Creating a Capital Expenditure Budget for Your Business Fixed Assets
A capital expenditure budget or capital expense (capex) budget is where you plan your business expenses on fixed assets like land, building, vehicles, plant, furniture, machinery, equipment, etc. It is also called as long-term assets, because once you spend money to buy it, you can use the next budget to maintain or improve it (no more cost the same amount of buying unless it is really needed to buy the new one). To understand how to budget the capital expenses, you can follow the steps available in a expenditure budget template.
What is Capital Expenditure Budget?
First of all, you have to get the difference between capital expenditure and operating expenditure (opex). Operating expenditure is the fund you provide for business daily working operation to keep the company running, for example the salaries, rent, business travel costs, and all of sales, general, and administrative expenses. Capital expenditure budget will cost you on buying new assets as well s extending the life of existing assets of your business. For example, a Wi-Fi router is a capital expense while the monthly internet bill is the operating expense.
Capital expenditure has a role as major expense and helps to earn profit in a longer term than an operating expenditure because the assets can be used in the future. Ensure that you separate the capital expenditure from operating expenditure in the different template to make it clear and simple.
Identify Your Fixed Assets in Capital Expenditure Budget Template
Categorize and make a list of your business’ fixed assets according to your need, whether you need a new one or just requiring some improvements or upgrades. Carefully consider which assets you will categorize in, in this case you will also need to set your priority by looking back to your estimated total budget too in order to avoid a financial drain. If you are still confused to differentiate the kind of assets included to the fixed one, you may download a capital expenditure budget to guide you in determining and categorizing your assets.
Management’s Role is Essential
A capital expenditure budget must be examined, besides by the owner, by the company management to evaluate the worthiness of the assets’ cost investment, because it involves a massive expense and also gives a big impact to the operating expenditure. Besides, the management has a responsibility to decide whether the capital expenses will count on the company funds or be financed. Another option to deduct the capital expense is leasing or renting the assets or items that have possibility to break easily, obsolete, or always need to be updated and upgraded like computers and other technological equipment. At this case, the expense can be assigned into operating expense because the company decides to pay the rent rather than purchase the item.
Capital Expenditure as a Construction of a Long-Term Business
Taking a part as a critical decision of a company financial, a capital expenditure budget might indicate the direction of the company growth. The expenses on fixed assets may cover a period of several years need (of course with considering the maintenance cost) of the company and contribute to the long-term goal of the business.