The New Argument for Domestic Manufacturing
Even before the latest COVID-19 pandemic began, various international moves like elevated tariffs from China and essential trade wars beginning, companies began to argue for domestic manufacturing. That started an interesting discussion in the California manufacturing industry and beyond.
With a global pandemic putting countries on lockdown, and slowing the flow of imports and exports both, there is a new argument for domestic manufacturing in the United States. What does that mean to you if you own a California based manufacturing business? It could mean a serious shift in opportunities, but not one without challenges.
Here are a few thoughts for you, and things to consider if you are looking to sell your manufacturing business in the near future or if you just wonder 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, and also things like medical supplies, hospital equipment, personal protective equipment (PPE), and more. This is in part due to demand from industries and from 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, those essential to those workers who are now remotely working from home, are also in high demand.
We do know that this current situation will shift back to a more normal one at some point, although we don’t know when. For manufacturing businesses, what does this really mean?
- 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 preserve public safety and health. Some manufacturing is considered an essential business in California. If you are still operating, use every precaution at your disposal.
- Don’t panic. Just because things are not normal 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 you need to, seek COVID-19 relief from the appropriate agency.
Domestic manufacturing will recover, perhaps sooner than other industries, so being ready for that recovery is a good idea.
Shifting Consumer Focus
One thing that we can be sure of in these uncertain times is that consumer focus is shifting, and people are evaluating the difference between needs and wants. As consumer confidence returns, the focus of consumer spending may shift to different sectors.
Both China and Bangladesh are experiencing this now. While factories are back to work making clothing and other items, the demand for them is low. For those domestic manufacturing companies in California, the story may well be the same. Company focus will also need to shift to meet consumer desires.
As stated above, the key is to be flexible. Understand the future of California manufacturing may have a different focus after the pandemic is resolved than it did beforehand.
The Timing and Type of Recovery
Consumer confidence and spending will likely be impacted by the type and shape of the economic recovery, and it is important for businesses to monitor the economic situation closely and respond accordingly.
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 more like a “W” where we have a rise, fall, and 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 get back 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, and one you will have to answer for yourself personally. However, there are things you can do, whether you want to sell now or later.
- Get your financial house in order. Before you make any decisions about the future of your business, it is a good idea to have a financial snapshot of where you have been, where you are now, and what next steps look like. This means updating P and L statements, cashflow worksheets, and making sure your taxes have been filed, and that you have 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 free business valuation program that gives you a general idea of what your business is worth. But even if that is too complicated for you, or you want a certified business valuation, we can help you with that process. This is a good time to fully understand what your business and your assets are worth.
- 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 time to retire, plan to pass your business to others in your family, or you are looking to sell in the near future, 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 or what the recovery will look like. We can know that there is now 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 even an equipment and asset appraisal? Are you ready to exit your business, and need to talk about the strategy and timing that is 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.