Uncertainty is definitely on the minds of average Americans these days. From unrest in the Middle East to division over government and rising debt, it’s anybody’s guess what 2024 holds. When uncertainty rises in the world, having some extra dry powder (good cash flow) can position you to take advantage of opportunities and prepare for the next upturn.
Smart pallet companies are already looking to improve balance sheets by selling off excess inventory. This is especially true for pallet recyclers, where cores and B-grade pallets may be worth less than anyone expected after the Christmas rush. Cores will flow back out of distribution centers in December for several months, and the retailers may struggle to find takers.
Certainly, prices will be lower as many pallet yards are already full to the brim. One solution is to crank up the grinder and turn lesser-quality pallets into colored mulch. This solves a number of problems. It helps clean up yards and takes poor-quality pallets out of the pool. It efficiently handles the pallets without requiring a labor-intensive teardown.
Core suppliers and retailers need to be aware that the market has changed. And it’s likely to get more competitive on the recycling front before prices rise again. Managing your yard to optimize financial returns means a greater focus on As and Club Grade pallets.
In the new pallet sector, companies are struggling to maintain suppliers (keep them in business) while avoiding taking on too much inventory. As prices dropped for all types of pallets this year, it has made the market tougher for brokers. While these suppliers still offer some benefits, some of the new entrants in the market will leave. Brokers with big pocketbooks can still finance a lot of orders, which is appeasing to pallet producers who like quick receivables.
Most pallet companies are bracing for a tougher 2024. But many economists believe the U.S. economy will avoid a recession with mild growth next year. See the article on economic drivers and forecasts on page 66. Inflation, unemployment, housing and interest rates will certainly affect economic growth and the outlook in 2024.
When it comes to making equipment purchases, there’s no time like the present. Section 179 deductions will go down from 80% to 60% next year. These deductions allow a business to immediately deduct a large percentage of the purchase price of machinery and other eligible assets instead of writing them off over the life of the asset. The Section 179 deduction limit for 2023 is $1.16 million. The total equipment purchase limit stands at $2.89 million. Both dollar limits are up from 2022. This deduction is good on new and used equipment as well as off-the-shelf software. To take the deduction for tax year 2023, the equipment must be financed or purchased and put into service by December 31, 2023.
Financing has become more challenging with higher interest rates, but there are ways to make the process easier on your business. Read the article on page 22 that covers tips for equipment financing in a more difficult banking environment. The Federal Reserve has raised interest rates to the highest point in 15 years. As a result, proper investment vehicles can help you fight inflation and possibly earn a bit on your cash reserves. Popular options include high-yield savings accounts, money market funds, certificates of deposit and T-bills.
Given the importance of good cash flow in uncertain times, it is important to develop a cash flow management system. You may be able to handle this in your accounting system or with basic spreadsheets. You can develop a cash flow projection with tools such as SCORE (https://www.score.org). Speedy billing and thorough collection efforts can help you ensure that the pipeline of inflowing cash continues.
Even in hard times, smart pallet companies continue to invest in their future. Now may be the best time to make some changes when orders are down and you can utilize staff to clean up yards, move around and optimize production workflows, and eliminate bottlenecks. From better training to proper use of enterprise resource planning (ERP) software, now may be the time to make some key changes to position your company for future success. Speaking of ERPs, you should check out our ERP Implementation Guide on page 34. This resource can help you improve your transition from spreadsheets to full digital data solutions.
