Successful entrepreneurs plan their investments over the short, medium and long terms. And they keep a close eye on their budget.
A company's ability to make investments to replace or expand equipment depends on liquidity. Technology is constantly changing. Hardware and software (equipment and computer programs) need to be replaced frequently, often before they have fully depreciated. If possible, computer equipment should be written off within two years. Software should be written off immediately—which, from a tax standpoint, is faster than necessary.
Machines, vehicles and buildings, however, also lose value and need to be replaced. In such cases, there may be a high need for liquidity in the short term. That's why it is becoming more and more important to plan long-term investments in advance and space them out in the best way possible.
With a budget, investment planning and calculation of liquidity, you can draw up a planning balance sheet. It may seem difficult, but you should try to come up with a realistic five-year budget. The second and third years are easier to plan than the fourth and fifth years.
This will force you to have a medium-term vision for your plan and to assess where the opportunities and risks are. Lastly, entrepreneurs often wonder whether their entrepreneurial vision will still be viable in the long term.
This requires predicting economic trends and how the market will develop, the company's position on the market, its potential for innovation and competition in the company's sector.
Nothing is more dangerous for a company than ignorance. That's why it's important to permanently and rigorously monitor the budget and all of the company's plans using ratios and taking immediate action if the company notices any negative deviations.
The analysis at the closing of the fiscal year alone is not sufficient, even though it is all that is required by law. Half-yearly or quarterly closings are the norm, even for small- and medium-sized companies. Monthly closings are preferable, as they make it possible to verify at any time whether expected payments have arrived, whether distribution corresponds and whether costs are under control.