Learning Goal: I’m working on a social work discussion question and need an explanation and answer to help me learn.
Add to Parts 1-4 of your Organization Wide Operating Budget by including a capital budget addendum for year 2+. If your previous budget shows a profit and you are a non-profit 501c3 company, the profit is technically called an “excess” and must be placed in a special earmarked bank account for a capital improvement project (i.e., 100% of the excess is applied). If you are a for-profit entity the profit can be spent a variety of ways or earmarked for future capital improvement projects as well, but is taxed for the current year (i.e., so make sure to subtract ~33% of the profit for this assignment if your business is for-profit). If your previous budget showed a loss, that is fine too. Sometimes this can be used to further justify the rationale for a capital improvement or equipment project.
In writing your Capital Budget addendum, you must describe what you propose. Why it is necessary for the continued solvency and growth of your business. How much it will cost and what financing option you have chosen (e.g., mortgages and loans; lines of credit, leases; bond financing) with rationale. Lastly, you will need to provide some type of viability analysis, or return on investment analysis, or break even analysis in this justification. The recommended length of this assignment is 2-3 pages with reference support.
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