Year-End Planning in Manufacturing
We’re approaching the fourth quarter and companies are beginning to do their year-end planning. As systems integrators and fabricators, we find it interesting to see how the results of this planning are played out in different years for different clients. Depending on their analysis and plans it can mean feast or famine for companies like ours. It’s hard to know if they all use the same set of rules and just have different circumstances or if different companies have completely different criteria for what they do.
If you google year-end planning in manufacturing, ninety percent of the responses are about tax planning. And it is no doubt true that many of the decisions made by manufacturing companies are driven directly or indirectly by the tax impact.
In past years, where there was balloon depreciation offered for capital investments, many companies accelerated capital expansions to take advantage of this tax benefit. Some companies budget on an annual basis, and depending on how effective they have been in planning and spending through the year, they may be completely out of funds or need to rush at the end to try and catch up on the delay in early spending.
Other companies use year-end to manage their cash flow, either positively or negatively. Some ask to pay early for work that will be done in January. Others ask to have the work done but defer the payments until the following year.
There are entities like public universities and other tax exempt entities that don’t have tax issues to deal with. They often have excess funds to spend at year-end because of the use it or lose it in the following year budget rule. These tend to be make project that don’t have the priority of some other items.
The last group of spending is the year-end maintenance spend. These are companies who, rather than do summer maintenance shutdowns, do a plant shutdown over the Christmas and New Year holidays. Whatever the reason may be, we try to have manpower available to push all the projects through prior to year-end to satisfy the needs of clients. Our employees often give up their own holidays to accommodate the needs of clients who may not have planned very well, or those who do their tax planning late and need to accommodate their late discoveries.
Optimation is an engineering and skilled trades service company and manufacturing is our focus. As you plan for the year-end let us know your needs and we’ll do our best to find ways to meet them.