It’s all about the bottom-line when it comes to running a successful business. How and where to spend dollars is an ongoing struggle.
As the puller of the purse strings, CFOs must have a critical eye when they determine expenditures and every year might bring with it a host of changes and market conditions that impact those decisions. Historically, investments in a companies IT, CFOs get really excited about capital expenditures or CapEx, so the company can take advantage of amortization and depreciation. But times are changing and there is a roaring debate, that operating expenditures (OpEx) are now the better way to put money to work.
OpEx In IT Spending Gets Popular Than CapEx
The business world is packed full of hard costs that demand massive, upfront investments and have to be included in yearly budget figures (CapEx). These are monies that have the ability to be planned for in advance. But as we all know using our ESP to predict tomorrow can be hairy. We know our plan A isn’t workable without a plan B. More often than not what has been planned for doesn’t totally align with what we actually need. And as we learned in 2020 technology moves at lightning speed if need be, and can often be unpredictable. So our tech spend has become as predictable as the Midwest weather.
Y’all we got the CLOUD! The way we consume and house our technology today, means that we need less physical real estate, and boots on the ground. Contracts have turned into month-to-month subscription based platforms, and switching vendors, carriers, etc has become less cumbersome. This frees up a ridiculous amount of cash, and it also means that little guys who once couldn’t afford to play are now in the major leagues.
Other inherent pains with CapEx technology:
- Huge cash requirement
- Guesswork to estimate future capacity needs for static hardware/software
- Painstakingly long processes to estimate budget and get it approved
- Once the investment is made, your is stuck with it – despite technology advancements or changes in company growth
Now lets contrast this with Operating Expense. These types of “investments” are generally day-to-day costs of doing business. Usually they are more stable and more predictable.
Here’s why we’re loving Technology as an OpEx:
- Pay only for the capacity you need, with the ability to scale up or down
- Easy and speedy to get into that budget
- Free up the huge cash investments for other areas of the biz
- No borrowing needed
- Nice easy cash flow
No matter how you and your leadership want to grow your company, be sure that your vendors are flexible so that your company can grow and flex with the ever changing business landscape that we’re in!