Managing your IT budgets capital expense (CAPEX) vs operating expense (OPEX)
Want to know the best way to optimise your finances correctly? Find out all about different types of expenses and discover the major benefits and advantages to run your business efficiently. CAPEX and OPEX refer to business-related expenses or the money that you pay out of your company.
If you are planning to invest in new IT equipment and software, you may need to have a little knowledge about the capital expense and operating expense. This will help you be flexible with your budget and find out whether you want to make your next purchase listed as a capital item or an operating expense.
We will help you develop a better understanding of how to manage your IT budgets by giving an overview of your company’s capital expenses and operating expenses.
Capital expense or (CAPEX) refers to the business investments that are reflected in your company’s balance sheet. Whenever you buy an asset in exchange for capital that adds value to your business goes under CAPEX. Whereas operational expense refers to the ongoing expenses. These types of expenses are mentioned in your company’s profit and loss statement. Here no tangible asset is purchased or exchanged.
We are going to provide an overview of both CAPEX and OPEX so that you can figure out which particular payment option is beneficial for your company.
What is CAPEX?
CAPEX stands for capital expenditure; it includes all your current and future business expenditures. For instance, if you are planning on expanding your IT support team or hire IT support services, then this expense would come under CAPEX. These expenses may not impact your income right now, but they still contribute to your company’s future income.
CAPEX significantly reflects how much your company is investing in future services. You can track or calculate capex from year to year as well. If your company needs to make more capital investment, then you need to rely on CAPEX. It also includes the purchases of fixed assets.
What is OPEX?
OPEX or operational expenditure indicates your company’s daily expenses. It includes your employee’s wages, utility cost or and building rent. The cost of building repairs and maintenance is also included in OPEX. Here the company needs to make sure that your company’s OPEX is not too high or else you will lose money.
In the OPEX model, the operating expenses are deducted in the accounting period. From your building license fee to insurance fees and leasing commissions all is included in OPEX. These expenses are necessary in order to ensure the smooth functioning of your company.
Whether you should go with CAPEX or OPEX will eventually depend on your company’s future IT needs and budget.
When it comes to technology investments, most companies prefer capital expenditures over operating expenses as they can benefit from amortization of the expenses. You can also consider CAPEX over OPEX if your company do not need any static investments and you can support the necessary scalability.