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Capital expenditures

Capital expenditures: The ultimate guide to managing capex in companies and organizations


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Contents
This guide was created to help people in various positions within companies and organizations better understand how to manage capital expenditures. Although by nature, capital expenditures often represent the large items (in monetary terms) purchased by companies, the information readily available to managers on the subject is somewhat limited. Management of capex sometimes appears to be more of an art than a formal process. However, there are various tools and methods that managers can use in their everyday task of managing their capex process. Capital expenditures can take many forms, but at the end of the day, they share commonalities in all industries.

The following pages are intended to provide the reader with an overall view of capital expenditures, how one can use simple rules, tips, and reminders, to improve the management of the capex process in a company or organization.
We have divided this guide into three main parts.

The first part describes capital expenditures and how they differ from operational expenditures, often commonly referred to as opex. We look at different types of expenditures and how a user can improve the way they plan for medium and long term.

Part two gives a view into the process of creating capital expenditure requests. We include a substantial list of items not to forget when requesting funds for capital expenditures. Although not all items will apply to all expenditure, the list will prove practical for people just starting to create requests.

This second part of the guide will also attempt to provide examples of what makes a capex request sellable internally. The goal of creating a capex request is to get it approved.

However, we all know that in real life, many requests go unapproved, and not always for the right reason. On the surface, one might think that getting a capital expenditure request approved is a simple as assembling the information for the request, then putting everything together and waiting for the sign-off. That could have worked many years ago.

Unfortunately, in today’s world, everything seems more complicated.

For starters, companies and organizations have become more complex. Many positions and departments that never existed before are now part of the capex approval process. Think about departments such as energy reduction or R&D credits. A few years ago, these departments might have been under other departments like production or real estate, or finance. Today they not only stand as separate departments but also gatekeepers of many capex approvers.

Then there is the fact that technology has evolved. For example, most production equipment operating 20 years ago in production plants were not even connected to the internet. Today so many production types of equipment have their IP address that companies need people dedicated to managing them. However, this also paved the way to have the IP people join the capex approval teams. Years ago, they became observers of the approval process. Then they evolved into gatekeepers. Today they are not only an intrinsic part of the approval process, but they are also often on the team that establishes the needs for the capex.

Bottom line, to get a capex approved today, it takes more than merely assembling information on the corner of one’s and sending it for approval.

Part three look at how companies can integrate other processes or programs into their capital expenditure process. An excellent example of this that we talk in the guide is energy saving. Too often, companies focus on acquiring new equipment, only to forget that they could optimize their expenditures by incorporating elements such as energy saving, grants, and incentives. These elements can provide numerous benefits which we explore in detail.

Disclosure: We are not accountants or taxation experts, nor are we lawyers. Local accounting and legal experts should carefully review all the information provided in this guide. Since this guide is meant for a broad reach of readership, it would have been impossible to adapt it to the laws of each province or state of each country. After managing billions of dollars in capital expenditures over the past 25 years across numerous industries (real estate, governmental, manufacturing, education, hospitality, we believe that we can provide our readers with valuable information on managing capital expenditures.  We provide general rules for managing capital expenditures, tips, and ideas, but the final decision should be taken in concert with the experts that have a good understanding of the laws and accounting principle for your company or organization.