Manufacturers learn from MI-SBTDC teams

November 8, 2010
| By Pete Daly |
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While the Great Recession was hammering the manufacturing landscape in Michigan last year, the Michigan Small Business and Technology Development Center formed "manufacturing assistance teams" to assist manufacturers with planning for growth and diversification.

While that type of training might seem unnecessary, the fact is, many manufacturers — especially smaller companies — are normally so busy in the good times that they have little inclination to take time to think about where they are headed. The everyday emphasis is on action, not talk.

"'Plan' for many companies is a four-letter word," jokes Theresa Sickles. "We turn it into an actionable item."

Sickles is a special project manager with the Manufacturing Assistance Team working out of the MI-SBTDC office at the GVSU Seidman College of Business. The MAT provides support to manufacturers in three specific areas: financial analysis, capital access and strategic "actioning."

"Michigan's small business manufacturers are facing times when financing options are limited and the need to diversify is great," said Carol Lopucki, MI-SBTDC state director. "Using their expertise and experience working with manufacturers, MAT can assist companies with analyzing complex situations and making tough decisions."

After its launch in 2009, MAT started to gain traction in 2010 and has since assisted more than 80 manufacturing companies across the state. MAT clients are typically small to medium-size manufacturers looking to diversify into new industries, explore options for expansion, or strengthen their internal financial management tools.

Grand Rapids' Proos Manufacturing has been in operation since 1919 and an MAT client since 2009. Owner Amy Engelsman worked with MAT consultants to analyze the company's financial information. The consultants guided Engelsman through the process of restructuring costs and developing formal sales forecasts and cash flow statements.

"It was great working with someone who acted like a partner for us, helping us identify problems and bringing them to the surface," said Engelsman. "It was very educational and really provided another perspective for us."

In 2009, 27 percent of the 15,808 clients served by the SBTDC were in manufacturing. Early in 2009, Michigan began holding a series of Diversification Summits because it was obvious that many companies serving the automotive industry were facing a questionable future. Experts were brought together at the summits to talk directly to manufacturers about ways to develop a plan for diversifying into fields that would take up the slack in disappearing auto parts orders, according to Sickles.

"What they found was, the manufacturers that were coming to the summits were a little different than (the summit sponsors) had anticipated," said Sickles. "They had a significant amount of downturn in their revenue, a lot of layoffs. … It was a lot more critical than what the state had originally thought existed."

So the MI-SBTDCs were brought in to the summits to help, because it was already working with many small and mid-sized manufacturers. It turned out that the key issue was the financial crisis, and it's not over yet for many of these manufacturers.

"It ebbs and flows," said Sickles, but in late October, her MAT team was "extremely busy." That week she was working with four clients, all of them "in a difficult banking situation." Her MAT team was trying to help them find and qualify for new sources of financing.

For some companies, the problem was not in making monthly payments on principal and interest, she said, but in the sudden drop in asset values they had been using to collateralize their loans. Through no fault of their own, many companies suddenly found themselves "out of compliance with the terms of the loan," said Sickles, after commercial property values, industrial equipment values and inventory values dropped.

Banks, too, were under pressure from federal regulators to deal with those loans that were now under-collateralized.

"That's been a major problem for a lot of companies. They are now under-collateralized on their loans, and the banks are a little uncomfortable. Did I say a little? They are a lot uncomfortable," said Sickles.

"The banks try to work with the companies, but the banks have to do what they need to do," she added.

Sickles said that from what she's seen, banks don't want to foreclose on their business customers, "but the banks do have to protect themselves, as well."

The MAT teams try to help the companies work with the banks to find both short-term and long-term solutions "to keep their doors open and keep all employees working," she said.

A key part of the training for manufacturers focuses on them staying in communication with the bank, she said. The MI-SBTDC consultants can help the companies in talks with their banks, but it is imperative that the companies communicate with the banks, she said. "The banks don't like to be blindsided."

Alto Precision, at 6534 Clay Ave. SW in Grand Rapids, is probably typical of many small manufacturing companies in Michigan. Formed in 1982 by the husband-and-wife team of Jane and David Owen, it is an engineering and machine-building company that serves a wide variety of manufacturing industries, including automotive, office furniture, medical devices and aerospace.

This year the company has about 40 employees and its sales will be close to $7 million — but that's this year. Last year and the year before were different stories. 2008 and 2009 "were years we would never ever want to repeat," said Jane Owen, who works with her company's controller to keep an eye on the finances.

Prior to 2008, the small company had good growth every year, she said, but then "the bottom fell out" as the recession really set in. Sales dropped to about half of normal. All employees went on a 32-hour work week, and eight were laid off.

Since the end of 2009, "a lot of it has come back," she said.

Alto Precision started looking into SBA loans about a year ago because "banks weren't doing anything," said Owen. That was when the company learned about the MAT and started talking to Sickles. Now orders are coming in again, the employees are working more than 40 hours a week, and there's an order backlog that will keep the company busy through the end of this year.

Ironically, when orders start flowing in and the work starts to ramp up is often when companies must look for working capital, and that still can be a struggle, said Owen.

She's optimistic, however. "We're keeping all our options open," said Owen.

Sickles also said she sees reason for optimism. 

"I think banks are a little more willing to talk with companies right now," and the SBA reinstated its waiver of fees on federally guaranteed loans. The Michigan Economic Development Corp. also has "two great programs," she said, to support the collateral needs of companies that suffered in that regard.

The MEDC, she said, is trying to support banks in ways that will increase loan opportunities for small business. "Some banks are really engaged with the MEDC with these programs," said Sickles. "Others we are still trying to educate."

Financial institutions that are engaged in trying to help small business include Huntington Bank and Omni Credit Union based in Battle Creek — to name but two, she said.

To contact a member of the MI-SBTDC Manufacturing Assistance Team in West Michigan, e-mail mfg@gvsu.edu

As host of the MI-SBTDC state headquarters, the Seidman College of Business oversees the 12-region MI-SBTDC network. Entrepreneurs and small business owners may access the services of their nearest MI-SBTDC by calling (616) 331-7480 or visiting www.misbtdc.org

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