IT Managed Services, IT Maturity
It’s a battle more intense than Batman versus Superman, more pressing than Star Wars versus Star Trek, and more divisive than any Favorite Doctor Who argument: Are you team OpEx or Team CapEx?
If you’re a new or growing business, you’ve probably come across the terms OpEx and CapEx before. But knowing what they mean for you and your finances is no simple task, and choosing between the two can make all the difference in the growth, maintenance, and cost of your IT. In order to encourage the best decision for your business’s IT, we’re eager to settle the CapEx/OpEx argument once and for all.
Team OpEx is the best choice for SMBs. It’s that simple. And to show you why, let’s start by comparing the two:
What are CapEx and OpEx?
Essentially, CapEx, or capital expenditures, are expenditures made upfront so that you can own and continue using a product for several years. The cost of that item depreciates over time, so even if the original cost is significant, it might be the more economical choice in the long-run. CapEx investments can require a significant capital investment upfront and can result in lumpy cash flows over a number of years.
In contrast to CapEx, OpEx, or operational expenses, are reoccurring costs associated with an item or service. OpEx’s upfront cost is smaller, but it typically includes a recurring monthly charge to continue renting your item or service.
Many SMBs are private-equity owned. For these businesses, CapEx may seem preferable to OpEx, which will reoccur over and over, thus taking away from monthly earnings. However, the actual costs of CapEx, as well as the risks, can definitely outweigh the surface benefits. At the end of the day, investors value predictability and stability of cash flow.
Simply put, there could be instances in which CapEx makes sense. For example, you might choose CapEx when purchasing equipment that is core to your business operations, such as production equipment for a manufacturer. However, when considering IT infrastructure when you are not an IT company, Team OpEx is the way to go.
Why We’re #TEAMOPEX for SMBs
For the vast majority of SMBs, it isn’t financially responsible to invest in a product that could break, require upkeep, or become obsolete. The additional costs and potential losses can cause setbacks, and when you’re a new or growing business, the last thing you want is a surprise cash outflow.
Additionally, most OpEx products come with management services; if something goes wrong, you have someone to contact. But if you buy your item outright via CapEx, that means it’s yours, and you’re the one managing it. Unless you’re an IT whiz, you’ll need to hire others to service that product for you, thereby incurring additional costs—potentially more costs than if you had gone with OpEx from the start. And even if you hire one or two techs, they can’t supply the same level of knowledge and solutions you’d get from a service provider’s full team.
In some ways, this takeaway seems obvious, doesn’t it? It’s like the difference between renting or buying your home—the latter might make sense in the future, but while you’re still building up revenue, it’s not financially feasible. And once it is feasible, it might still be unwise. You already have so much to worry about when running your business; additional stressors aren’t worth CapEx’s potential (not guaranteed) savings.
When it comes to SMBs, OpEx is the better option. It’s more affordable, less risky, and less stressful than dealing with CapEx. So, we’ll let the internet handle Team Gryffindor versus Team Slytherin, because we’ve settled the bigger debate: outside of a few unique circumstances, OpEx is the best choice for SMBs.