What is the main purpose of a capital budget?

The main purpose of a capital budget is to forecast and control spending for long-term assets. Capital budgets are specifically focused on the financial planning needed for significant investments in an organization’s infrastructure, such as buildings, equipment, and major renovations. This budget type outlines the expected costs associated with these long-term improvements and helps ensure that an organization allocates sufficient resources to maintain or enhance its capital assets over time.

This focus on long-term assets is crucial because such investments typically require substantial financial commitments that can impact the organization's financial health over many years. By having a dedicated budget for capital expenditures, organizations can strategically plan their investments, prioritize projects based on their importance and urgency, and align these with overall goals and objectives. This ensures that the funding is appropriately allocated and that the organization can maintain its operational capabilities effectively.