What Is the Difference Between Operating and Capital Budget?
Operating budgets pay for day-to-day expenses, while capital budgets pay for major capital, or investment, spending, writes Kevin Johnston in an article in the Houston Chronicle’s Small Business section. Understanding the differences between these budgets is critical to effectively managing business finances.
The Houston Chronicle advises that a business owner’s capital budget should grow the money for the company’s operational budget. This advice underscores the close relationship between these two types of business budgets. The operational budget typically includes wages, rent, utilities and purchase of items intended to last less than a year. Repayment of a loan for capital expenses or the purchase of assets, such as equipment, come out of the capital budget. The Info Tech Research Group, as cited by the Chronicle, recommends that a business’s total percentage of all expenditures should ideally equal 33 percent for capital assets and 67 percent for operating costs.