Helping Clients plan for 2024: 5 key tasks to do now

As 2023 draws to a close, it’s good practice to start looking ahead and plan for the future of your client’s business. It is often the case that clients themselves may be too busy delivering their service to do this, so its  valuable to clients to do the strategic work for them. If they are not finance experts, they may not know where to start and will be unaware of what risks or potential rewards face them in 2024. With economic uncertainty still present, as accountants and business advisors, you have an opportunity to empower your clients to look forward with positivity into next year from a strategic perspective. In this blog we will look at five key areas where you can add value and shape the success for your client. By addressing these five issues you can help them develop comprehensive plans that will set their company up for success in 2024. Read on for more details.

1. Consider the impact of winter energy costs 

Managing winter energy costs will be essential for all businesses in 2024. And, if your client has premises, the current high costs around energy prices could be a make-or-break issue for them. Furthermore, business energy prices can have a substantial impact on businesses during the winter months in many often-unforeseen ways including operations and financial performance. There are many ways you can help, adding real value.  

• Operating expenses. Energy as an operating expense will affect many businesses, especially those in sectors that require heating, such as manufacturing, agriculture, and hospitality. These businesses typically experience a significant increase in energy consumption during winter, this results in higher energy costs that will directly contribute to increased operating expenses and will consequently squeeze profit margins. Helping clients predict next year’s winter utility expenses will give them the confidence that even in the worst-case scenario, they will still have a viable business in 2024. 
• In 2024, supply chain expenses may affect overall operational efficiencies.  Energy is often a critical input for production and transportation. Sometimes, increased energy costs can disrupt supply chains, leading to delays in production and distribution. For example, challenges could be encountered for businesses who rely on just-in-time inventory systems if transportation costs surge. Anticipating supply chain costs is an essential part of business planning for 2024. 
• Profit Margins: Rising energy costs can significantly impact the profitability of businesses with fixed contracts or prices. This is especially challenging for industries that are unable to pass on the cost increases to their customers due to competitive pressures. Assisting clients with a thorough cash flow and profit analysis will prove invaluable at this time. Whilst profit may need to take a temporary dip, helping clients keep a focus on cashflow will ensure their companies are prepared for better times.
• Competitive Advantage: Energy costs play a crucial role in determining a business’s competitiveness. For companies operating in energy-intensive sectors, the ability to keep energy costs in check can make or break their competitive edge. This is particularly true when comparing these companies to their counterparts in regions with more affordable energy prices. Industries such as aviation, shipping, and chemicals are directly affected by the higher costs. Additionally, the food industry, travel agencies, and hospitality sector are also affected.
• Insightful Investment Decisions: Rising energy costs can prompt a re-evaluation of capital investments. Adopting energy-efficient technologies and practices can help businesses combat the burden of increasing energy expenses and business advisors can guide clients in good decision making. High energy costs can also encourage businesses to invest in research and innovation and procuring more energy-efficient processes and technologies, which in turn can become a differentiator for businesses. It can also be a catalyst for companies to consider their environmental and sustainability credentials which can provide competitive edge and enable companies to stand out in a crowded market. 
• Contract negotiations: Businesses heavily reliant on energy inputs face more challenging contract negotiations during periods of energy price volatility. It is essential to reassess and possibly renegotiate long-term supply contracts to adapt to the changing dynamics of energy costs. Considering supply chain cost projections is vital in this process. A cashflow forecasting tool can be used such as Clearview can be used at this time to assist with this. 

Businesses advisors and accountants can lead the way in helping their clients to build operational resilience to withstand energy price fluctuations and this will in turn propel the company into greater resilience in the longer term. 

2. Forecast Supply Chain Costs in 2024:

Forecasting supply chain costs is a critical component of creating a sound strategic plan for any organisation. To accurately predict these expenses, companies must consider a wide range of economic, political, technological, and social factors (PEST). For example, by carefully considering the impact of inflation rates, changing regulations, and geopolitical events, advisors can develop detailed forecasts that provide valuable insights into the long-term costs of their client’s supply chains. Using advanced data analytics and predictive modelling, businesses can rely on historical data to develop detailed forecasts for the future, providing critical insights into the costs associated with the movement of goods and services from suppliers to consumers. It’s important to acknowledge, however, that unexpected events, such as the COVID-19 pandemic, can disrupt even the most well-considered forecasts.

3. Consider Impact of Credit Insurance Rating:

A positive business credit rating is undeniably crucial to the financial prosperity of a company. It’s a reflection of the organisation’s creditworthiness and its capacity to honour financial commitments. A high rating can offer a myriad of advantages – lower interest rates on loans, good credit terms, and easier access to credit. Conversely, a low score could land the business in choppy waters- high interest rates, limited financial transactions and a smaller pool of lenders willing to engage with the company. A strong credit score gives the business credibility and stability, making it an attractive proposition for potential investors and suppliers. The importance of building and maintaining a positive business credit insurance rating cannot be overstated – it could be the determining factor in securing the best financial deals, and carving out a successful financial strategy that propels your client’s business towards growth.

4. Work out the Difference Between Profit and Cash

For your client, understanding the difference between profit and cash flow is essential for accurate and effective 2024 planning. Profit may be the ultimate measure of success, but cash flow is what keeps a business afloat. Profit is an accounting measure that tracks revenue and expenses, while cash flow is the actual money a business has available. Cash is a more direct measure of a company’s liquidity and ability to meet immediate financial obligations. Without accurate cash flow predictions, a business may find itself unable to meet its financial obligations when they come due. That’s why utilising cash flow forecasting software like Clearview is so crucial. With Clearview, you can easily predict and plan your clients cash flow needs, ensuring their long-term success. By understanding the profit and cash flow distinction, your client can make better financial decisions and set themselves up for a prosperous future. To better understand the difference between profit and cash use the Clearview cashflow tool. 

5. Effect of Rising Interest Rates:

The effect of rising interest rates on business is a topic that has far-reaching implications for the economy, businesses, and individuals. Higher interest rates inevitably lead to a rise in the cost of borrowing, which can have significant knock-on effects. For consumers and businesses alike, rising borrowing costs can reduce spending and investment, putting a damper on the economy as a whole. As borrowing becomes more expensive, it’s also likely that businesses will cut back on investment projects and expansion plans, leading to a slowdown in growth. However, there is a silver lining in all of this: higher interest rates can also mean better returns on savings accounts and other fixed-income investments. Ultimately, the impact of rising interest rates on business will depend heavily on broader economic trends and the extent of any interest rate changes.

Conclusion

As 2023 ends, taking a moment to plan for 2024 is vital. Offering your clients strategic guidance in key areas – such as business energy prices, supply chain costs, business credit insurance, distinguishing profit and cash, and rising interest rates will help your client be successful in whichever sector they are in. The overarching focus of this planning should be to help your client build strong foundations that will support their 2024 success. But remember the specifics of these impacts can vary depending on the economic context and the extent of interest rate changes.