COVID-19 Recovery for Manufacturers: Improving Cash Flow and Managing Disruptions

As the effects of COVID-19 continue to wreak havoc on our nation’s economy, there may be no industry more disrupted than manufacturing. While some manufacturing companies are still in survival mode and evaluating whether or not to keep their doors open, others are cautiously transitioning into recovery, picking up the pieces from the pandemic and evaluating how best to move forward. Whatever the situation, all companies are looking for ways to mitigate the financial impact of the pandemic.

Katz, Sapper & Miller’s Zach Sauder and Ryan Miller recently co-hosted a webinar with the Indiana Manufacturers Association to discuss tactics and strategies manufacturers should employ to ensure financial viability.

Tax-Savings Strategies

Miller suggests the tax provisions that came out of the CARES Act may be the lowest hanging fruit. “These changes were designed specifically to provide immediate cash flow relief,” he says. Savings opportunities include new payroll tax credits that employers can receive in real-time, retroactive income tax changes that offer significant savings, and more.

Other tax savings strategies that Miller believes companies should evaluate have been available for some time but deserve a second look in light of COVID-19, such as:

• The acceleration of disaster-related losses
• The use of Form 1138 to defer 2019 payments (This can be filed by C-corporations that have balances due for 2019, but expect to have a net operating loss in 2020 that will generate a refund when carried back.)

Finally, Miller cautions manufacturers not to forget the traditional considerations such as the evaluation of accounting methods, treatment of pre-paid expenses, questioning whether a company is exempt from the requirement to account for inventory, and whether credits such as R&D are being maximized.

Cash Flow and Operational Efficiencies

A longer-term mitigation strategy involves creating cash flow projections. To create realistic projections, Sauder advises companies evaluate the following three areas:

1. Understand your customers. Don’t make assumptions about when you’re going to receive payments from them. Ask how their business is doing and get in front of their payment schedule.
2. Discuss payment options with your suppliers. Often, suppliers will offer discounts for early payments. Companies may also consider requesting a change to payment terms for a period of time, such as a 45-day remittance versus a 30-day remittance.
3. Evaluate internal controls. Although putting spending controls in place can be uncomfortable, it will always yield savings. “If cash is king, you either sell more or spend less. So controlling spending is a critical piece of the equation,” Sauder says.

Once projections are in place, companies next need to look at the following for efficiencies – and therefore savings:

• Inventory management programs to ensure wasted costs are minimized
• Documented workflows and procedures, including back offices and shop floors, to reduce risk, cut down cross-training costs, and identify redundancies
• Margin analyses and time studies to identify sources of profitability and waste alike

Sauder concludes on an optimistic note. “Taking these steps not only opens up many opportunities for savings, they help get companies through times of crisis, just like we’re seeing today.”

View the full webinar here:

Visit the KSM COVID-19 Resource Center