Capital Expenditure Budget: What is it?
Budgeting plays an important role in the management of an organization. There are several types of budget that must be planned so that the running of the organization goes undisturbed. One of these budgets is the capital expenditure budget or Capex budget. This type of budget is usually planned before the upcoming year and requires meticulous accounting.
Understanding Capital Expenditure Budget
Capex budget is a plan concerning the timing and amounts of the fixed assets purchased by an organization. The purpose of creating this formal plan is improving the efficiency or the capacity of the organization. However, this planning is not only about purchasing fixed assets, such as property, business vehicles, equipment, and furniture. It is also about planning for improvement and maintenance of fixed assets.
Importance of Capex Budgeting
Deciding to purchase or maintain fixed assets is considered as a vital step. That’s why you need to be very careful in making this budget. If it is not well planned, certain side effects may occur because of several reasons.
Equipment, machinery, vehicles, and furniture will suffer from depreciation once they are put in service. As a result, you need to consider this depreciation value in the process of budgeting. If the organization’s financial condition is not well enough, you may need to delay the purchase of an asset with a high depreciation value.
2. Long-term effects
Purchasing and maintaining fixed assets will cause long-term effects. Those effects may be positive effects or negative effects. If you plan it well, of course, your organization will get its positive effects for a long period of time. However, if it is not well plan, the bad effect will last long too.
Once the fixed assets are purchased, this decision is irreversible. Therefore, it is important to make this decision with many considerations. If it is not done so, you may suffer from loss and cannot reverse it.
Making a Capital Expenditure Budget
There are several challenges that you will meet when making a Capex budget. To make this job a little easier, you can use budgeting software or template. Therefore, you don’t need to create the format of this document. If you use this tool, you can put your plan on the provided format easily.
To get this tool, you can download it for free or buy it on a certain website. However, the free one may not have all the features you need. If you want to plan this budget with more ease, you need a tool that is reliable, quick, and practical.
Planning a capital expenditure budget is a challenging process. However, with the help of a budgeting tool, you don’t need to deal with its mechanical aspect. Therefore, you can plan it with more ease.