The client came to us too late.
This construction company spent over $1 Million on a brand-new space. Poured thousands into a spectacular marketing campaign, and opened their doors with a grand event, attracting hundreds of guests.
What did they get for all that?
Crickets.
No new sales, no new business, no measurable increase in foot traffic thanks to their new state-of-the-art facility. The whole project was a dud. And my client is not alone—construction companies face decisions like this all the time.
So, how can you avoid the same fate?
What is CapEx?
First, let’s make an important distinction.
Capital expenditures, or CapEx, are the big-ticket purchases that help your company grow—new machinery, equipment, vehicles, warehouses, or showrooms. You lay out a lot of money now and hope for a big payoff later.
These are very different from everyday expenses.
It costs a lot to keep the business going: salaries, materials, and maintenance. These are your operating expenses, or OpEx, short-term costs that keep the lights on.
CapEx is about the future.
The stakes are higher, and the decisions weigh heavier. As a budding business, your investments were smaller, the impacts shorter term, and, honestly, there was a lot less to lose. But now you’re scaling, there are far more variables to track, and you’re no longer the only one involved and affected by these decisions.
Others are coming to you with CapEx requests to approve.
The question you face as you scale is, how do I stay on top of these big purchases without being the bottleneck? Without creating huge delays and costing my company great opportunities?
CapEx Approvals at Scale
CapEx without a process is like building without permits — looks good until someone starts asking questions.
The best approach is to create a tiered approval system.
This way, you can be confident that every decision is properly thought through without everything having to go through you, avoiding bottlenecks and major delays. This process should make it clear to everyone in the company who is responsible for approvals and how they are made.
Let’s first talk about the “Who”.
Your first threshold could be up to $10K—approved by department heads.
Purchases between $10K–$25K? That’s CFO territory.
Anything beyond that should go to the president, CEO, or owner.
You might even want a CapEx committee for anything over $50K.
Now let’s get to the “How”.
The goal is to standardize a process that mirrors these tiers and ensures that every approval is well thought out and documented. No one should lay out any money without being clear on the purpose and the chance of success, and when the dust settles, there must be a way to hold people accountable.
Create a standard request form and checklist.
The form needs item details, vendor quotes, all other costs, ROI, break-even analysis, and a budget. For purchases over $25K, a thorough ROI, sensitivity, and risk analysis (best/worst case) is needed.
The largest purchases need to be tested against the overarching business strategy.
What are your long-term goals? Where do you want the company in one, three, five, and even ten years ahead? How does this investment tie into those goals? You might see incredible ROI, but is it pulling you off course from your ultimate goals?
Fortune is in the Follow Through
You did it!
Your company made a great investment using a structured process. Everything went smooth, quick, and the whole calculation is well documented, leaving no questions, and everyone is—for lack of a less corporaty jargony word—aligned.
Six months later and your new space is under construction.
All done, right? Not even close.
Check in. Often. Is everything on budget and schedule? Are market conditions changing? Are your ROI projections still on track?
Don’t hit the same pitfalls as our client.
Just because you did all the right deliberations and calculations before giving the green light, that does not mean that things won’t change, or new information will be discovered. Do you know how many companies made exciting investments right before they got steamrolled by the COVID-19 pandemic?
Build routine check-ups into your process.
A Tiered System for Success
Now you know how important it is to have a clearly defined hierarchy and standardized process—not only for who but also for how—to achieve a streamlined system for approving important capital expenditures in your growing construction firm.
Remember, the fortune is in the follow-through, so go make your fortune!
