Drafting a budget for your engineer-to-order manufacturing firm can be a tricky task if it's not managed correctly. Although you can look at a budget as nothing more than a set of numbers, this document actually outlines the strategic vision of where you want to take the company in the coming months and the years.
While some custom-design firms take last year's budget and simply update the numbers to account for current working capital and projected cost increases, savvy managers use this document as an opportunity to create a game plan the company can use to advance its growth efforts.
In fact, according to survey conducted by Gatepoint Research, 83 percent of manufacturing executives said growing revenues was their top priority. Further, 73 percent of respondents said cost cutting was the most important concern. With more competition from emerging markets, strict compliance requirements, fluctuating costs of raw materials and increasingly more complex supply chains, custom-design manufacturers have to optimize their budgeting processes to keep pace.
Make compromises when necessary
Unfortunately, no matter how successful your company is, there will still be limited resources to go around. With each department head jockeying to get as big a slice of the budgeting pie as possible, it can lead to conflicting views on how to best allocate these resources for the benefit of the company. Ensuring all departments have the money they need to operate at an optimal level typically involves finding a balanced compromise between two or more visions.
"Without sound fiscal discipline, companies end up spending money they don't have."
In addition to making compromises between a variety of viewpoints, sometimes choices have to be made between where to cut line items. For example, no matter how much time you spend planning for the upcoming year, unexpected expenses have a tendency to pop up from time to time. These can stem from broken equipment that needs to be replaced or a sudden surge in demand that requires you to hire additional labor. Without sound fiscal discipline, you can find the company spending money you don't have. If spending money for something you didn't budget for is unavoidable, this may also require a compromise between removing budgeted items to finance whatever it is that needs to be paid.
These moments can be useful though. Disagreements over resource allocation and unexpected expenses can provide an opportunity for engineer-to-order manufacturers to locate areas of the company that need to be addressed, which can ultimately streamline operations and eliminate wasteful spending.
Cut costs where possible
Removing unnecessary overhead and cutting costs as much as possible should be a primary concern during every budgeting process. But this is a lot easier said than done.
"Another way to cut costs is to refinance any debts"
Often, this involves reducing common expenses. One way to balance the numbers is by cutting discretionary spending, like travel costs or bonuses, LBMC, a professional services company, recommended. While these might be contentious decisions, they can ultimately create larger profit margins in the long term.
Another way to cut costs is to lower how much you're paying for capital. You can accomplish this by refinancing some or all of the company's debt. This can greatly reduce the amount of money your manufacturing firm is spending each month on any business loans.
Use budgeting software
Managers who rely on pen-and-paper methods or digital spreadsheets for their budgets aren't truly optimizing their resource allocation. These processes are prone to errors, which can leave a firm scrambling to plug gaps in the budget due to miscalculations or improper Excel formulas. Further, these methods make it difficult if not impossible to extract the information necessary to make reports and summaries.
Questica ETO, budgeting software designed specifically for the engineer-to-order manufacturing sector, lets companies drill down into the granular financial data. Implementing a budgeting software platform can provide the detailed, real-time insight into the ways necessary to keep costs checked so custom-design manufacturers can grow their revenues.
Budgeting software can help engineer-to-order manufacturing firms create summarized or detailed estimates from past jobs, or load pre-designed estimate templates, allowing managers to optimize their budgets.