Capital Budgeting Maintenance Costs

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Maintenance inspections reveal information that is critical to consistent capital budget planning. With a status update, owners and managers can foresee most predictable costs and create a timeline for necessary repairs. With this information, the owner can plan and budget accordingly. Using the evidence from maintenance reports, owners can decrease the likelihood of emergency repairs or budget shortfalls. Work might have to stop or the building manager may be forced to move merchandise or equipment.

Performing minor maintenance and repairs before they escalate into large scale projects decreases the overall cost of the roof and secures building operations from costly interruptions. By dealing with small leaks , for example, owners can prevent the deck from rusting or protect insulation from becoming saturated. If the structure was well maintained, an owner might be able to avoid replacing the insulation when it is time to replace the roof.

This can save the owner up to 30 percent of the total re-roof cost. If the decking has maintained its structural integrity, the savings can be even more significant.

A good roofing contractor provides not only skilled craftsmanship, but honest, open communication, plus a commitment to get…. Replacement of outdated equipment to lower labor, materials, utilities expenses. Expansions and Improvements — Expansions and improvements require extensive analysis before adding them to your capital budget.

Expenditures that make the business better without adding new products, structures, or equipment. Improvements, repairs, additions, or adjustments necessary to comply with government codes are included in the capital budget plan. Federal regulations or environmental industry changes to avoid fines and shutdowns must be included in the mandatory requirement category of the budget.

Additions and Acquisitions - Additions and acquisitions must coincide with the capital budget and strategic growth plans.

Operating Vs. Capital Budget

Expansion into new markets or products to produce a new product, new product line, or geographically expanded operations. Building additions, adding new equipment needed to produce a new product line. New and additional land, buildings, and services are all part of the capital budget for growth.

Other growth, such as parking lots, executive airplane, etc. A Capital Expenditure Budget plan must be prepared for each capital expenditure project. Free Cash Flow FCF is a measure of the firm's financial performance, or, the cash the firm produces after spending capital to maintain or expand its asset base. Free Cash Flow provides the opportunity to increase shareholder value. A high ratio indicates comparative financial strength compared ONLY to other similar firms within the industry. The firm advantageously grows when it has the capacity to invest in itself through capital expenditure.

Revenue expenses are shorter-term, used for daily operational costs. They are basically the same as operating expenses. Revenue expenses are fully tax deductible and claimed in the year in which the expenses occur. A revenue expenditure is applied to expense as soon as the cost is incurred. This matching principle ties the expense incurred to revenues generated in the same accounting period, which creates a more accurate Income Statement.

Analysis of the Cash Flow Statement helps determine cash flows associated with expenditures.


It essentially shows the difference between the cash available at the beginning of an accounting period, and the cash available at the end of the accounting period. Cash represents solvency. The Cash Flow Statement does not indicate profitability, but rather, it indicates liquidity. It only shows cash inflows and outflows and lists cash flows that occurred during the previous accounting period.

Cash inflows typically come through financing, operations, or investing in the form of:. Cash outflows typically result from expenses or investments. Cash outflows include:. A Cash Flow Statement is also concerned with the timing of the in- and out-flows, since many carry over multiple time periods.

Cash flow projections are based on past performance. Working capital is necessary to support operations and transactions. It is integral to a Cash Flow Analysis. Working capital provides a quick analysis of the liquidity of the firm over the future accounting period. The Cash Flow Budget is a projection of future cash flows. If there appears to be sufficient working capital, developing a Cash Flow Budget may not be necessary. However, when the working capital appears insufficient, a Cash Flow Budget can help spot liquidity problems that may occur in the upcoming year.

A Cash Flow Budget is a compilation of all cash receipts and cash expenditures expected to occur within a determined period. Cash Flow Budgeting examines the movement of money, although not at net income or profitability. The Cash Flow Budget emphasizes the following operations:. The Cash Flow Budget allows the projection of sources and fund allocations for future periods. Cash deficit periods may be determined well in advance, so appropriate actions may be taken to avoid financial pitfalls.

Projected deficiencies may be mitigated by,. Cash flows are a quantitative account of past activities. When periods of excess cash are identified, action may be taken to redirect the excess funds into interest-bearing assets to generate additional revenue, or make scheduled loan payments. Capital is generally limited, which demands that proposed capital projects be quantitatively, as well as qualitatively, analyzed prior to commitment of funds. Capital budgeting analysis uses various processes:.

Operating expense

Typically, capital variances are compared with previous years and are based on the baseline assumption. A Zero-Based Budget begins with a "zero base" budget line every year.

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It requires all expenses to be justified, line by line, and the budget is built around the projected needs for the upcoming period. It disregards if the current budget is higher or lower than the previous one.


And this process is not dependent on the total budget, or specific line items, increasing or decreasing. ZBB allows executive-level strategic goals to be incorporated into the budgeting process by tying them to specific operative areas of the organization. This is where costs can first be grouped and then measured against previous results and current expectations.

What Is Capital Budgeting? Definition and Examples - TheStreet

Zero-Based Budgeting is more than just building a new budget from scratch zero. It serves as a repetitive and continual process that allows the firm to construct a sustainable and structured cost management environment. ZZB effectively allows and encourages cost visibility, governance, and accountability. It contributes to clearly aligned goal attainment and incentives. All costs are considered as if the programs were initiated for the first time.

No costs are ongoing, and all costs must be justified by management.

Capital Budgeting Maintenance Costs Capital Budgeting Maintenance Costs
Capital Budgeting Maintenance Costs Capital Budgeting Maintenance Costs
Capital Budgeting Maintenance Costs Capital Budgeting Maintenance Costs
Capital Budgeting Maintenance Costs Capital Budgeting Maintenance Costs
Capital Budgeting Maintenance Costs Capital Budgeting Maintenance Costs
Capital Budgeting Maintenance Costs Capital Budgeting Maintenance Costs
Capital Budgeting Maintenance Costs Capital Budgeting Maintenance Costs
Capital Budgeting Maintenance Costs Capital Budgeting Maintenance Costs
Capital Budgeting Maintenance Costs

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