1 Billion Turnover Can Not Get 5 Million In Cash Why Is The Manufacturing Capital Chain So Tight?

- Jan 02, 2019-

In recent years, there have been frequent breaks in the capital chain of manufacturing enterprises, and even large-scale enterprises have experienced capital chain breaks:

 

    In May 2018, the power battery star company Shenzhen Waterma Capital Chain was broken and the company stopped production.

 

    In February 2018, the mobile phone supply chain giant Oufei Technology (002456) was owed more than 6.2 billion yuan by Jin Li.

 

    In 2016, more than 20 Jiangsu shipbuilding companies were broken.

    ......

    Why does the manufacturing industry have a large capital chain problem? There are many reasons. Today, we use a dictation from a mold industry practitioner to understand why the manufacturing capital chain is so tight.

 

    Narrator: Tan Yong, who has been working in the mold industry for more than 10 years, started from small work and has his own business. Now he is a professional manager of a large mold company and runs his own mold company.

 

    I am a professional manager in a large mold injection company in Shenzhen. I also have a small factory and a factory that invests in others. We provide precision parts for drones and mobile phone lenses with high precision requirements and need to reach 0.001mm, which is made of high precision. But in the past few years, many colleagues have closed factories and dismissed workers. In 2017 and 2018, this phenomenon formed a wave.

 

    1. Overcapacity

 

    I often reflect on the reasons here. I think the first reason is overcapacity. When we do manufacturing, the bigger the scale, the faster we die, so we are worried that the industry will be capitalized.

 

    In the four years from 2009 to 2013, our lens industry is very profitable. The cost of a lens is about 5 cents, the sales price is 4 blocks, the net profit is about 70%, and I can earn 14 million for 20 million business. .

 

    However, since 2013, a large amount of capital has flooded into this industry. There may be tens of billions of capital inflows into the industry. The productivity has increased two or three times overnight, but there are so many orders, so we started to fight the price. At the moment, I only sell one piece of the lens up and down, and the gross profit margin is about 10%. I have not done it. What is the concept of 10% gross margin? For example, if we invest 2 billion yuan to buy equipment, I will do 200 million business a year, 10% of the profit is equivalent to 20 million yuan, 200 million equipment investment I have to do 10 years to recover my investment. It may take a year or two to get the cost back.

 

    But no one knows how long this gust can last. If you don't take the opportunity to expand production, others will go up and you will die. However, it is also possible that tens of millions and hundreds of millions of equipment have been put into expansion. As a result, the production line has just been expanded, there is no order, and the production line is largely idle. Then everyone only rushed to grab the bill, competed to cut prices, and finally killed the entire industry.

 

    If we don't invest in the production line, we will not be able to grab the big orders. We now supply the brands such as Huawei, ZTE and VIVO. If there are 100 injection molding machines in other companies, I only have 50 units. Then Huawei is willing to give orders to 100 units because Large delivery times are guaranteed.

 

    But the bigger the customer, the lower the profit. For example, if Huawei is a single, although it has a quantity, its price is very bad, and you can earn 10% to 15% of the gross profit at most. It sounds like a turnover of 100 million in one year, but only Earn more than 10 million profits.

 

    The profit of small customers seems to reach 30%, 40%, but most of them do not have the same amount, the same loss, the amount of the project will also bargain, the profit is not high. And small customers are at great risk and there is a risk of bankruptcy or running.

 

    2, the tax is too heavy

 

    Second, the tax is too heavy. A formal company, if the profit is 30%, 16% of which will be subject to VAT, and the remaining 14% of the profit will be subject to a 30% corporate income tax by the end of the year.

 

    There are several factories next to us. They used to avoid taxation through some tax avoidance techniques. It is estimated that these methods are illegal and have been detected by the tax authorities. If the tax is less than 3 million yuan, it will be filled now. If some small companies want to pay 3 million yuan in cash, the cash flow of 3 million yuan is enough to directly kill a factory with a turnover of 40 to 50 million. Let a company with a turnover of 100 million yuan get 5 million yuan in cash, absolutely can not get it.

 

    I have a company myself. I also made more than 14 million yuan last year. I saw my profit. The mold lost 700,000 yuan, and the injection made 1.5 million yuan. After the discount, there are still more than 800,000 yuan in profits, but last year’s income. The money of 3 million yuan was not recovered, which is equivalent to over 20 million yuan. Can this business still be done?

 

    Last year, I had more than 70 people, and this year it fell to 14 people, which is equivalent to more than 50 families who lost their financial resources because of the layoffs at this factory. These 50 employees can get seven or eight thousand for each person in a month, and now they have to find another job. But nowadays, the small and medium-sized enterprises with a turnover of 10 million yuan and 20 million yuan a year have been turned off too much, and the work is not easy to find.

