Even before the latest COVID-19 pandemic began, various international developments, such as elevated tariffs from China and the onset of trade wars, prompted companies to advocate for domestic manufacturing. These factors started an interesting discussion in the California manufacturing industry. This conversation extended beyond California.
With a global pandemic putting countries on lockdown and slowing the flow of imports and exports, a new argument has emerged in favor of domestic manufacturing in the United States. What does that mean to you if you own a California-based manufacturing business? It could mean a profound shift in opportunities. However, it might also come with challenges.
Here are a few thoughts to consider. This is whether you are looking to sell your manufacturing business shortly or simply wondering what the market will look like next.
The Laws of Supply and Demand
Many manufacturing plants have shifted from normal production to producing items considered essential at this time. These include medical supplies, hospital equipment, and personal protective equipment (PPE), among other necessities. This shift is partly due to demand from industries and government programs.
This means that, in some cases, simply having the capability to manufacture these goods can assist a company through these extraordinary times. Other items, which are essential to workers now working remotely from home, are also in high demand.
We do know that the current situation will eventually shift back to a more normal one. However, we don’t know when. What does this mean for manufacturing businesses?
- Be flexible. What you are making today may not have the same demand in three or six months. Be prepared for change.
- Be safe. The health and safety of your employees is paramount to preserving public safety and health. Some manufacturing operations are considered essential businesses in the state of California. If you are still operating, use every precaution at your disposal.
- Don’t panic. Just because things are not everyday now does not mean they won’t be, and the need for domestic manufacturing will likely be stronger than ever for quite some time. If necessary, seek COVID-19 relief from the relevant agency.
Domestic manufacturing is expected to recover, perhaps sooner than other industries; therefore, being prepared for this recovery is a good idea.
Shifting Consumer Focus
One thing we can be certain of in these uncertain times is that consumer focus is shifting, and people are evaluating the difference between their needs and wants. As consumer confidence returns, the focus of consumer spending may change to different sectors.
Both China and Bangladesh are currently experiencing low demand, while factories are resuming production of clothing and other items. For those domestic manufacturing companies in California, the story may well be the same. Consequently, the company’s focus will need to shift to meet the changing desires of its consumers.
As stated above, the key is to be flexible. Recognize that the future of California manufacturing may shift its focus after the pandemic is resolved. Therefore, it could potentially diverge from its previous direction.
The Timing and Type of Recovery
The nature and pace of the economic recovery will likely influence consumer confidence and spending. Therefore, businesses must monitor their financial situation and respond closely.
The economy could recover in one of three ways. It could recover in a “V” shape and recover rapidly, which would be the best-case scenario. It could recover in a more “W” shape, where we have a rise, a fall, and then a rise again, similar to what happened in the 1980s. The final way it could recover would be more of an “L” or “Nike swoosh” type of recovery, where the down period would last a little longer.
For the domestic manufacturing industry, especially in California, this may affect what goods are in demand and how rapidly profits return to normal levels.
What if you want to sell your domestic manufacturing business?
Is now the right time to sell your business? Can you even sell in this time and marketplace? The answer is a complicated one. It is also one you will have to answer for yourself. However, there are steps you can take, whether you plan to sell now or in the future.
- Get your financial house in order. Before you make any decisions about the future of your business, it is a good idea to have an economic snapshot of where you have been, where you are now, and what the next steps look like. This means updating P&L statements, cash flow worksheets, and ensuring that your taxes have been filed, as well as having up-to-date information for the last three years. You’ll need this for the next step anyway.
- Determine the value of your business. We offer a complimentary business valuation program that provides a general estimate of your business’s value. However, even if that is too complicated for you or if you prefer a certified business valuation, we can assist you with that process. This is an ideal opportunity to understand the value of your business and its assets fully.
- Take a business breath. It may be a good time to reevaluate your business, your goals, and what you see your future role in that business to be. Whether you are nearing retirement, plan to pass your company to family members, or are looking to sell shortly, this is a good time to formulate an exit plan. This can include ideas for your transition away from the business, and determining what you need to make that exit profitable.
We have no way to determine how long the current crisis will last. We also don’t know what the recovery will look like. Yet, there is a new, and even more compelling, argument for domestic manufacturing. Your company can be a part of that, whether you remain to lead it or pass that responsibility on to others.
Do you need a business valuation or an appraisal of your equipment and assets? Are you ready to exit your business and need to discuss the strategy and Timing that are right for you? Then you need a certified business broker. Feel free to contact us here at Rogerson Business Services. We’ll be happy to help meet your needs at this time. In the meantime, stay safe and take care.