Owners of a manufacturing business should be heavily reliant on their accounting system to provide the smarts, not just the basic numbers. Why you ask! Let’s look at the main areas that impact on your business:
Slow Moving Stock
One of the biggest risks to a manufacturing business is slow moving or obsolete stock. When you have cash tied up in slow moving stock it has a direct impact on your ability to hold sufficient stock which may be moving well.
If your business holds a large number of stock lines, it is difficult to pin-point without accurate data where the problem is. KPI’s need to be presented in an easy-to-understand dashboard to help manage this. Some of the stronger accounting systems in the marketplace can do that task for you.
Essential to the success of any manufacturing business is having the knowledge in relation to your work in progress – you need to be highly efficient whilst maintaining high quality product.
The simple things that need to be measured:
- Throughput – how much product was produced.
- The Reject Ratio – minimising scrap or waste enables you to be more profitable. What is tolerable for your business?
- Rate – Slow rates of your machinery and processes might result in reduced profits but conversely fast rates may affect quality. What is your consistent rate?
- Targets – Do all of the team understand what they need to achieve in relation to output, rate and quality. If they know, is that information available for them to see at any point in their day to check they are on track?
- Downtime – When your machines and staff are not working, it’s money walking out the door. It’s crucial to keep downtime at a minimum. Does your business track the reasons for downtime so that solutions can be found for the most common reasons?
Reporting on this data manually can be time consuming and leave a lot of room for error. Good accounting software should be able to give you these figures instantly, saving you crucial time when it comes to decision making.
Whether it’s manufacturing or any other style of business, if your customers are not happy, you’ll soon not have a business to worry about. The one major measure here is On Time Delivery to commit. How often does your business produce the goods in the time that it was promised to a customer? Obviously, the higher the %, the more repeat and referred business you will have. This is something most businesses overlook, because they rely on customer feedback to measure this. However, having a KPI around On Time Delivery gives you a deeper insight that your customer feedback just won’t convey.
As with all (for-profit) businesses, the goal is to make money. One way to enhance this, is by minimising costs. Your accounting software can provide a range of figures that can help you analyse opportunities and risks. There are a myriad of KPIs that can be used to ensure your eye is always on the costs of your business. Some of my favourites are:
- Break-even – the first step should be to understand how much you need to turn over in order to break even. By doing so, you’ll understand your fixed and variable costs.
- Gross Profit % – what gross margin are you making on every $ of sales. There is no point to increasing volume if you are in fact not making sufficient margin to cover your costs.
- Revenue per Employee – how much income is generated by your business on a per employee basis. Wages are a major factor in a manufacturing plant and therefore tracking this will ensure you pick up changes in patterns.
- Energy Cost per unit – Another major expense is often power/gas. A major shift in this cost could be as simple as there has been an increase by the provider and that this may require a review of your own pricing. Alternatively, is there an unknown fault in your machinery whereby it’s drawing too much energy.
- Look at any major costs of your business and track these by a similar means.
There is a saying – what gets measured, gets done. Do you measure all the above? If this is done manually, have you measured how long it takes and what’s the cost to the business of this time? Is there better means by which this could be done?
Wow! Why am I still trying to use this outdated software!
We have many manufacturing businesses in Australia and I wonder how many are trying to work with the smaller accounting packages because they are at the cheaper end of the scale and well known. And I understand this – as of the approx. 2.17million businesses, 97% are classified as small, micro and non-employing (sole traders). It makes perfect sense that the vendors will market to these to ensure their volumes are maintained. But that doesn’t necessarily mean that they are the right fit for you.
How many of these smaller systems can provide you with the real-time information you need to ensure that your manufacturing business is profitable and runs like a well-oiled machine? As the adage goes, sometimes you’ve got to spend money to make money! This may mean, we have to allow our business to grow up and consider what else is out there that could help it grow.
And for a short time you have the chance to win your software
Leading up to the end of the financial year, it’s a perfect time to start reviewing your systems and that includes your accounting and reporting systems. At Wichwon, that’s all we do. Our free tool allows you to step through what your business needs really are, analyses the systems in the marketplace and provides you with some recommendations.
Running up until June we have a unique competition happening whereby your business has the opportunity to win a lifetime subscription to the accounting software that you choose to purchase. There’s three simple steps to be in with a chance to win:
- Utilise our free comparison tool at wichwon.com
- Purchase your new software from our recommendations
- Tell us in 25 words or less your Nightmare accounting software story
Now is the perfect time to update systems, especially if you are going to be subject to the changes from 1st July with One Touch Payroll, so what’s holding you back?
Allow Wichwon to help you make informed choices.