How to Start a Manufacturing Company on a Budget

How to Start a Manufacturing Company on a Budget

The ‘death of manufacturing’ has been completely overblown by politicians and the press alike.  While the days of factories employing tens of thousands of people, and with it, the promise of lifetime employment is largely gone; manufacturing is continuing to evolve.

With that evolution comes the opportunity to start your own manufacturing company. However, taking the leap can be a daunting task.  Not only do you need to have the know-how to manage production but you also need customers and capital to ensure move out of your garage and into a proper ‘factory’.  With that in mind, here are some tips for aspiring captains (and captainesses) of industry can start a manufacturing company on a budget.

It’s Not All Doom and Gloom

Did you know that the U.S. still boasts the largest manufacturing economy in the world?  It’s true! The country produces more than 18 percent of all the widgets and doodads pumped out by factories everywhere.

Sure, you might not want to open a slipper factory, when a Chinese manufacturer can churn out the same product at the comparable quality for pennies on the dollar.  But the size and diversity of the U.S. manufacturing economy is a testament to the economic resilience of the country – even with the prospect of a global trade war.

This points to the two-fold advantage which sets the U.S. apart from other large manufacturing countries such as Canada, Germany, Korea, the UK, and the elephant in the room – China.  The first advantage is the focus on advanced manufacturing, this is the integration of innovative technologies to improve processes and products.

The second advantage is the size of the domestic market.  This cannot be understated.  Sure, China has more than one billion citizens and the second largest economy in the world; however, the purchasing power of the ‘average’ Chinese citizen is well below that of the U.S.  In simple terms, the local market in the U.S. remains larger than that of China.

Now let’s get on to starting a manufacturing company.

Money Matters

As you probably know most manufacturing businesses are capital intensive.  This is due to the need to purchase the equipment and materials required to make whatever it is that you are making.  However, not every manufacturing business is the same.  While a steel mill might require hundreds of millions in investment, you might be able to start a sheet metal business with a smattering of hand tools and some used water jets.

In addition, there several states and cities offer low-interest loans or grants for manufacturing companies and there is always the option of going to the Small Business Administration for some help in getting started.

But don’t think that you need to go into debt to start a manufacturing company, in fact, if you have some customers lined up then you might be able to use an age-old cash flow trick known as ‘customer finance’.  This is when your customers act as your bank by providing upfront deposits with the remainder due prior to delivery.

Depending on the scope of the products you will be making you could also pursue purchase order factoring or letters of credit.  Regarding factoring, this works best when your customers are large companies with established credit histories.  In addition, letters of credit can take time to open and can be costly to process – though it remains a standard trade finance option for billions in commerce globally.

Customers

When it comes to customer financing, the first thing you’ll need is customers.  Yup, they are that important and if you want to have a thriving business in general, you can’t keep the lights on without them.

As such, one of the best ways to start a manufacturing company is to already have some customers in hand.  Maybe you started with a small shop in your garage, making and selling your good at a local market or online.  This is a great start as it will allow you to meet some of your future customers.

From this foundation, you can fuel your growth.  However, don’t take having three or four regular customers for granted.  The reality is that customers come and go, and the economy can change at any moment – none other than billionaire investor Ray Dalio thinks we are heading towards a recession.

As such, you want to make sure that you have a solid sales pipeline in place to support the growth of your business.  This can include online channels for consumers or business customers, a great website, social media and email marketing, as well as good old face-to-face sales.  Combined, these activities will make sure you are meeting as many new customers a possible.

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