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Importance of CAPEX for manufacturing segment.
The first important milestone for a manufacturing, which is starting, is the amount required to set up the infrastructure, which is called as CAPEX amount, or amount on capital expenditure.
The manufacturing unit requires capex as the first amount, which needs to be invested before looking at revenues, the reason why Capex is crucial for a manufacturing unit is that this investment cannot be done again and again and it cannot be increased or decreased in short span of time.
When writing capex sheet the founder has to accommodate the funds for unforeseen problems which arise and which are not in control of anyone. For e.g. a bar bending unit ordering machines from overseas expects the machines to land by 2 months and the unit can start functioning by 6th month but in reality it does not happen which leads to frustration and hence mindset starts to dwindle around.
There are many such cases where in the allotment of time for entering the market gets delayed by reasons beyond control, the other component which founder has to keep in mind while preparing blue print for capex component is the construction of the unit itself.
Then comes one more hurdle of forecasting the demand and the capacity of the plant which again becomes critical when founders decided to have one machine which can have x capacity of production but things change when they hit market and demand propels without any knowledge but at same time the capacity of unit cannot be expanded suddenly.
The same becomes vice versa where in the founder planned a bigger capacity plant but due to un foreseen problems the capacity is underutilized.
The capex component is the biggest critical step of any manufacturing unit irrespective of any industry.