How to build a rebrand budget that fits your organization’s capitalization policy

How to build a rebrand budget that fits your organization’s capitalization policy

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Thursday, October 29, 2020 | Eli Greenspan

A rebranding project is a major lift — one that reaches into every corner of an organization. So it’s no wonder that these big projects typically come with equally big price tags. In fact, the first major hurdle in any rebrand is hammering out a realistic budget that garners executive buy-in and approval. Which means that as a marketing leader, the pressure is on to present a sensible budget that makes smart use of your organization’s capital expense (CapEx) accounting policies.

Remember: capital expenses spread out the financial impact — and reduce the strain on this year’s bottom line. By understanding your organization’s polices, you can demonstrate to your leadership team that your proposed rebrand is both strategically and financially sound.

Here’s what you need to know to build an optimized rebranding budget that allows you to take full advantage of opportunities to capitalize a portion of the project.

CapEx versus OpEx expenses

All major corporate budgets are broken into operational expenses (OpEx) and capital expenses (CapEx). Operational expenses cover day-to-day operating costs or annual expenses that fall within a single fiscal year’s budget. CapEx expenses are longer-term investments, such as property, equipment, and infrastructure.

One key difference is that capital expenses can be depreciated over the course of several years. Because the value of the investment is long-term, the cost of the investment is also spread out over a longer period, so the full cost of your capital purchase won’t hit your bottom line all at once.

Capitalization in general follows strict rules of accounting treatment. Clients may have different thresholds for capitalizing expenses based on certain dollar thresholds (whether that’s $1,000 or $10,000), useful life of a minimum number of years (three years is a common threshold) and what is common in their industry. Some exceptions may apply and need to be discussed with your controller and financial planning teams. We approach these conversations in a way that helps our marketing/brand client teams understand how to determine how to optimize the CapEx versus OpEx budget allocations while adhering to these policies.

The challenges of capitalizing a corporate rebrand

As a marketer, you probably have limited exposure to CapEx budgeting. Most of your annual marketing budget likely falls neatly within the OpEx framework. The truth is, the task of capitalizing rebrand expenses generally isn’t clear-cut for anyone. That’s because rebrands aren’t part of your (or most any) organization’s run-of-the-mill operations. As a result, individual rebranding expenses don’t necessarily fall neatly into your organization’s existing CapEx buckets.

Because rebranding expenses don’t line up perfectly with existing CapEx categories, marketers (and their colleagues in accounting) may not feel comfortable making a case for capitalization.

For example, signage represents one of the biggest expenses in most rebrands. Each individual sign may meet your capital thresholds in terms of cost and expected longevity. But which CapEx bucket does it belong to? And what about the costs associated with designing and installing the signs? Ultimately, you can only make these designations by working closely with your accounting team — and being willing to make the case that a not-so-straightforward expense meets your corporate CapEx criteria.

How to identify CapEx versus OpEx expenses in your rebrand budget

Take the following steps to uncover opportunities to capitalize portions of your rebranding budget.

  • Familiarize yourself with your organization’s CapEx policies. If you’ve never before managed CapEx costs, you may not be aware of the details of your organization’s CapEx requirements. Your first step, then, is to understand what qualifies as a capital cost, as well as the established budgetary buckets (such as leasehold improvements).
  • Work closely with your accounting team to assess which costs can be capitalized. Your rebranding costs may not fall clearly into any of your existing CapEx categories, so you’ll need to work closely with your accounting team to figure out which costs can actually be capitalized. Think about how each asset could be categorized within your organization’s rubric and share your ideas with your accounting team. They’ll guide you in making final determinations that work with your policy.
  • Engage expert help. At BrandActive, we help clients construct smart rebranding budgets from start to finish, including CapEx versus OpEx allocations. During our initial scope and assess phase, we lead our clients in exploring several budgeting scenarios. As part of these early conversations, we bring our extensive experience to bear on the question of which rebranding costs can likely be capitalized. Given that accounting isn’t usually involved until a rebrand is approved, our “industry standard” CapEx assumptions enable our clients to make savvy budgeting estimates on the front end. Once a rebrand budget is approved, we collaborate as needed with our client’s accounting team to finalize the budget and CapEx allocations.

Preparing a rebrand budget is a major project in and of itself. But with careful planning and an understanding of CapEx costs versus OpEx expenses, you can create a realistic budget that is not only accurate but also advantageous for your organization’s bottom line.

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