As we think about the remainder of 2015, manufacturers are looking at domestic expansion and growth opportunities to finish the year strong, according to results from the Bank of America Merrill Lynch 2015 CFO Outlook Pulse Survey.
At the same time, the finance executives surveyed in the report expressed greater optimism about the overall economy. CFOs now rate the U.S. economy a 63, up from 59 last fall, the highest since 2008 (the scale for the CFO Outlook is 0 to 100, extremely weak to extremely strong). When it comes to the world economy, finance executives rank that a 54, also the highest score since 2008.
What does that mean going forward? More than nine out of 10 manufacturers (93 percent) report they are now investing in domestic operations. Other important growth strategies for manufacturers include optimizing the balance sheet, cited by 36 percent, and international expansion, cited by 38 percent (finance executives could choose more than one growth strategy).
In order to make the most of this optimism, finance leaders at manufacturing firms should consider the following strategies and best practices to maximize on the opportunities ahead:
Focus on Employees and Benefits
A shortage of skilled talent is cited as a business risk for one-third (32 percent) of businesses, and manufacturing has historically struggled with this issue. In order to capitalize on domestic investment, manufacturers must reevaluate their offering for employees, current and future, because the impact that a trained, motivated and engaged workforce will have on the bottom line.
Already, companies are taking significant steps for employee retention and recruitment, as shown by the 2015 CFO Outlook: Nearly all (96 percent) are offering healthcare insurance; 92 percent offer some retirement funding; 63 percent offer wellness programs and 52 percent offer flexible working hours. But healthcare costs were still cited by 38 percent of CFOs as a business concern.
Interestingly, fewer manufacturing CFOs cited this as a concern (33 percent), compared to non-manufacturing CFOs (41 percent). Nevertheless, manufacturing finance executives have to balance the overall business concern of increased healthcare costs against the expectation in the marketplace for this benefit. Going forward, CFOs should work with the human resources department to benchmark insurance benefits against competitors to have a clear understanding of the marketplace. In addition, if companies decide to require a higher contribution from employees toward healthcare insurance (cited by nearly four out of five CFOs in the 2015 CFO Outlook), then they should also provide transparency and communicate this approach to employees to increase acceptance.
In fact, this benchmarking should include other benefits for employees, including wellness initiatives, flexible schedules and personal time allotment. As manufacturers expand domestically or even internationally, which may include opening new facilities or a new acquisition, they will need an understanding of the employee expectations in those areas.
Consider New Financing Tools for Expansion
Interestingly, fewer finance executives in manufacturing are optimizing the balance sheet to drive growth: A total of 36 percent of manufacturing CFOs cited that tool, compared to 42 percent of non-manufacturing CFOs. The ability for an organization to take steps such as adding leverage or repurchasing shares depends on unique characteristics. But manufacturing firms should consider whether such steps, to free up capital or shore up the balance sheet for growth, can be used to create the opportunity for expansion. By offering some breathing room on the balance sheet, CFOs can promote the overall business objectives to expand into new markets.
This is part of a trend, as CFOs increasingly are being asked for advice on how to finance new initiatives. In order to make sure that projects to fund growth run smoothly, CFOs should follow these best practices:
- Benchmark Balance Sheet Metrics
Benchmarking against peers is an important exercise when undertaking new initiatives, as discussed earlier with employee engagement. In this case, manufacturing finance executives should ensure that they and their C-suite counterparts understand what their competitors are doing to fund liquidity. Many vendors and professional services partners can help organizations benchmark this data; consider that Bank of America Merrill Lynch offers PeerProfiler, to allow CFOs to gather and then analyze this information.
- Plan for Future Liquidity
Unlike other exercises to fund business projects, which may be short-term, CFOs should forecast their liquidity requirements for the following six, 12 and 24 months in order to free up significant amounts of cash for expansion. Timing is extremely important for credit markets. By keeping track of the needs of the business, and monitoring against the exchange rate and other fees for credit, CFOs can provide the best business strategies and ideas for their company.
- Fine-Tune Plans in Real-Time
Thanks to Big Data and the number of programs that have developed to make sense of all the information, finance executives have numerous ways to keep track of how the strategy is progressing. CFOs should be prepared to scale back the operations if the expected results do not materialize. In order to help make those decisions, finance executives should measure sales reports on a regular basis, at least weekly and sometimes daily, and compare against the overall channels. By staying abreast of the market forces, CFOs can help make the important decisions on when to continue a strategy or try new plans.
Going forward, CFOs should continue to work with other executives in order to execute on the growth plan. To drive the most growth, CFOs should focus on the employee benefits and retention strategies, as well as overall business initiatives that need financing to succeed.
All of these examples show how the role of the CFO continues to evolve from that of a master accountant to overall business strategist. By keeping the focus on the bottom line, with an eye toward the business objectives and growth strategies, CFOs can continue their major influence on the C-suite – and the overall organization.
Alastair Borthwick, head of Global Commercial Banking, Bank of America Merrill Lynch.