Capital Budgeting 101: How It Can Help Your CFO
Are you looking to make a reinvestment, or maybe hesitating to pursue an important business project? If you need to make an important purchase decision that will impact your business, you likely need guidance in making strategic business decisions. In this case, capital budgeting can help you.Capital budgeting, also called investment appraisal, is a complex accounting process that determines the profitability of a project. By thoroughly crunching the numbers, business owners can easily determine whether if a proposed fixed asset investment can indeed add value to the company.
Discover New Investments
Through capital budgeting, business owners like you are more empowered to push through with potentially profitable wealth generation endeavors. These typically include the purchase of government or corporate bonds, stocks, opening a new branch and the likes. Since the capital budgeting process is very thorough, putting your money to work through these projects will likely lead to a more profitable income.
It may be very difficult to foresee how your business will fare in the longer run, but capital budgeting can help you prepare, as it can give you a clearer forecast of your cashflow with respect to investments. Through capital budgeting, you can gain insight into how much income can be generated by your investments.
Improve Business Financial Position.
The primary purpose of capital budgeting is to find strategic projects that will raise the current assets of the company. As such, dipping a toe into capital budgeting will thus result to a more improved cashflow. And of course, if there is more money coming into your business, that will certainly help advance your business further, paving way for better business opportunities as well.
Monitor and control spending.
Before making the decision to make an investment, you need to perform due diligence and study it carefully. Once you have decided to give that investment project a go, you will soon need to finalise arrangements and pay for the costs of acquisition. Considering that acquisition costs follow a payment schedule, you can plan your spending to make sure that you can settle payments on time.
Aside from helping you make better strategic business decisions, capital budgeting puts businesses like yours at a great advantage because of the added measurability and accountability that it can bring to your business.
Now is the best time to advance your critical business numbers through advanced advanced finance and accounting services. If your CFO needs support in capital budgeting, get in touch with our trusted finance and accounting experts.
You can also learn more about D&V Philippines’ comprehensive finance and accounting solutions by downloading our free ebook linked below.
First published on 30 November 2015; updated on 03 June 2020