How to Create a Capital Expenditure Budget
- 1). Determine the capital needs of the organization. Some organizations do not need to purchase capital every year whereas others must constantly invest in new capital in order to stay competitive.
- 2). Identify the maintenance capex expenditures. Maintenance capex is any capital expenditure that is used to maintain the capital invested in earlier years. This includes updates priced into procurement contracts as well as regular upkeep. These costs may be estimated for you in the warranty or instruction manual. If not, ask the seller for an estimate.
- 3). Identify new capital expenditures for the company. New capital expenditures help a company make additional revenue. They may also help to cut costs through increased productivity.
- 4). Request input from department heads on departmental needs. Be sure to align capital spending with production forecasts.
- 5). Add the maintenance capex expenditures and new capex expenditures to determine a total capex budget. Be sure to include specific increases or decreases in the capital budget that represent over 10 percent of the budget.
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