What Records Should Owners Review Before Approving a Large Capital Purchase?

Owners should review the records showing why a large purchase is needed, what it will cost, and how the business will pay. Base the decision on an operating case supported by financial information, supplier terms, and an assessment of the risks.

Review the Business Case

Ask management to document the problem the purchase addresses and the expected outcome. The case should describe the proposed asset or system, its expected useful life, and purchase and installation costs. Include expected training and maintenance costs, along with any downtime during implementation. Compare alternatives, such as repair, leasing, or delaying the purchase, using consistent assumptions.

Review supplier quotes or proposals, delivery terms, warranties, service arrangements, and dependencies on other equipment or software. Confirm that the team has checked the supplier's ability to deliver and support the purchase. If the purchase affects contracts, insurance, or tax treatment, ask your attorney or CPA to review the relevant terms.

Check Affordability and Risk

Review current financial statements, the budget, cash flow forecasts, debt obligations, and working capital needs. A purchase may be affordable in total yet create a short-term cash squeeze if payments are due before expected benefits arrive. Consider cost overruns, delayed delivery, lower demand, and changes in financing terms.

For projects with uncertain results, management should show how returns change under different assumptions. Identify operational risks such as staffing needs and training requirements. Also assess cybersecurity risks and possible interruptions to customer service. The expansion affordability review can help owners structure questions about capacity and funding. The regular financial measures provide context for the company's current position.

Record Approval and Follow Through

The approval record should capture the amount authorized, funding source, and decision date. It should note any conditions and name the person responsible for implementation. Also identify the measures owners will use to judge whether the purchase delivered its expected value. This gives owners a basis for reviewing results and supports accountability when family members participate in the decision.

After the purchase, compare actual costs and performance with the approved case. Record scope changes and obtain approval when spending exceeds the authority granted. Keep invoices and contracts in the company's designated records system, along with approvals and implementation reports. Clear documentation helps owners understand what was decided and gives management a practical reference for future capital requests.

Read next: How can a family business keep accurate records of decisions and approvals?

Ideally these KPIs should be monitored daily or weekly.

Sources: How to Start a Family Office, The Single Family Office. Informational only, not financial, legal or tax advice.