Define: Capital Budget

A capital budget is a financial plan that outlines the expenses and investments required for long-term projects or assets, such as buildings, equipment, or infrastructure.

A capital budget is typically created by the finance department or management team of an organisation.

The purpose of a capital budget is to allocate funds for long-term investments that will generate future revenue or provide essential services.

An operating budget covers the day-to-day expenses of an organisation, while a capital budget covers long-term investments.

Factors such as the cost of the investment, the expected return on investment, and the lifespan of the asset are considered when creating a capital budget.

A capital budget is typically funded through a combination of sources, such as loans, grants, or internal funds.

If a capital budget is not approved, the organisation may not be able to make necessary long-term investments, which could impact future revenue or services.

The success of a capital budget is typically measured by the return on investment or the achievement of the project’s goals.

Common challenges when creating a capital budget include balancing competing priorities, accurately estimating costs and returns, and securing funding.