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Making better: helping your manufacturing clients boost their resilience

31st Aug 2023
Brought to you by
Allica Bank logo
Allica Bank is Britain’s award-winning business bank focused exclusively on supporting established...
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In our recent article, ‘The manufacturing sector: the state of play’, we explored the issues and trends manufacturers are currently facing, which accountants can help their clients keep a handle on. From staff shortages to rising interest rates and Brexit, there’s a lot to stay on top of.

Here, we’ll explore some ways you and your manufacturing clients can work with banks to help boost their resilience in today’s challenging environment. 

Making better: helping your manufacturing clients boost their resilience

Buy their premises

Provided a business has the financial means to do so, purchasing their premises can be a fantastic way to provide greater security for a business and more cashflow certainty.

Choosing to purchase the premises not only results in ownership but also provides enhanced control over cash flow by eliminating the weight of substantial monthly rent payments. Opting for a commercial mortgage, when done thoughtfully, can introduce stability into financial planning, safeguarding businesses from abrupt rent hikes or the necessity of a sizable capital outlay as a security deposit.

Beyond the financial benefits, owning the premises gives an occupant a much higher incentive to invest in it. A manufacturer could, for example, spend money on better facilities and branding to make it a more inviting and enjoyable workplace for employees, which could be critical for staff retention considering the current shortage of skilled talent in the sector.

It can also encourage greater investment from a business in making their premises more sustainable. Eugene Vichare, a relationship manager at Allica Bank, explained that “Energy efficient enhancements such as solar panels, modern glazing, improved heating and ventilation systems can help towards the longevity and energy efficiency of a business premises. In turn, this may work towards properties being more fundable, where improved lending terms can potentially be offered for properties with better EPC ratings.”

Of course, buying a premises won’t be right for everybody so it’s important to consider each business’s individual circumstances. Some might prefer the flexibility of renting, or may be on such a growth path that they might soon outgrow their current premises.

Unlock equity in their premises

For those manufacturers that already own their premises, another option is to remortgage the property to unlock capital that can then be invested elsewhere. Raising capital can be one of the hardest parts of being a business owner, and business owners often don’t realise the potential of the four walls around them.  

Eugene Vichare explains that “A business may release equity in their premises to support growth such as a deposit on a new premises if they're expanding. They may also wish to pay off other investor or director loans by availing of a long term facility that may be less prohibitive to their cash flow.

“For example, a manufacturing business might have equity in their premises and is looking to release equity to expand part of their factory and also pay off some shareholder loans. In doing so, they will improve the aesthetics of their premises and will also improve and simplify their balance sheet.”

There are risks that come with releasing equity, too. Your client will have a higher debt to repay and less equity in their property should they come to sell. You should make sure your client is aware of these before making a decision.

Invest in property to diversify and grow income streams

Another option is to get the support of a bank to purchase a business premises as an investment, rather than to operate from.

Not only can your client generate additional income from rent paid by the occupant, but it also diversifies their income streams. This can both protect the business from unforeseen events such as a halt in production or sales, or, for a business with a more seasonal nature, boost cashflow when it might otherwise be stale.

Having additional revenue streams that aren’t tied to day-to-day operations could also hedge against market downturns and raise the overall value of your client’s business. For a hands-off approach, outsourcing the management of investment properties can streamline the process further. However, outsourcing comes with its own costs and potential challenges, and not all businesses may be comfortable relinquishing control over their property's management.

Wahid Nawaz, relationship manager at Allica, gives us an example:

“A lot of British manufacturers faced difficulties with their supply lines during and after the covid pandemic, thanks both to the lockdown restrictions and barriers on the UK border. This created some real struggles when it came to cashflow."

“Those businesses that were well diversified, such as those with multiple revenue streams, were able to better fill those gaps. Not only was this critical at the time, but it will make them more attractive to lenders in future should they ever want to borrow more.”

Buy assets on finance

Upgrading or buying new machinery can be vital for a manufacturer looking to boost productivity, expand to new product lines, or implement more sustainable practices. But it’s often expensive, and not many businesses can spare the cash the buy new machinery outright.

However, a bank could help your client do just that using asset finance. It works by a business paying a set amount to the bank each month to use the asset, rather than paying the full upfront cost. Then, when they’ve made the last repayment, it belongs to them.

It can be a great way to purchase new equipment while keeping a handle on cashflow.

Nargis Quraishi said that “a lot of manufacturers are wanting to improve their sustainability currently, either to hit their own sustainability targets or those of the businesses they supply. They could, for example, invest in machinery that uses less energy, helping reduce their overall emissions. Or change their production lines to use more sustainable packaging.

”That’s a lot easier said than done, though. These are big projects that need significant capital to get off the ground. Asset finance can help businesses do so without having to take a big hit on their balance sheet."

Remember, though, that by purchasing the assets on finance, your client will likely end up paying more for the asset than if they bought it outright.

Get better returns on surplus cash and savings 

After years and years of rock bottom interest rates, increases in the Bank of England Base Rate has brought a ray of hope for savers seeking better returns on their hard-earned funds. This shift not only signals improved prospects for generating income from business savings but also introduces a promising avenue for businesses to make the most of their surplus cash.

The problem is, that many businesses are still reluctant to shop around, often because they don’t realise there’s any point. But in fact, there are now plenty of banks offering some really decent returns on business savings, presenting a fantastic opportunity for accountants to guide their clients towards optimising the potential of their surplus cash.

When faced with emergencies, the significance of having this surplus cash cannot be overstated. Consider a scenario where a business allocates funds for covering tax obligations; in doing so, they stand to benefit from earning interest and achieving a profitable return on their investment.

"The difference this can make can be substantial." said Matt West, Allica Bank's relationship manager for the South West.

“Take Allica’s instant-access Savings Pot, for example, which is part of our business current account and currently offers a rate of 3.5% AER. If a business manages to save £1 million and holds this amount in their account for an entire year (and the interest rate stays the same), they will be able to earn an extra £35,000 as interest income during that 12-month period. That’s a substantial sum of money; it's an extra member of staff or new kit in that business's back pocket. That can be game-changing.”

Leverage the expertise of a relationship manager

If your client’s bank provides a relationship manager – someone who actually knows you and your client and can provide personalised expertise – then they can be a fantastic resource for banking product knowledge and support. A relationship manager can add a different perspective and, if they’re doing their job well, find solutions that a business may otherwise have not known existed.

At Allica Bank, our relationship managers love working in conjunction with a customer and their accountant, as we believe this is an incredibly powerful combination of expertise.

A relationship manager can also support you and your client when making an application for lending. They can give tailored support on what information you should include and updates along the way if you need them.

Matt West said, “as a relationship manager, we like to think of ourselves as providing a strategic advantage for our customers. A kind of secret weapon. Allica Bank’s relationship managers have helped numerous manufacturing businesses and their accountants, and I’m sure their expertise has enabled many of them to achieve things they otherwise may not have been able to.

“Manufacturing businesses often have complex ownership structures, significant lending requirements to access machinery they need, and may own their premises. Without human expertise on both sides of the conversation, it can make a banking relationship a real challenge.”

If you have a manufacturing client that you want to discuss with us, Allica Bank has local relationship managers up and down the country who would be happy to help.

Find your relationship manager