Planning Beyond Survival: Setting Priorities
- November 2, 2020
The break-even point of production. “Back in the 2008 recession, shops were only able to break even if they were running at 80 per cent of capacity. We are seeing that again, but across many industries.” He says companies might have excess costs in their structure and are struggling to remove it.
If your only work was supplying wing spars into the Boeing 737, you were probably really happy three years ago. Right now, you might be going out of business. “If you are overly-dependent on one industry segment or one buyer, the impact of another disruption could be more acute.”
“We see companies trying to defer their payables and accelerate receivables, and EDC has seen a sharp pickup in demand for accounts receivable insurance so companies can borrow against their receivables even if they are being drawn out,” says Brownhill, who suggests communicating early, openly and honestly with your financial institutions. "It’s best to have those discussions early and get the ball rolling."
Unfortunately, opportunity may come at the expense of a company that didn’t make it through this, but coming out of an economic crisis there is often a chance to invest in depressed assets. If you can find these types of opportunities and acquire new equipment while also retaining your employees, it will boost your flexibility and drop your break-even point. Brownhill calls this “bolt-on” growth.
“There is opportunity, at least from my perspective in the manufacturing sector. Trends will ebb and flow, but there is always going to be industrial demand. If your company is in tune with the markets and you have the financial flexibility and resources to shift over the course of time, there is definitely growth coming out of this. If you are rigid and locked down in your structure, be it for operational considerations or capacity or financial availability, it might be tougher to grow out of this.” SMT