Prepping for 2025: Cleaning up accounting processes for manufacturers

The responsibilities of CFOs and finance leaders in manufacturing have expanded significantly. No longer is it sufficient to ensure accurate financial statements and tax returns. Today’s finance departments must act as business advisors, providing data-driven insights to support strategic decisions across operations, sales and supply chain management. This evolving role requires finance teams to wear many hats and oversee a wide range of responsibilities to protect and grow the organization’s assets.

As we approach 2025, finance leaders in the manufacturing space face a critical period of preparation to ensure their financial and operational foundations are robust. There are specific areas manufacturers can focus on to maximize their impact, clean up their books and establish a solid foundation for the future.

Financial planning and spend management

One of the primary focuses for manufacturers as they prepare for 2025 is financial planning and spend management. It’s crucial to verify the accuracy of accounting systems, evaluate market trends and understand volume as a key driver for manufacturing activity. Traditional budgeting methods, such as using prior year activity with adjustments for current expectations, may no longer be sufficient due to the volatile economic environment of recent years.

Manufacturers should adopt a more dynamic approach to budgeting, considering macroeconomic trends and potential disruptions. For example, the recent pandemic, supply chain issues and inflation have all tested traditional budgeting methods. By incorporating scenario planning and market trend analysis, manufacturers can create more accurate and adaptable budgets.

Supply chain resiliency

Supply chain resiliency remains a top priority for manufacturers. The past few years have highlighted the importance of managing liabilities, conducting vendor audits and addressing aging and obsolete inventory. Visibility into in-transit inventory and the benefits of a two-step receiving process to accurately manage liabilities are essential.

Vendor management is another critical area within supply chain resiliency. Regular reviews of vendor information can help prevent fraud and ensure the legitimacy of suppliers. Additionally, understanding the geopolitical risks associated with the country of origin and regional concentration can help manufacturers mitigate potential supply chain disruptions.

Costing and scenario planning 

Dynamic Costing® is a modern costing framework developed under the belief that costs are not static in a business – they are driven by actions. Adapting the Dynamic Costing® framework is becoming increasingly beneficial to manufacturers as they navigate a rapidly changing environment. Traditional standard costing methods may not be sufficient to capture the true costs of production. Instead, manufacturers should consider Dynamic Costing®, which aligns costs with business outcomes and allows for more accurate pricing and margin management. 

Building robust data models that integrate information from various sources into a scenario planning model, such as ERP systems, production data and sales tools, can help manufacturers make informed decisions about pricing, capacity management and working capital requirements. 

AI readiness 

Artificial intelligence (AI) is poised to play a significant role in the future of manufacturing. While many companies are still in the early stages of AI adoption, establishing a strong data foundation is crucial. Starting with descriptive analytics and gradually progressing to more advanced prescriptive analytics and machine learning models is recommended for the smoothest adoption of this new technology.

To successfully implement AI, manufacturers should establish ownership of major data sets, ensure accurate transactional processes and conduct regular data cleanup sprints. By doing so, they can build a solid foundation for AI-driven decision making and gain a competitive edge in the market.

As manufacturers prepare for 2025, focusing on financial planning, supply chain resiliency, dynamic costing and AI readiness will be essential. By adopting a proactive and data-driven approach, manufacturers can navigate the challenges ahead and position themselves for long-term success. Baker Tilly is here for manufacturers looking to clean up their books and establish a strong foundation for the future.