Threats and opportunities for manufacturers in 2014
In our latest manufacturing blog Ginni Cooper, head of Moore and Smalley’s manufacturing team, answers our questions about what the rest of the year has in store for North West manufacturers.
After so many false dawns, is the widely-vaunted recovery really under way and, if so, are North West manufacturers well placed to take advantage?
All the regional business surveys are pointing towards growth and optimism among manufacturers and this would appear to be backed up by official statistics from government and industry bodies. That said these are still uncertain times with manufacturers prone to instability in export markets and rising input costs, particularly energy, creating risks.
In Lancashire manufacturers have benefited from government support in the shape of the Regional Growth Fund and there are the opportunities that the Enterprise Zone will hopefully bring, though it may be some time before these are realised. Those businesses that have invested wisely, retained skills and have a clear growth strategy will be best placed to take advantage of the recovery.
Where are the key opportunities in 2014 and what are the commercial and economic drivers?
In an economic context, there are some signs that the eurozone debt crisis is easing which is better news for those manufacturers with European export markets, though there is still a long way to go. The BRIC economies and the much-trumpeted emerging MINT (Mexico, Indonesia, Nigeria and Turkey) economies look likely to provide growth opportunities, as well as a host of other foreign markets. However, businesses shouldn’t ignore the established export markets closer to home that are still providing opportunities.
Looking at other opportunities, there’s perhaps never been a better time for manufacturers to invest in research and development with generous R&D tax allowances available for qualifying businesses. There’s also a window of opportunity for manufacturers to take advantage of the £250,000 annual investment allowance before it is due to revert back to £25,000 at the end of this year. From this point of view it is essential that businesses make the most of the potential tax savings on offer, by timing capital expenditure on plant and machinery wisely.
The government’s pledge to boost apprenticeships and recent measures to cut employer NIC on new jobs will also be looked on favourably for those employers looking to recruit.
What are the challenges and constraints?
The biggest challenge in any upturn is managing cashflow. Overtrading is a common ailment for manufacturers, particularly those that have capital intensive manufacturing methods and the need to invest heavily in raw materials. Manufacturers need to be disciplined with cashflow projections, credit terms and stock control to avoid the danger of overtrading.
Having flexibility in funding streams will also be vital for manufacturing businesses looking to exploit growth opportunities. For those lacking cash reserves, success will hinge on the strength of relationships with existing or potential funders and conversations with advisers need to take place early to determine funding requirements.
What has the last 12-months been like for Moore and Smalley’s manufacturing clients and how do you see the next six months?
Our manufacturing clients are telling us positive stories. The vast majority are well placed for growth with some having invested in new premises, plant and machinery. Our advice for clients is to base investment decisions on conditions in their own business and sub-sector, without getting too distracted by macro-economics.
In the next 12-months many clients will have to deal with the cost of implementing and administering auto-enrolment pensions, which we are helping them with. Energy prices continue to give cause for concern and we have some clients beginning to look at ways of reducing energy costs through investment in more efficient lighting, motors, and heating systems, many of which qualify for tax relief under the enhanced capital allowances (ECA) scheme.