Industry guide · Manufacturing
The financial side of running a manufacturing business: a guide for Canadian owners
What a manufacturer's owner should be thinking about on the money side, from what each job really costs to inventory, equipment, crew payroll, tariffs and the bank. Each section links to an in-depth guide.
The short version
- Know what each job and product really costs, including burdened labour and overhead
- Inventory and work in progress are where a manufacturer's cash and profit most often go missing
- Equipment, payroll and cross-border trade each have rules that can cost or save real money
- Monthly numbers you trust are what keep your lender, and your own decisions, on solid ground
Manufacturing ties up more of an owner's money, for longer, than almost any other small business. Steel, components and wages go out the door weeks or months before a customer pays. Machines cost as much as a house. And a few points of margin on the wrong product line can decide whether the year is good or bad.
This guide covers the financial side of running a small or mid-size manufacturer in Canada, from a 10-person fabrication shop to an established plant. Each section explains what to be thinking about and links to an article that goes deeper with worked examples.
Know what each job really costs
Most shops know what they quoted. Fewer know what the job actually cost once materials, burdened labour (wages plus CPP, EI, vacation, WCB and benefits) and shop overhead are counted. Without job costing, a margin problem only shows up at year-end, when it's too late to fix.
And if expensive machines drive your overhead, allocating it only by labour hours can make your most profitable product look like your worst.
Go deeper: What does each job really cost you? Job costing for manufacturers
Free up the cash on your shop floor
Every day of inventory and every day a customer takes to pay is cash tied up. The cash conversion cycle (days of inventory plus days to get paid, minus days you take to pay) measures it in one number. In a $6 million shop, collecting 10 days faster frees around $164,000. Deposits and progress billing on custom work are the cheapest financing you'll find.
Go deeper: Where manufacturers' cash gets stuck
Make inventory match the books
Inventory is often a manufacturer's biggest asset, and the one most likely to be wrong. Timing, unrecorded scrap and unposted receipts open a gap between the count and the books. Monthly cycle counts close it. How you value inventory at year-end also affects your tax, and obsolete stock needs dealing with properly.
Go deeper: Why your inventory count never matches your books (and how to fix it)
Machinery, equipment and your tax bill
You deduct equipment over time through capital cost allowance (CCA), and manufacturing machinery has its own classes and, at times, faster write-offs. When you buy, how you finance it and when you sell old equipment can swing your tax bill, and your loan covenants, by a lot.
Go deeper: Machinery and equipment: CCA, timing and financing for manufacturers
Pay your crew correctly
Shift work brings overtime, overtime banking, general holiday pay and vacation pay, each with its own rules. Getting them wrong means back-pay, and unhappy crews. Shift premiums and WCB premiums need to be in your labour costs, and your quotes, too.
Go deeper: Payroll for shift crews: overtime, holidays and the true cost of labour
Imports, tariffs and GST at the border
If you buy materials or parts from outside Canada, you pay GST at the border, deal with customs paperwork and, since 2025, possibly tariffs or counter-tariffs. Some of that can be recovered, but only with the right records. Exports have their own GST/HST treatment.
Go deeper: Imports, tariffs and GST at the border
Report like your lender is watching
Most manufacturers borrow against receivables and inventory, and the bank wants monthly reports and covenant calculations. Calculating your covenants every month means a breach never arrives as a surprise. A one-page monthly pack keeps you just as informed as the bank.
Go deeper: The numbers your bank (and you) should see every month
Pay yourself and your family the right way
Owner-managed manufacturers often have a spouse, son or daughter working in the business. Paying family members through salary or dividends can make sense, but the tax on split income (TOSI) rules decide whether dividends to family are taxed at their rate or the top rate.
Go deeper: Paying yourself and your family from a manufacturing company
Close the month properly
Receipts, shipments, work in progress and payroll all cross the month-end line. A proper close (cut-off, WIP at cost, inventory roll-forward and accruals) is the difference between monthly numbers you can act on and numbers that swing for no real reason.
Go deeper: A month-end close for manufacturers
Getting help
Some of our largest clients are manufacturers. Some hand us the whole financial side; others have us support their office staff with job costing, the month-end close, payroll and lender reporting. See how we work with manufacturers, or book a free call.
Sources
This guide is general information, not advice for your situation. Rules and rates change, so talk to us before acting on it.