Survey finds labor issues, including a shortage of qualified workers, cited as important challenge to growth

Seven in 10 U.S. manufacturers expect revenue growth of at least 3% in 2017, but labor issues, including a lack of qualified workers, is seen as a significant challenge to expansion, according to a new survey released by the Leading Edge Alliance and LBMC, a Nashville-based professional services firm.

The National Manufacturing Outlook Survey found that 30% of small manufacturers expect revenue growth in 2017 of between 3% and 9%, while 31% expect 10% to 20% growth, and 13% expect 20% or greater improvement. Among large manufacturers, 50% expect 3% to 9% growth, while 13% expect 10% to 20% growth, and 6% expect 20% or more.

When asked about barriers to business growth in 2017, three of the top four responses were labor based, with 47% of respondents citing lack of qualified workers, 38% citing healthcare costs, and 36% citing pressure for increased wages. The survey was based on responses from more than 250 executives of small and large manufacturing companies nationwide, and was conducted by the Leading Edge Alliance, an alliance of 220 independently owned accounting and consulting firms

The top priority for manufacturers in 2017 is cutting operations costs, the survey found. However, high-growth manufacturing respondents are more focused on research and development, with 12% of high-growth respondents reinvesting more than 10% of annual revenue.

“Proactively taking advantage of tax credits, entity structuring, enhanced technology solutions, research and development, and transaction preparation will help ensure a solid foundation for growth in this segment,” said John Mark McDougal, leader of the Audit and Advisory practice at LBMC.

A new provision of the research and development tax credit, first available in 2016, supports R&D growth by allowing the credit to be used to offset payroll taxes up to $250,000. This is particularly valuable to rapidly growing and early stage manufacturing companies that may be pre-revenue, but have significant labor expenses.

In another significant finding, more manufacturers will be considering both sales and mergers in 2017 as well as strategic acquisitions. While 10% of respondents said they explored a sale or merger in 2016, 12.5% said the expected to do so in 2017. And while 16.5% said they considered an acquisition in 2016, 23.3% said they expected to do so in 2017.

“Manufacturers that are planning to sell their businesses should take a close look at operations, product line profitability, raw materials inventory and customer concentration and the sooner the better” the survey report said. “These elements and the quality of financial statements and reporting can dramatically impact a potential sale price.”