Mid-size companies face roadblocks to growth even with ample capital

Mid-sized companies, industry analysts say, prospered during the COVID-19 pandemic, but now face roadblocks that inhibit continued growth. 

Mike Gigler, senior relations manager for Wells Fargo, said mid-sized companies entered 2022 with strong capital, but the impact of labor costs, supply chain issues and transportation woes have curtailed growth. 

Wade Becker, partner in RKL’s Audit Services Group and Leader of its Manufacturing and Distribution Industry Group, agreed, saying a number of mid-sized manufacturing and distribution companies are well positioned with capital due to unprecedented demand for products during the pandemic. 

“I’ve been impressed by the way they navigated the pandemic,” Gigler said. “They adapted to the new norms.” 

Companies entered 2022 in good financial shape, Gigler said, and would continue to see sales growth if it wasn’t for a lack of materials. “There is a pent-up demand they can’t satisfy,” he said. 

In addition to supply chain issues, Gigler said the biggest challenge companies face is the lack of workers and the increased price of hiring those they can get.  

“There are a record number of unfilled jobs that impact production,” Becker said. “Many companies are looking at reskilling workers and offering incentives for new employees.” 

Some, he said, are giving sign-on bonuses and then training them for the jobs needed.  

Companies are also looking at automation to reduce the number of employees needed.  

“If machines can do a task, companies can redirect workers to other jobs,” he said.  

Becker used retail as an example. Stores have increased the number of self-scanning lanes to make up for unfilled jobs. That is being replicated in the manufacturing environment, he said. 

“So many people exited the workforce and while it may calm down, it may not get back to normal as people thought so companies are hedging as they wait to see how it plays out,” he said. 

Gigler said many of the machines needed are made overseas, so Wells Fargo has been working with them for the best possible financing.  

“You need to understand the value of the dollar vs other currencies, so you don’t get hit with a decline in value when it comes time to pay for the automation,” he said. 

 Both agree that the availability of raw materials has also been a huge issue facing manufacturers. 

“Many companies would be expanding operations now, but can’t get the materials,” Gigler said. In addition, he said, approvals for expansion are seeing delays.  

Add inflation to the mix and those materials that are not available now will be more expensive when they are.  

“Business owners need to be nimble,” Gigler said. “Money isn’t free anymore.” 

The annual inflation rate for the United States is 8.3% for the 12 months ended April 2022 after rising 8.5% previously, according to U.S. Labor Department data published May 11. 

Companies, Gigler said, are not pulling back from expansion, but they are being more diligent about their return on investment.  

Becker said a new twist in costs for companies is cyber security.  

“Companies are needing to invest in IT more now because information is becoming more vulnerable,” he said.  

Before the pandemic, criminals were targeting financial institutions, but now “we are seeing them break into manufacturing and distribution facilities and holding their information for ransom.” 

All of this adds up to uncertainty for growth through the remaining part of the year and into 2023, they said. Demand for products will continue, but whether companies can meet those demands and expand operations is the question. 

“If (companies) could hire and find raw materials they would be doing fantastic,” Becker said.