Your CAPEX planning is essential to the viability of your long-term budget. Any recurring capital expenditure that you plan to keep on the books should be analysed and optimised to provide its full potential value to your company.
Let's take a look at exactly what CAPEX can do for you.
What is CAPEX?
A CAPEX calculation is a capital expenditure amount for the resources that companies use for more than one year. These kinds of goods and services have additional key performance metrics that companies should identify and assess otherwise, that company may be missing out on the real value of that asset.
In most cases, a company and its consulting partner should implement a CAPEX project in order to identify resources of this type. If a company has not become used to creating budgets around its recurring assets or optimising those assets based in terms of changing market parameters, it may not be able to incorporate CAPEX on its own.
What Does a CAPEX Project Do?
A CAPEX project helps a company to identify all operating assets, safety and façade requirements of the building and put the following criteria to each:
- Replacement value
- Useful life
- Remaining useful life
- Fair value
Knowing these metrics helps asset owners to estimate the annual capital expenditure required moving forward in the long term for these kinds of assets.
A properly managed CAPEX project can also work wonders for a company's budgets moving forward. Decision-makers will have highly defensible valuations and estimates upon which to base other important calculations. The numbers you get from knowing your true capital expenditures can assist you in developing operational plans, timelines for upgrades and valuations for investors.
A good CAPEX consultant will be able to estimate your capital requirements out to 30 years. From there, you can work to make your long-term plans more commercially viable.
CAPEX vs OPEX
CAPEX is not to be confused with OPEX, which refers to day-to-day operational expenses. These calculations are treated very differently for accounting and tax purposes, and they also represent to different aspects of a company's expenditures. They are both, however, very useful metrics to understand.
Building your CAPEX Budget
In order to build a defensible budget for your long-term assets, you must understand depreciation and the way that it is recognised by the government versus the way that it is recognised commercially. In short, optimising the true value of your assets means knowing how to present those assets for accounting purposes and truly understanding the internal value that asset has to your company.
The depreciation schedule and lifecycle report that should be a part of every long-term asset can be quite difficult to generate internally. This is why a CAPEX expert should be consulted if you have any plans within your company that use large assets over an extended period of time. A good partner will understand how to calculate CAPEX and use those calculations to your benefit while keeping you in compliance with all relevant government regulations.