can still be a difficult decision as you continue lean operations. Likely, you’re down to a core group of people who you trust and can rely on to do a good job, so if you have a good core and you want to hire, you have to take an approach that most manufacturers have never taken.

“If they do have to hire, it will be slowly — one or two at a time — and they’re not looking at the skill base they have, but how do they fit in with the rest of the people,” says Chuck Hadden, president and CEO of the Michigan Manufacturers’ Association. “Can they work as a team? Is it someone everyone else will get along with? Those are all crucial things they’re thinking about beyond can the guy or the woman do the job.”

Hadden says you have to take more time in your hiring now if you want to be successful.

“Your HR person does the interviewing, but maybe you include a couple people from the floor, and they sit in on a couple [interviews] and listen to them,” Hadden says. “It used to be, when I was growing up, somebody’s grandfather or uncle would get them a job in the place and they’d take off. It doesn’t work that way anymore.”

He says to make sure you look for people who are willing to learn and want to continue to learn through technical school, additional training or whatever the company may call for.

Jim Nicholson, vice president of chemical manufacturer PVS Chemicals Inc., says you also have to trust your managers to make good hires.

“The key on the hiring process is to have confidence that your managers can hire well,” Nicholson says. “Spend time and effort training your managers on how to hire well, and make sure your managers spend enough time on the process and have choices and present choices, so that they can get input from their fellow managers and hire the best person for that role.”

Doing these things will help you as you look to add bodies in 2011 and the years to come.

Published in Akron/Canton
Thursday, 25 November 2010 19:00

3 Questions

Stephen W. Christian is managing director of Kreischer Miller, the largest locally owned certified public accounting firm in the Greater Philadelphia area. He is a member of the American Institute of Certified Public Accountants, the Pennsylvania Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants.

Q. What nontraditional services can an accounting firm provide to enhance the prospects of its clients in today’s uncertain times?

Now, more than ever, management of a business can benefit from the resources of a good accounting firm. Many businesses today are trying to navigate troubled times and some are in an enviable position of contemplating making investments to take advantage of opportunities. Beyond the traditional involvement with the preparation of financial statements and tax returns, the right accounting firm will add value by serving as a key adviser and confidant in any number of ways. Your accounting firm can assist with, among other things, evaluating financing alternatives based on their experiences with the banking community, performing profitability analyses on various segments of a client’s business, performing operational assessments and forecasting the financial impact of various investment decisions.

Q. What is the typical nature of the communications with clients?

Clients communicate with their accountants in any number of ways. Some of my clients have me attend their regularly scheduled board of directors or board of advisers meetings, some meet with me quarterly at their office or my office if they want fewer distractions, and some meet with me over coffee or lunch. For others, periodic telephone consultations suffice. These communications are in addition to the time spent face to face handling the financial statements and tax returns.

Q. Would this be a good time to change accounting firms?

If you have any doubt whether your accounting firm is providing you with value-added, meaningful services, now would be a good time to at least consider a change. These are dynamic times for a business and its management team. An adviser familiar with such topics as captive insurance companies, impending tax legislation, the new health care laws, the current financing landscape and the benefits of international business can serve as a significant sounding board to management. In addition, a change in firms will provide a fresh perspective on the accounting, tax and business issues within a company.

Published in Philadelphia