A capital improvement is the addition or replacement of
a major item in a fixed building or structure. Capital improvements may
increase the structure’s value or improve its use by individuals or businesses.
Government entities such as cities, schools, utilities or public service
agencies may also use capital improvements to enhance services offered to local
citizens. Individuals, companies and government entities typically use capital
improvements for different reasons.
Individuals may use a capital
improvement to increase the value of their home through the addition of an
extra room, renovation of a living space or improvements on items located in
the home. Common domestic improvements may include replacing the heating and air conditioning system or updating the electrical wiring in older homes. Individuals
typically use capital improvement plans to increase the value of their home and
make it more desirable when the owner needs to sell the home on the open market.
Businesses often use capital improvement projects to
increase the efficiency of current business operations or expand and grow
operations for new products or services. These improvements are usually
expected to generate financial returns for the business sometime in the near
future. Businesses commonly develop capital improvement budgets and improvement
plans to create long-term goals for improving the company. These plans attempt
to lay out all the needs of the business and develop a timeline for properly
completing the capital improvements in a timely and efficient manner. Because
companies usually have limited capital resources, they cannot complete all the
capital improvements they desire at one time.
Government entities often use capital improvements as a
way to entice new businesses or individuals to move into the state or city.
Increasing the number of businesses or individuals in the state and individual
cities can allow governments to generate more taxes from increased population.
Increased population numbers may also increase the number of capital
improvements needed to enhance city services and operations. Local governments
may also develop a capital improvement plan similar to a business; residents or
citizens of local government entities may provide feedback on these capital
improvement plans to ensure their taxes pay for the services or improvements
they desire.
Individuals, businesses and government entities must
carefully account for all the costs when making capital improvements. While
initial estimates may indicate low costs for making improvements, major capital
improvement projects can quickly go over budget and increase the cost these
groups must pay for the improvements. Raising more money to pay for projects
may be difficult if the improvements are seen as inefficient or worthless once
the project overruns its initial budget.