How to Create a Capital Expenditure Budget for a Loading Dock
Loading docks are part of every industrial building and can be taken for granted when creating your capital expenditure budget (capex budget). But in reality, the loading dock is where a company’s raw materials and finished goods travel across day in and day out. Organizations that take time to analyze and develop a comprehensive, need-based approach to loading and unloading trailers, set themselves up to maximize productivity, safety and security for their business.
When loading dock equipment fails, can’t operate effectively or doesn’t stand up to the job, it can derail even the most meticulously planned shipping or receiving schedule. That’s why facility managers need to put the same care and attention to detail into building a capital expenditure budget program for their loading docks as they put into its day-to-day scheduling.
Knowing when to repair equipment versus replace it can save an organization thousands of dollars.
Loading dock levelers, vehicle restraints, control panels and dock enclosures are expensive assets and proper maintenance of them is critical. But, even with the most diligent maintenance, they won’t last forever, and their depreciation time can be calculated. Thus, budgeting for both maintenance and eventual replacement can, and should, be done proactively. By accurately assessing the value of your loading dock equipment and using a simple formula, managers can create a capex budget as easily as a weekly shipping and receiving schedule.
Applying straight-line depreciation
This formula can help determine if it makes sense to continue repairing and maintaining an existing asset, such as a loading dock leveler or vehicle restraint, or if it should be replaced with a new piece of equipment.
All of this affects your capital expenditure budget.
The key elements of analysis in this formula are the original cost of the asset, the salvage value of the asset, and the expected life of the existing asset. When those factors are known, an annual depreciation expense can be determined.
While there are other factors that can affect the decision to replace loading dock equipment or not, this formula can serve as a guide for purchase decisions and help you to make informed decisions the next time you revisit your capital expenditure budget.
Annual depreciation formula:
(Cost of Asset – Salvage Value) / Useful Life of Asset = Annual Depreciation Expense
For example, a dock leveler and vehicle restraint are purchased for $17,000 with an estimated salvage value of $3,000 and a useful life of 7 years. Using the formula above, we know that the annual depreciation will be $2,000. Seeing this play out in a chart describes how the ending value becomes the scrap value, which signals it’s time to purchase a new piece of equipment.
Year Book Value (Start of Year) Depreciation Book Value (End of Year)
1 $17,000 $2,000 $15,000
2 $15,000 $2,000 $13,000
3 $13,000 $2,000 $11,000
4 $11,000 $2,000 $9,000
5 $9,000 $2,000 $7,000
6 $7,000 $2,000 $5,000
7 $5,000 $2,000 $3,000
Expected product life
Using a baseline number of about 7 years isn’t unusual for many loading dock products. However, a myriad of variables can significantly increase or decrease this number.
For example, a specialized loading dock that services trailers once a week is going to need replacement much later than another loading dock position which sees a dozen shipments a day, five days a week. Please note that this shouldn’t delay regular maintenance on the specialized dock position, as equipment can continue to degrade when not in use.
Besides frequency, other factors to consider are the weight of the pallets or product being handled, as well as the climate of the facility. Heavier loads can create additional stress on loading dock levelers and vehicle restraints, while inclement weather can damage outdoor equipment – and indoor equipment in set-ups that lack superior environmental control – more quickly.
Planning a capital expenditure budget
Learning how to create a capital expenditure budget means having a firm grip on the current condition and past expenditures of loading dock equipment. The amount of planning ultimately depends on the use of a loading dock and the number of dock positions.
From levelers and doors to vehicle restraints, control panels and dock enclosures, each dock position can have multiple pieces of equipment that must be taken into account.
Performing regular service with trained technicians can help define the current status of those data sets and shed some light on the expected useful life of those assets.
Consider hiring a service technician to get a better sense of the state of the loading dock equipment of the facility to assist in developing an accurate capital expenditure budget.
All of these things add up to a better result for your capital expenditure budget.