Year-End Considerations for Manufacturers

Oct 25, 2022

As we approach the end of another year, there are a few common topics that I always like to discuss with our manufacturing clients prior to year-end to ensure they are taking advantage of tax opportunities, maximizing profits, and realizing efficiencies within their operations. Like many other industries, manufacturers have endured a challenging business environment over the past three years mainly due to the pandemic. However, if there is one thing that the pandemic has taught us is that those who can be flexible, pivot, and take a proactive approach are those that will have better chances of success and in some cases, mere survival. As such, I offer the following topics to manufacturers of all shapes, sizes, and industries to consider as we close the books on 2022.

Inventory – For some manufacturers, the pandemic forced organizations to stock up on raw materials and/or inventory to meet customer demands due to supplier shutdowns, rising prices, scarcity, and long delivery times.  In short, just-in-time quickly turned into just-in-case. As the pandemic has somewhat eased, many manufacturers may now find themselves with an overload of stock that has created issues with cash flow, space, and shrink issues for perishable product to name a few. As such, many manufacturers may now be faced with some tough decisions on what do to with it.  There are many options that manufacturers have at their disposal, such as selling at a discount, disposing, standardizing parts, donating, or simply returning it to the supplier. With each approach, careful consideration should be given to the impacts that each will have on taxes, cash flow, and overall operations.

Research and Development – As you reflect on what has transpired throughout 2022 with operations, think about any new or improved product projects that you’ve worked on.  Perhaps a customer or the market asked for a different variation of an existing product or requested something new that has not been offered or produced in the past. Or think about a change in the production process or manufacturing line(s) in connection with achieving efficiencies. In either case, many of these activities can qualify for the research and development credit that may provide some added benefit come tax time.

Continuous Improvement – No plant ever got better without someone first saying, “there must be a better way to do this.” Some of the most successful manufacturers that I’ve worked with promote, embrace, and reinforce a continuous improvement culture and mindset, not just for the leaders but, for everyone.  Continuous improvement can be one of the easiest and cheapest ways to increase efficiencies that fall to the bottom line. In fact, a mere change in process, technology, or simply rearranging shelving can lead to added efficiencies. As such, I always recommend making continuous improvement a priority, and owners, supervisors, and managers should “walk the floor” on a regular basis to connect with those who are on the front lines and gather intel. In a culture that values continuous improvement, I think you’ll find a treasure trove of information from employees most familiar with your processes who can speak to how things might be performed in a more efficient manner.  Finally, reward the feedback and ideas from the front-line workers. Money is great but, giving your employees a sense of pride and ownership in connection with making an overall impact on operations can go a long way in retaining loyal employees.

Capital Expenditures– Many manufacturers have performed well over the past few years and have realized some significant profits along the way.  While many boardrooms have their own ideas on how to spend or invest these profits, I suggest channeling and prioritizing the bulk of these funds into two areas. First, take care of your employees. Employees are the backbone of any company and in this business environment, retaining good employees is critical, especially for those who stuck with you during the pandemic. Raises and simple spot bonuses can go a long way in showing appreciation for an employee’s dedication and commitment to an organization.  Second, look at older or worn equipment and consider replacement. Along with efficiencies with operations, the tax benefits of 100% bonus depreciation can provide some added tax savings.  Also, in an era where finding and retaining labor is a challenge, now may be the time to take a second look at investment in automation. You may just find that the return on investment calculation may yield a much shorter answer than it has been in the past.

Recession – A day doesn’t go by where an economist or a news agency headline isn’t forecasting an upcoming recession. Time will only tell whether we enter a recession and to what degree but, it’s always good to take a proactive approach when the all the signs are there. First, with any recession, “cash is always king” and cutting costs and reigning in accounts receivable should be a top priority. Second, driving sales should be a priority and staying close to your customers, understanding their wants and needs and over-delivering on value can go a long way with building customer loyalty, distinguishing your entity from the competition, and preventing it from being viewed as a commodity when it comes down to price.


There is no doubt that manufacturers will continue to face daily challenges with supply chain and labor in the coming years. However, focusing on the aforementioned areas and taking a proactive approach to each can potentially assist with achieving efficiencies, profits, and freeing up resources to help address the heavier burdens that need to be dealt with. To learn more about how DHW’s Manufacturing Team can assist your organization with navigating these issues, please contact Tim Reynolds at 828.322.2070 or via email at