The Reds boss accepts another season without Champions League football will affect how much he has to spend this summer and leave them trailing behind the sides above them - with the exception of Everton.
Owners Fenway Sports Group are likely to put up about £20million for new players with the manager needing to sell to raise additional funds.
But he hopes to avoid the mistakes of last summer and believes the changes made to backroom staff during his first season in charge will help.
"I think there will be a natural transition in the summer because we need to improve our depth because the squad was very shallow," he said.
"You want to do your business as early as you can and we will look to reinforce but come the beginning of the season we would hope to have a squad ready to challenge.
"The scouts are doing a terrific job - they are leaving no stone unturned in order to get us the players we need. "
He has made it known he will bid for Hatem Ben Arfa, and with Alan Pardew saying he would love to bring Andy Carroll back to Newcastle United, could a deal be done?
The Gateshead-born striker is expected to leave Liverpool this summer after spending the season on loan at West Ham United.
Carroll joined Liverpool from Newcastle in a £35m deal in January 2011.
And United tried to resign him last summer after it became clear he didn’t figure in new Anfield manager Brendan Rodgers’s plans.
However, he was eventually farmed out to West Ham.
Asked if he would like to see Carroll back at St James’s Park, Pardew said: “He is a player everybody in the Premier League has got to be interested in if he became available.”