When it comes to investment in your IT department, there are two categories of business expenses that are considered:
- OpEx (operating expenditure)
- CapEx (capital expenditure)
OpEx - Operating Expenses
Operating expenses are the day-to-day expenses that are required to keep the business afloat and operating to full capacity. This would be your rental, water and lights, the payment of salaries, the payment of employee benefits, software subscriptions, coverage of all stationery and administrative requirements all the way down to paper for the printer.
CapEx - Capital Expenses
CapEx speaks to the larger physical products or services required for running a business over an extended period of time. These are seen as more of an investment and require budget set aside to purchase them. This would be servers and computers required to successfully run the business and IT department, vehicles or heavy machinery. These would form part of the capital expenses of the business.
OpEx And CapEx In The Business Budget
Business expenses fall into one of the two categories, which are also captured separately on the business’s balance sheet. OpEx are deductible in the current tax year, while CapEx are extended over a few years to spread out the tax deductions. CFOs are constantly trying to balance the two while also keeping the business running smoothly.
It used to be that they preferred CapEx because the expenses could be stretched out over a period of time, but these expenses are difficult to predict and plan for. While there will always be a portion of budget set aside for CapEx, OpEx are growing in popularity.
The way that businesses - and IT departments in particular - are run is completely different to ten years ago. What required a land-based location, a bank of servers and an ongoing
electricity supply can now be achieved with cloud-based services in exchange for a monthly subscription fee. This transforms what used to be a capital expense into an operating expense that is easy to manage.
The advantages of OpEx are showing much more appeal for business owners and CFOs:
- No large outlays of cash required
- No extensive planning required when drawing up long-term budgets. In fact, one could argue that long-term budgets will not be as necessary as they used to be
- Easier to get approved
- Easier to manage
- In terms of the technology, it can be upgraded as and when required without seeing a purchase through to gain its full value
- Pay only for what you need, when you need it
Where your IT services are concerned, moving the infrastructure to the cloud is proving to have more benefit than not, especially where budgets are concerned. Having IT expenses sitting in the OpEx area of financial focus frees up the CapEx expenses for those that are absolutely essential. Creating that sought-after balance that your CFO has personally strived for.
Technology has given us more freedom to manage our businesses effectively. Transforming IT expenses from CapEx to OpEx makes it easier to scale your business expenses with the growth of the company, even if it hasn’t been planned for in advance.
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