When looking to transform the IT infrastructure in your business, you can choose between capital expenses (CapEx) and operating expenses (OpEx). CapEx refers to business expenses that provide long-term benefits, for example, fixed assets like systems, equipment, servers, network routers and switches or server data storage and backup media. CapEx also includes the costs of upgrading this equipment to extend its usefulness and longevity.
OpEx is the daily business expenses paid for as they are used like rent, electricity, maintenance and payroll. Unlike CapEx, these are not considered long-term investments.
Your financial goals for the business will determine whether you purchase IT infrastructure based on the CapEx or OpEx model. You can consult with the CFO to determine the financial position of your company, and with the CIO to determine the best IT infrastructure you should implement in the organization.
OpEx and CapEx are treated differently in accounting and taxation; CapEx is considered as investments that bring profit to the business throughout their lifetime. The amount to invest in capital expenditures can be a crucial and major decision for many businesses. The investment has real financial ramifications on the long-term strategic goals of the company, a decision that should not be taken lightly if a business is to remain agile and competitive in today’s dynamic economic and technological landscape.
Since IT is a rapidly evolving industry, there is a higher likelihood that CapEx infrastructure will become obsolete before delivering any returns on the initial investment. Upgrading to another CapEx framework will require an additional investment, which further impacts cashflow and financing activities of a business. The solution for many businesses remains to switch IT infrastructure into an OpEx model.