Explore the Best Practices for Managing CapEx Budgets in Large Enterprises
Key takeaways
Capital expenses (CapEx) are an essential part of running a business. The CapEx budgeting process acts as a lens into the investments that a company makes currently as well as indicates assets that are crucial for growth. In large enterprises, numerous CapEx budgets have to be handled simultaneously, which is often a tedious and difficult manual task.
Therefore, it becomes imperative for businesses to implement successful strategies that would make Capex planning beneficial so that it is healthy and profitable.
So, how can business organizations move forward with making the right investments?
This blog will give you a brief about what CapEx planning is and will discuss some best practices to effectively master your CapEx budgeting.
What is CapEx?
All the investments that a business makes on fixed assets are known as CapEx. These fixed assets can be physical components such as buildings, machinery, etc. On the other hand, operational expenses (OpEx) is the term used for all the expenses spent on day-to-day operations like salaries and G&A expenses.
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What is Capex Planning?
Businesses use the CapEx planning process to manage CapEx budgets for the money that is invested in assets. Capital expenditures are long-term investments. Therefore, the assets that businesses invest in have a useful life that at least spans more than one accounting period. It becomes necessary to plan budgets religiously to not face pitfalls in the process. As business owners, it becomes essential to take all precautions while making investment decisions.
How can this be achieved? Business leaders can take some important steps to carefully devise an investment plan. Making a CapEx plan that perfectly aligns with organizational goals and objectives, will help you prioritize your asset investments.
Best Practices for CapEx Planning
Capex in large enterprises can be difficult to manage with multiple investments being made. According to McKinsey’s report, the overall CapEx spending can be reduced by 15-25% if a stabilized and world-class CapEx management is practiced. So, we are here with the six essential best practices for managing CapEx budgets in large enterprises.
Build a CapEx Budget Framework
It is easy to lose control over your CapEx projects when there is a lack of a budgeting plan. The CapEx budgeting process generally starts with determining the maximum amount the organization is ready to spend. These expenses might be for the acquisition, upgradation, or maintenance of all the capital assets. Devising a framework will help have control over the investments that are made. Several CapEx analysis tools are available that use factual data to help evaluate the current financial status and help you understand where you stand. This will help you to prepare, plan, and execute accordingly.
Separate your CapEx Budgets and Annual Budgets
Generally, most business organizations budget their capital assets separately. Moreover, they have separate approval processes for the different categories of budgets. This is because financial implications can be difficult to handle and it is ideal to have separate approval workflows to avoid any sort of complications. Even managing the taxes of each acquisition is made easier that way. The long-term benefits garnered from it, and hence these budgets have to be scrutinized deeply to ensure the right decisions are made.
Determine how you will Fund the Project
It is important to note that when you are at the initial stages of a new CapEx budgeting project, you have to decide if you are going to save money for purchasing a capital asset or if it is for adding debt to the balance sheet. If the decision you make is to save money, you have to wait before making a purchase.
Do not confuse CapEx with OpEx
Most often, CapEx and OpEx get mixed and need to be clarified. It is important to know the difference between what goes under Capex and OpEx as the tax treatments are different with each case. Moreover, CapEx budget projects have an OpEx undertone.
Have a Transparent Approval Process
CapEx budget planning is a process that involves numerous departments. Hence, manual communication and approval requests will bring down the efficiency of the process. For large enterprises, a faster approval process is a necessity. Therefore, standardizing the approval process is the solution.
Use a Budgeting Software
A reliable budgeting software will take care of the complete process of investing and getting it approved. Choose a platform where you will be able to create a CapEx budgeting workflow and automate the same. This way, the process becomes streamlined and optimized.
Other ideal steps that can be taken are as follows –
- Capture accurate data for accurate budgeting
- Create clear policies and regulations to maintain compliance
- Measure capital expenditure returns
End-to-end workflow automation
Build fully-customizable, no code process workflows in a jiffy.
Transform your CapEx Workflow on Cflow
Cflow is the best platform available in the market for managing your CapEx budgeting process. The platform is armed with the right features that automate processes to efficiency. The customizable suite offered by Cflow helps make budget workflows catering to the needs of the hour. As a no-code workflow automation tool, where processes can be automated with simple steps even by a non-technical person. Cflow is the best platform for managing budgets by allowing access to the concerned employees in the organization.
Cflow –
- Offers flowchart-based workflows where the users can just drag and drop icons
- Offers pre-designed and customizable templates for any business processes the users want
- Offers a powerful rules engine to help navigate certain decisions
- Allows easy assigning and routing of tasks
- Allows sending customized reminder notifications to users
- Offers integration with several external applications
- Offers customized graphical reports and analytics for performance analysis
Conclusion
It is now evident that a proper and well-laid budgeting workflow gives you more scope and viability in your investment journey. Building a CapEx workflow makes the complete process until approval smooth and more effective.
Cflow is that workflow automation tool that will make this shift easy for you. Our platform is flexible to understand what the business goals are and effectively make everything faster and smoother. To give Cflow a try, sign up now!
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