Manufacturers have traditionally utilized a two-pronged approach to increasing the top line of their balance sheet – sales and loans. While both can positively impact the top line, there is an often overlooked third prong to securing revenue, and that is the pursuit of manufacturing grants.
First, let’s explore the familiar sales and loans strategies, and dig into the advantages and disadvantages of each.
The First Manufacturing Revenue Prong: Sales
There are advantages to increasing your top line through sales. When the sales effort is well planned and executed, and when relationships with customers are solid and long lasting, this is a reliable source of revenue. There are always opportunities to increase sales revenue, either with new markets or new or enhanced products, or simply by increasing the efforts of your sales force.
On the flip side, consider this. Sales efforts are not always well planned, executed, or well managed. In this scenario, revenue will drop. Additionally, just one misstep with a customer can lead to a severe drop in revenue. This happened to me during my manufacturing career when we lost a significant amount of revenue because we failed to see the end-around our service provider was doing to gain business directly with the customer.
Finally, while there are many opportunities to increase sales revenue, it typically requires resources to take advantage of those opportunities. Greater sales are needed to secure these resources – a conundrum for many manufacturers.
The Second Manufacturing Revenue Prong: Loans
Loans can serve as a quick cash infusion for your manufacturing business, especially if you have a good relationship with your lender. A loan can fund your pending projects, and you’ll enjoy the current environment of low interest rates, which will likely continue for some time. This means many manufacturers will choose to justify leveraging their investments with loans, which also deliver tax advantages to the business.
However, if your relationship with your lender turns sour, or if your company experiences a significant downturn in revenue, the lender has the right to call a loan at any time. This can lead to devastating consequences for manufacturers and their employees. And we can’t count on just how long interest rates will remain low. Interest rates will rise again, which, depending on the terms of the loan, can lead to higher costs of capital down the road.
The Third Manufacturing Revenue Prong: Grant Funding
The traditional two-pronged approach can be good or bad for a manufacturing company. If business takes a downturn, revenue sources from the first two prongs (sales and loans) will drop, leaving a company in a poor cash flow situation. The third prong – grant funding – is a strategy that will diversify the revenue stream and increase the business’s resiliency. Here’s why.
When manufacturers are able to find and access grants to help fund their growth, they receive revenue that will be available as long as they perform the work they propose in a grant. They will receive that funding even if sales decrease or bank relationships go south. Furthermore, grants fund projects that help a manufacturer increase sales skills, or invest in equipment or resources to serve a larger market. This gives banks more confidence in their sustainability. In this way, grants not only create a source of revenue, but support the other two revenue generating activities.
Perhaps one of the most important advantages of grant funding is that grants don’t have to be paid back. As long as the company does what it said it would do in the grant application, the money does not have to be repaid.
Unfortunately, the vast majority of manufacturers don’t know how to find the grants that fit their project. They also don’t know how to access the funding, and lack the time and knowledge needed to develop the grant application. Many successful manufacturing companies who would like to pursue grants partner with consultants who focus their practices on grant writing for manufacturers. This is a niche specialty in the grant writing profession, but with the help of the right professional, manufacturers can find and access the grants to support their projects.
While there is little you can do to address the disadvantages of sales and loans as a source of revenue, you can add the third prong of grant funding to your strategy. There is a great deal of upside with little to no downside.
