What a Manufacturing CPA Looks at First and What It Reveals About Your Business

Most manufacturers know their product inside and out. They can walk you through every step of their production process without hesitation. But when it comes to the financial side of the operation, there’s often a disconnect, and that gap can quietly cost thousands.

In a recent Live episode, manufacturing CPA and strategic advisor Kevin Golden broke down how he evaluates a manufacturer’s financial health from the very first conversation. The discussion highlighted how tightly operations and finances are connected and why ignoring that connection is one of the most common (and costly) mistakes manufacturers make.

The First Numbers That Tell the Story

When Kevin sits down with a new manufacturing client, he’s not diving into complex reports right away. He starts with two things: revenue and total assets, specifically inventory.

“Every manufacturer has inventory,” Kevin explained. “And that’s where there can be so many problems, pitfalls, but also kind of just gives me a good idea what kind of size of manufacturer are we talking about.”

Why does size matter? Because the challenges shift at every level. A startup manufacturer deals with a completely different set of issues than one generating $20 million in revenue. Understanding that context helps Kevin get into the right mindset before moving into problem-solving.

How Trouble Shows Up in the Financials

One of the fastest red flags Kevin looks for is how inventory appears on the balance sheet. If it shows up as a single line item with no breakdown, that’s a signal.

“A lot of times if that’s not presented properly, it’s probably because they don’t track that or they’re not sure what makes that number up or it feels like just an arbitrary number,” he said. “Whereas in reality it represents real stock that we have, which represents cash.”

Beyond inventory, Kevin also looks at whether the balance sheet makes sense overall, both in the numbers themselves and how current they appear. Accounts that haven’t changed in ages or data that looks stale are warning signs that the financial foundation needs work before anything else can be addressed.

“If we don’t have some of these foundational issues fixed, forget trying to fix supply chain. Forget trying to tie operation to finance,” Kevin noted.

Early Red Flags in Leadership Conversations

Financial statements only tell part of the story. Kevin emphasized that much of what he uncovers comes from asking questions and simply listening.

“I know about manufacturing, but I don’t know about your manufacturing company. I have to put myself in your shoes,” he said. When he asks how a company manages its inventory and the answer involves handwritten notes or manual spreadsheets, it raises concerns, not because those systems can’t work but because of how much effort they require and how often they fall behind.

Another telling moment? When owners confidently state their profit margins but the actual numbers tell a different story. “Almost every single owner is quick to say, oh yeah, it’s 20%, it’s 40%… And then you actually look at the profitability by product and they’re not there,” Kevin said. That disconnect signals hidden costs or outdated assumptions that need attention.

He also asks for a bill of materials, the breakdown of everything that goes into a product. When a manufacturer can’t produce one, it often means costs have crept up without anyone noticing.

The Three Biggest Blind Spots

Kevin identified three areas where manufacturers consistently struggle: cash flow, inventory and supply chain.

Cash flow is a constant challenge because manufacturing is so working capital intensive. Money gets tied up across the organization and the pressure to have cash available never lets up.

Inventory goes beyond just getting the number right. It’s about understanding demand, carrying the right amount and avoiding obsolete stock that quietly drains resources. As Kevin put it, carrying the wrong inventory “is a waste of money” and may be feeding directly into cash flow problems.

Supply chain rounds out the list. Many manufacturers don’t have a clear picture of where their concentrations are, what terms their vendors operate under or whether they have enough supplier diversity. “We live in a totally different environment today than we did even just last year,” Kevin said.

Why Gut-Based Pricing Gets Manufacturers in Trouble

When asked what decisions should never rely on instinct alone, Kevin didn’t hesitate: pricing.

“While your gut may lead you in the right general area, being more in tune with what that actually is and not just relying on your gut, because when you price it wrong and now you sell a lot of widgets at a wrong price, you’re stuck with that,” he warned. With material costs and labor shifting constantly, pricing based on feel rather than data can erode margins quickly.

What Sets Strong Manufacturing Leaders Apart

The best operators Kevin has worked with share a common trait, they’re transparent about what they don’t know. “The signs of any great leaders are who they surround themselves with,” he said. They invest in the right people internally and externally and stay informed about their weaknesses.

Kevin also stressed that owners should review financials at minimum on a monthly basis, comparing results against expectations and digging into the reasons behind any differences. Some operational metrics warrant daily or weekly attention.

And perhaps most importantly, leaders need to make time for strategic conversations, and include people from every level of the organization. “If you want to know if something on the production line’s broken, go ask someone who works on the production line,” Kevin said.

Build a Stronger Financial Foundation

The biggest takeaway from Kevin’s insights is that operations and finances aren’t separate worlds, they’re deeply connected. Manufacturers who treat them as one system rather than two silos are the ones who spot problems early, make better decisions and build companies that can adapt as conditions change. As Kevin summed it up: you have to take the time to work on the business, not just in the business.

To learn more about how James Moore’s manufacturing team can help strengthen your financial foundation, visit jmco.com or watch the full episode on YouTube.

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