OpEx Versus CapEx for IT Expenses

There are advantages and disadvantages to investing in OpEx vs. CapEx. Businesses need to implement new technology to maintain a competitive edge. However, purchasing hardware and software can be costly. Find out how to use OpEx and CapEx to save on IT services.

When it comes to purchasing new IT software and hardware for your business, you can classify your expenses in two ways: OpEx or CapEx. OpEx, or operational expense, refers to costs required to maintain regular business functions, such as administrative fees, subscription-based services and rent. CapEx, also known as capital expense, refers to any purchases a business makes for future benefit. This can include purchasing new IT equipment or technology to add value to a company.

Operational expenses are necessary for day-to-day functions and are recorded on a company’s monthly income statement at the time they are incurred. OpEx includes purchases like office supplies, travel, utilities, property insurance and contracted IT services. 

• Subscription-based cloud services, like Infrastructure as a Service (IaaS) and Desktop as a Service (DaaS), let you access business data and applications from virtually anywhere.
  
• Monthly subscriptions for website hosting and web domain registrations.
• Contracted services, like outsourcing specific IT tasks to a third-party company.

A capital expense is acquired when a business spends money or takes on debt to buy a new asset. In other words, it’s an investment for future gain. CapEx includes one-time, fixed purchases of a major product or service meant to benefit a company for more than one year.

Capital expenses are not subtracted from a company’s revenue right away. Instead, these assets are deducted over time as the cost of the asset depreciates. Any money spent to obtain new inventory, traditionally including new IT hardware, is categorized as a CapEx expense.

• New equipment, such as servers, computers, laptops and tablets
• Line printers, air conditioners, scanners and generators
• Upgrades to existing facilities
  
• Data centers

Understanding the difference between OpEx vs. CapEx is crucial for any business trying to optimize its finances. While capital expenses are sometimes necessary, these assets depreciate over their lifecycle, while OpEx assets don’t. The more you spend on capital expenses, the less you have to spend on operational costs. In general, most small businesses prefer OpEx to CapEx due to the benefit of minimizing income tax. Businesses should schedule time to discuss accounting regulations before making any decisions regarding classifying expenses as OpEx or CapEx.

When it comes to IT, renting or leasing services is helpful when budgeting. Rather than spending a large amount of money upfront on hardware and software, you can budget for a lower monthly cost by leasing specific IT services. For instance, cloud-based services enable the technology your business needs to grow without a significant CapEx investment.

Here are some IT solutions you could categorize as OpEx:

• Infrastructure as a Service (IaaS): Move your IT infrastructure into a virtual environment, avoiding the cost of physical data centers.
  
• Desktop as a Service (DaaS): This service combines equipment, licensing, management, support and more into one predictable monthly charge.
  
• Backup as a Service (BaaS): Avoid purchasing costly data centers to store your critical information and applications. BaaS automatically backs up your data in the cloud so you can access it from virtually anywhere without having to invest in a physical location.

As you analyze your finances, keep in mind the benefits of shifting your expenses from OpEx to CapEx. With Cox Business Cloud Services, you can balance your costs for a more predictable model as you scale. Take the guesswork out of your expenses and grab control of your finances.