To better understand the businesses you advise, you must first know the specific challenges affecting them. There are 7 basic sectors of business that each come with their own set of advantages and disadvantages when it comes to fiscal management and cashflow forecasting. In episode 25 and 26, we discussed the components of managing every business, in today's episode of "Building Your Multi-Million Dollar Practice," we will be covering discreet manufacturing. This sector is made up of companies that create inventory by assembling pre-made components. Where process manufacturing takes raw materials and builds from them, discreet takes established components and combines them into a final product. Some examples are a Swiss watch and an assembly line automobile manufacturer.
The key cash flow and fiscal management factors for discreet manufacturing is:
- Efficiency in the assembly process
- Inventory Control
- Depreciation and equipment maintenance/replacement
Efficiency, as well as having quality process manufacturing components in the first place, ensures that the assembly process is functioning well. Any inefficiency will slow down the whole structure of your line, making it one of the biggest areas to lose money.
Inventory control is vital due to this being the biggest asset to the company. If a product is not selling, your cash is tied up from doing other things. One of the most important aspects to know is the turn rate, or the time until the sale, and the level of reserves. You want to be able to meet demand, and make sure that the margin set for the company makes sense when strategizing for the future.
Pricing the products in discreet manufacturing helps you optimize the margin against inventory control. A Price Performance Model will help, as you consider what price makes you sell more and what the perception of value is from the customers buying the product.
When looking at discreet manufacturing, equipment makes up the largest expense. Due to tax laws, government taxation can play a major role in depreciation of this expense, giving the company room to look at profitability into the future, as well as understanding more of what they can do now in terms of cashflow.
Ultimately, the more a discreet manufacturing company is able to assess their current practices and grow in their efficiencies, the better off they will be in the future. An advisor's job is to help ask the right questions to guide them toward a better tomorrow, and knowing about each sector and the challenges they face helps guide their fiscal management journey.
Listen to the episode to learn more, or book a time with our team to learn more and get started today!