 

    3, high labor costs

 

    Another reason is that labor costs are too high. The wages of workers buy five insurances and one gold, pay personal income tax, and pay the wages of 20,000 yuan a month. The wages of employees are only about 13,000 yuan. I have more than 70 employees. Even if I have nothing to do, rent, water, electricity, and labor will be thrown out at a cost of 600,000 yuan to 700,000 yuan a month. I have nothing to do for a month, and my profits for the whole year are all put in. It may be worth losing money. A 7,000-dollar employee, I may have to pay more than 10,000 yuan to him, so the business burden is over 40%.

 

    In this way, there is still the ability to upgrade technology and buy equipment. However, if the customer raises new technical standards, only the hard-headed thief buys equipment. Our boss used to work to earn money. Now he still has the ability to continue investing. He invested two hundred million at the end of last year. .

 

    4. Arrears of arrears

 

    These factors are reflected in reality, that is, the entire industry is extremely vulnerable. At present, the most lethality is the arrears of arrears. Recently, Foshan Electronics, a relatively large enterprise in our industry, has an accident, the capital chain is broken, and the supplier is owed 370 million yuan. Although its customers are big companies like ZTE and Huawei, they can't keep going.

 

    Many companies I know have been owed money, all of which are 3 million yuan, 5 million yuan, and 7 million yuan. At the beginning of the arrears, we didn't pay attention. After dragging for a month, we didn't care, and dragged on for a month. When everyone reacted to collect debts, they had already owed 5 million yuan and 6 million yuan. In the industry, the return of goods is usually 30 days, 60 days, 90 days. If you can't pay back after 90 days, it is dangerous.

 

    We also have a lot of debts that we can’t get back. The lens division made more than 70 million yuan last year, and now there are more than 30 million receivables outside, which is equivalent to 6 months of payment. Some of the arrears companies have already declared bankruptcy, and basically more than 1 million yuan can not be returned every year.

 

    Originally, the profits of the industry were thin, and when a little unexpected, the company would have problems. Our lens division has more than 140 customers this year. We are now cutting customers and preparing to cut 20 or 30. But if there are risks, we will not do it. If we do 20 customers, we will run one, and the other 20 will be white. If you have a little risk, don't do it.

 

    Judging the risk is very simple, which customer's monthly payment is not cashed on time, immediately stop the supply, and immediately through legal means to collect debt. We will give a month's time, if we don't arrive, we will stop supplying immediately and put an end to this more and more arrears.

Foreign merchants do not have this kind of business. They bring very mature things to China. The engineering drawings sent out are perfect. The drawings of a drone are sent to you, and they are exactly the same according to his drawings. That drone is no problem, and they will do quality control during the manufacturing process. If it is a drone developed by the Chinese, take the drawings to you and make it, but maybe the machine can't be started, it needs to be modified, adjusted, and finally put into production. This is a common phenomenon in China.

 

    We OEM drones, the customer gives you the drawings, you make the molds, and then keep changing, through three to five changes, the drone can be mass-produced. However, there is no such problem in foreign products. It may take two or three years to develop. After the things are mature, it takes another month or two to make the finished product, and will not change the structure. So they can do cash on delivery.

 

    Cash on delivery No company in our industry can do this because the production is very new, quality standards, process control, and so on, there is no time to be mature, the billing party will not use cash to pay the order because it To go through the process, check the goods, and pay the bill to confirm that the product is ok, and the time owed is equivalent to the time period for confirming the product's pass or fail.

 

    After all, the reason why the company owes a lot of money, or the industry profits are too thin, there will be problems when there is a storm.

 

    5. Future planning

 

    There are a lot of friends around the company that can't do much, like our hard support. We are also trying to find a way. I have another factory in Jiangxi, where there is a three-year tax exemption, and the factory decoration government subsidies in full. There, I paid the full amount of tax in the first three years of the tax payment; the local electricity fee is only half of that in Shenzhen. In Shenzhen, the annual electricity bill is about 1.2 million yuan, and as long as more than 600,000 yuan is enough; the rent is also better than It's cheap here. There are 30 or 40 yuan per square meter a month. There are only five or six dollars on that side. The rent can save more than 100,000 yuan a month. All of this saves money is pure profit.

 

    If three years later, its tax revenue should be so high, the factory will not necessarily have a profit, and it will not be able to go on. I can do 1 million business every month and earn more than 200,000. If taxes are started after three years, the tax of 160,000 will be removed in one month, and only tens of thousands will be earned. There are other uncertainties, such as changing leaders after three years, going to check environmental protection, etc., and may have no money to earn. At that time, I will dispose of all the equipment in minutes. I can earn more than 2 million yuan a year, earning my investment back in one year, and the net profit for the remaining two years. When the equipment is disposed of, I will recycle 800,000 yuan and 1 million yuan.

 

    Now, like our small boss who earned two or three million in the previous year, there are not too many companies that can open a factory with peace of mind. My ultimate goal is to move the factory back to my hometown step by step. No matter how profitable, if you can maintain it, you will run a business in your hometown. After that, your goal will not be to earn money. You can support a group of brothers. 


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