Operating Expenses vs. Capital Expenditures: Making Strategic Technology Investments

Business Intelligence | December 2, 2022

A penny saved may be a penny earned, but what does that make a penny invested? 

Making the most of your business’s funding requires your financial considerations go beyond money in and money out. Investing in organizational success, whether it be via updated technological solutions or improved cybersecurity, is just one way today’s business owners can boost their growing power, so long as they know what they’re working with, of course.  

Luckily, we do. 

From the technology experts at EMPIST, here’s a brief rundown on what today’s business owners need to know about building success with strategic technology investments and, more specifically, operating expenses.  

Crash Course: Operating Expenses vs. Capital Expenditures 

First things first, it’s back to basics.  

While we’re sure – or, at minimum, we hope – that you’re already well-versed in the differences between operating expenses and their budgetary foil, capital expenditures, we figured a brief overview couldn’t hurt.  

Operating expenses (commonly abbreviated OpEx) describe the ongoing costs of doing day-to-day business. Excluding the Cost of Goods Sold (COGS), these expenses typically include fluctuating costs like administrative wages, rent, utilities, marketing, sales, and more.  

Conversely, capital expenditures (abbreviated CapEx) describe those fixed, usually one-time costs or assets a business needs to run. Buildings, equipment, furniture, and even large technology purchases are examples of capital expenditures.  

Understanding the differences inherent to this financial terminology is crucial to understanding your business’s investment strategy.  

While traditional wisdom might suggest keeping your operating expenses as low as possible, when it comes to your business technology, transitioning oft-prohibitively expensive capital expenditures like servers or hardware to a more flexible operating expense-billed solution could provide your business with the budgetary wiggle room it needs to take off.  

After all, Gartner predicts that global IT spending will top $4.6 trillion in 2023, a 5.1% increase over 2022 alone. This year, worldwide spending on devices dropped 8.4% while spending on software actually increased by 8% – and is projected to grow another 11.3% in 2023. In analyzing these numbers, Distinguished VP Analyst at Gartner John-David Lovelock says, “companies will use digital technology primarily to reshape their revenue stream, adding new products and services, changing the cash flow of existing products and services, as well as changing the value proposition of existing products and services.” (Gartner, 2022) 

Operating Expenses

 

 

Operating expenses

Needless to say, in order to capitalize on these trends, your business needs to seriously consider how – and why – your budget items are classified as they are in order to shift course and grow in the coming years.  

Cutting Costs with Business Technology 

The way we see it, there are two primary reasons to consider investing in OpEx technology solutions over their longer-lasting CapEx counterparts: economic uncertainty & modernity.  

Where permanent CapEx solutions might be a sounder investment in stable conditions, in financially tumultuous times such as these, flexibility can make or break your business. OpEx technology can grow and change with your business as needed, giving your organization the resiliency to survive the bad times just as well as the good. What’s more, OpEx-billed tech like cloud computing allows businesses to pivot more quickly than expensive on-premises equipment, giving you a competitive edge against more outdated competitors. With less red tape needed for sign-off than CapEx tech devices and software, OpEx budgeted technology is also more likely to be approved with speed. 

As far as modernity is concerned, as-a-service solutions and other modern technological innovations are easier to update, upgrade, and keep up with the times. Staying current is essential for businesses of all shapes and sizes to attract talent, keep clients, and maintain security. On the contrary, bulky hardware can quickly become outdated or unusable as technology continues to innovate at a rapid pace, making a large CapEx investment a risky one.  

Let’s get into specifics: 

Cloud Solutions

Cloud technology is perhaps the most salient example we can give of how technology billed as operating expenses can help you grow your business.  

  • Storage 
  • Unlike on-premises servers that come with hefty, front-loaded costs, cloud storage solutions operate on a pay-as-you-go model. Not only does this method of delivery give SMBs access to similar – if not the same – enterprise-level technology of their larger competitors, but it also ensures that your business is unencumbered by the cost of storage as it is starting out, leaving you extra budget to grow.  
  • Computing 
  • Computing offered via the cloud is also regularly provided on an as-a-service basis. Opting for cloud computing options will give your business access to new and innovative technologies that are more readily competitive than their traditional counterparts.  
  • Collaboration Tools 
  • OpEx-billed cloud-based collaboration tools like Teams or Slack give businesses the option to add or remove users as needed, factoring in the effects of growth from the start. 

Hardware-as-a-Service

Similar to other as-a-service solutions, Hardware-as-a-Service takes the traditional CapEx billed technology hardware and transitions it to an operating expense by leasing machines and other devices to your organization on a needs-based subscription. Once again, making this change offloads the initial costs of hiring and streamlines your onboarding process for reliable results.  

Skills Gaps

Hiring, on the whole, can be incredibly expensive – and while wages are also considered an operating expense, filling all the knowledge gaps in your technical ecosystem might leave you with more employees than you actually require. Working with an MSP to outsource your skills gaps as they arise can up your business’s flexibility and know-how without the costs of retaining – and maintaining – staff.  

Cybersecurity

Furthermore, as cybersecurity concerns continue to mount, working with a reliable, service-based security provider like EMPIST can help to ensure your business’s investments against additional digital risk. In this way, outsourcing security not only leans up your budget sheet but also guarantees that you have the best protections in place given today’s security environment.  

Invest in Success

When your bottom line is on the line, there’s only one number you need to call.  

EMPIST is a full-service technology provider that focuses on building partnerships that keep your organization just as scalable as it is safe. Our enterprise-level IT managed services, cloud support, cybersecurity solutions, and digital ventures are specifically designed to provide businesses of all shapes and sizes with the best quality support in the most efficient way possible.  

Start your growth plan with EMPIST at your side today. You can learn more about EMPIST services by visiting us online here. To get started with an EMPIST representative right away, contact our team.  

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