The financial outlook for 2024 is increasingly complex and challenging, leading experts to dub it “the year of confusion”. This unpredictability stems from several key factors: geopolitical instability, escalating energy prices, and elevated interest rates. Such a confluence of conditions is anticipated to slow global economic growth significantly, potentially decreasing it by 0.3% from its present rate of 2.9%. This slowdown could even mean an economic recession within Europe, dramatically complicating financial planning for 2024.
Understanding the 2024 Economic Landscape
However, when it comes to the US economic landscape, opinions are divided.
Like the rest of the world, US economic growth has been a little sluggish throughout 2023, and that’s exactly why more conservative estimates foresee that this trend will continue, with possible interest rate hikes, and a lower GDP.
On the other hand, some have more optimistic projections for the 2024 US economic landscape. The reason? The US dollar. The currency offers both liquidity and high yields, and this strength could continue into 2024, bringing with it economic growth of 1.5% in GDP, according to the Federal Reserve.
There’s also a chance that the Federal Reserve could slash interest rates in 2024, to 2.5% by the end of 2025.
Setting Clear Financial Goals
In light of these uncertainties, businesses must establish clear, SMART (Specific, Measurable, Achievable, Relevant, Time-bound) financial goals for 2024.
Traditionally, smart financial planning means that you’ll need to keep recurring expenses in mind while following three broad rules:
- Prioritize paying off your high-interest debts
- Ensure that you invest in a diversified portfolio
- Create an emergency or buffer fund
However, the unique challenges of 2024 may require businesses to adapt their strategies, particularly if they face liquidity constraints.
Risk Management
This requires more than just cutting spending wherever possible; it means you should perform a risk assessment for your business, and engage in scenario planning.
Risk assessments should highlight the largest threats to your 2024 financial goals. Whether that is a global economic downturn and possible recession, as mentioned above, or something more direct like disruptions to your supply chain or staff, you will need a contingency plan.
Scenario planning is a vital component of this process, allowing businesses to prepare for various potential situations. This preparation includes operational, quantitative, strategic management, and normative scenarios, aiding in annual budgeting and cash flow management.
Budgeting and Cash Flow Management
We all know that the importance of maintaining a healthy cash flow cannot be overstated. While our CPAs recommend accounting software such as NetSuite or Bill.com to simplify business cash flow management, this is even more important when your business faces the possibly unpredictable year of 2024. To keep your cash flow healthy, your business needs realistic budgets and financial forecasts.
This means that when you are creating your quarterly and annual budgets for 2024, you should consider historical data and market trends, as well as any potential disruptions, along with future trends and predictions. NetSuite data reports offer invaluable assistance in this process. If you haven’t yet accessed these tools, please reach out to our team for guidance and support.
Embracing Technological Advancements
By now, we’ve all heard of Artificial Intelligence (AI) and how it’s a game changer to industries across the board, including financial planning and management. The reason for this lies in its adaptability. While most of us were first acquainted with AI through generative chatbots like ChatGPT, these days, the focus has changed to the possible economic effects of this technology.
When it comes to finance, AI integration can be used to enhance precision and risk assessments, improve credit assessment processes, automate trading and investments, improve customer support systems and cybersecurity, and even revolutionize fraud detection and prevention.
But while AI is probably the best-known technological buzzword out there, it’s certainly not the only technological aspect that might influence businesses in 2024. Others include potential power grid instability because of the geopolitical issues and increased energy prices mentioned at the start of this article. Similarly, mobile internet access and usage are expected to skyrocket in the coming two years thanks to the expansion of 5G networks across the globe. Together, these advancements and challenges could have a ripple effect on existing technologies and business operations in 2024.
Tax Planning and Compliance
This could explain why the US is closing off the 2023 financial year with the highest period of unemployment benefit claimed in three months, despite the Tax Cuts and Jobs Act (TCJA) of 2017 amendment to Bonus Depreciation. While the TCJA amendments are significant, they are not the sole changes capable of impacting business operations. When it comes to financial planning for 2024, businesses need to stay informed about various evolving tax trends and changes, including:
- Over the past five years, a significant number of businesses have capitalized on the opportunity to instantly gain tax advantages from capital expenditures, thanks to the 100% bonus depreciation. However, 2023 marks the beginning of a phased reduction in this benefit. This year, the allowance will decrease to 80%, followed by an annual reduction of 20% in subsequent years, leading to the complete phase-out of this provision by 2027.
- An increase in 401(k) contribution limits, might affect your business’s administrative costs or tax liability.
- A halt on Employee Retention Credit (ERTC) claims, affecting unprocessed and unfiled payouts.
- Changes to Inflation Reduction Act (IRA) clean energy tax credits, including direct pay and transfer options, which could have an impact on businesses in the manufacturing, transport, and tech industries.
With all this being said, tax compliance and strategic planning are more important than ever.
Why financial planning is vital
Effective financial planning for 2024 should help you minimize any negative impact on your business. A simple strategy might include changing the timing of your income and expenses. For example, your business might defer your taxable income or maximize your tax deductions and credits. Other aspects to consider include accurate payroll management and effective year-end accounting.
As we’ve discussed above, there are multiple aspects to consider when it comes to financial planning for the upcoming year. This is where a CPA comes in. With their specialized knowledge of tax laws, best practices, and compliance, a CPA can help you navigate the complexities of the tax world, regardless of what the 2024 economic landscape throws at you. Through a strategic partnership with a CPA, you can equip yourself with the tools to help your business thrive in 2024 and beyond.
Speak to one of our CPAs to help you make the most of your tax planning for 2024, by scheduling a discovery call.
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