OpEx vs CapEx: What should SMBs choose?
There’s a lot of talk in the IT world today about OpEx vs CapEx.
Now more than ever, SMBs have options for treating IT hardware and software as either an operating expense or a capital expenditure.
They wonder which one is better: OpEx or CapEx? And what drives this decision for a small business owner?
Let’s find out.
Understanding CapEx and OpEx
Historically, CapEx has meant “expenditures” rather than “expenses.” Think major purchases like property, plant, and equipment that are used over the long term. That’s because CapEx is not expensed; rather it is depreciated over its useful life. Often Capital Expenditures are financed externally through borrowing.
Operating Expenses, on the other hand, are day-to-day, ordinary, and customary expenses that keep the business operational, such as for utilities, rent, lease payments, and consumable items.
Also, OpEx is deductible for tax purposes.
So, where does IT spending fall?
IT is not always easy to classify, having elements of both OpEx and CapEx.
Certainly, hardware and software are expected to last more than one year which would typically mean they are CapEx.
However, most IT purchases also include maintenance, support, and licensing costs that are ongoing and therefore, OpEx. Moreover, many IT purchases are inexpensive enough to be considered consumable for today’s businesses.
What has muddied the waters even more is the wide availability of “as a service” IT offerings for small businesses:
Infrastructure as a Service (IaaS)
Desktop (or Device) as a Service (DaaS)
Platform as a Service (PaaS)
Software as a Service (SaaS).
On-demand, cloud-based services like these offered on a monthly subscription basis are similar to a lease and qualify as OpEx.
Why do SMBs prefer “As a service” offerings?
“As a service” offerings, and the ability to treat IT expenses as OpEx are popular with SMBs and perceived favorably for several reasons:
The “pay for what you use” model with “bite sized” increments provides flexibility.
IT capabilities like storage and bandwidth can be added or removed as needed, which is advantageous for businesses, especially in unpredictable or high growth environments.
Maintenance and support costs are rolled into the monthly subscription payment which simplifies expense tracking
Hardware is usually refreshed periodically without additional cost to the subscriber.
More scalable (even though large increases can result in painful monthly bills, they can be implemented quickly without outside financing.)
Requires less in-house IT staff and expertise.
However, the “as a service” model also means that you don’t own your IT hardware or software and therefore have less control over important elements of your business.
Also, the total cost of ownership can sometimes be higher with a subscription versus a purchase in cases where the same technology is used for several years without replacement.
Read more about blog here: https://www.uplevelsystems.com/blog/opex-vs-capex
















