Creating a Capital-Budget Tool

The decisions you make regarding the acquisition of assets are a key component of your company's success. When it comes to capital expenditures, poor decisions will usually cause a drain on productivity—and can dearly cost a company on the bottom line. Conversely, good buying decisions can propel sales and productivity upward, thus creating profits and positive cash flow.

But what is a "good" decision and what is a "bad" decision? To help you make that judgment, let's put together a tool for taking a more systematic approach to capital-expenditure decisions.

A matter of priorities
Begin by compiling a "wish list" of capital expenditures that will enable your business to remain competitive this year. Include in your list the assets that you need to buy, as well as those you may just want. Ideally, your needs and wants don't stray too far apart. For instance, we all want a new sports car, but you probably don't need one for the business.

When compiling this list, make sure you include your key people in what should be added. Invariably, you will find that your management and the production employees will have differing views on which assets may be the most important. Nonetheless, their insights and feedback will prove to be a great resource in the decision-making process. More ...

This article has been provided by The Big Picture. Author Marty McGhie (marty@ferraricolor.com) is VP Finance/Operations of Ferrari Color, a digital-imaging center with Salt Lake City, San Francisco, and Sacramento locations. For more information, please visit their web site at http://www.bigpicture.net.

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