Pro Tip: Every manufacturing plant will eventually need capital, and every department head should master these techniques for crafting a capital requisition.
It may sound simple to request capital for an asset you feel needs replaced or refurbished; however, there are many components that need to be considered. The stronger you can make your case for why you need a new asset, such as a new mixer, oven or production line, the more likely your request will be approved.
Typically, there’s a limit to the capital funds, and many people all want some of it. Think of it like going to the bank and applying for a loan. How you executed the commitments made with your last capital project become somewhat a credit score and will most often affect future approvals. Why would anyone trust capital dollars to individuals with a low credit score?
Never consider your requisition as a slam-dunk because there is the option of simply doing nothing, so you will need to address the consequences of maintaining the current situation as is.
Provide fact-based and emotionless reasons why doing nothing is detrimental to not only your plant but the business as a whole.
Include several different options (1. Doing nothing, 2. Option B, 3. Option C, 4. Your choice.) and the reasons you are choosing or not choosing that option. This shows that you have an intimate knowledge of the best way to spend the capital funds.
Adding in charts illustrating productivity/profits lost by keeping the old asset and pictures of said asset can help paint a picture stronger than words ever could. By highlighting how the improved conditions can be used more effectively or how efficiency can be increased, you can reassure the person approving your request that the benefits are multifaceted.
In your proposal, you should include multiple bids with all costs involved (some examples including shipping, rigging, permits, taxes and disposal costs.) Also be sure to include the return on investment (ROI) if applicable — but be realistic. Make sure you don’t calculate a full year’s savings the first year on a project that has long lead times from date of approval. Remember to include any demo and abatement as an expense.
Lastly, include any write-off related to existing capital or components of the original asset that will be replaced and should cause you to write-down the current asset value.
An equally critical part of your request should be the phrasing. Your capital requisition may pass through several hands before it is approved and should be written in a way that someone who has never set foot in a plant can understand the necessity of your request.
Imagine a doctor telling you that you need to have a cholecystectomy to prevent choledocholithiasis as opposed to “you need your gallbladder removed because gallstones are blocking your bile duct.” Simplicity is key!
Have a spouse or friends review your current status and economic justification to see if they can relate to your business case. If they are confused, then there is a very good chance someone along the approval chain will be too.
Use a master checklist to remind you to double check that you’ve consider everything before you send it off for approval.
My master list had things such as environmental issues, training, permits, available power capacity, regulatory, taxes, spare parts, disposal costs, write-offs and, most importantly, a contingency plan.
While you are giving your proposal a last look, be sure to check spelling and grammar. A well-written request goes a long way, and though it may seem small, a typo can imply lack of respect or even a lack of professionalism.
Remember, capturing capital is a competition, and you need to become a worthy borrower to ensure your fair share.
Rowdy Brixey is founder and president of Brixey Engineering Inc.
You can connect with him at LinkedIn.