CapEx vs. OpEx: A comparison
Every day, companies are faced with the task of using available capital efficiently. The aim is always to increase sales through investments while remaining financially flexible. The change from a CapEx to an OpEx-focused corporate approach offers numerous advantages in this regard.
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Definition: What are CapEx and OpEx?
A company's total expenses result from Capital Expenditures and Operational Expenditures. The two types of expenditure differ essentially in 2 points,
- the different payment methods and
- the different taxation.
CapEx – Capital Expenditures
Capital expenditures, aptly translated as investment expenditures, comprise all long-terminvestments in acompany'sassets. The aim of these investments is to increase production and productivity in order to boost sales and profits. The specific assets involved may vary depending on the company and industry. Typical capital expenditures include investments inmachinery, buildings, and initial equipment suchasoffice furniture. Expenditures for maintenance and repairs are also considered capital expenditures.
Capital expenditures are typically one-time, upfront payments. As an investment in fixed assets, capital expenditure increases the asset side of the balance sheet. The assets are used and depreciated over a period of several years.
Capital expenditures are also important for investors when valuing a company. A healthy CapEx ratio (ratio of capital expenditure to sales revenue) can be seen as a positive sign of growth. There is no general answer as to what constitutes an appropriate CapEx ratio; instead, it must be determined by comparing companies in the same industry.
OpEx - Operational Expenditures
Operational expenditures include all expenses that are necessary to enable and continuously ensure a functioning operational business. What constitutes operational expenditure also differs from company to company. Typically, operational expenses include the cost of raw materials and supplies, personnel costs, energy costs and costs for sales and administration.
Operating expenses are recurring expenses that are usually paid monthly or annually. They are allocated to the accounting period in which the costs were incurred and are fully recognized in that period.
From Capex to Opex: What are the advantages of the shift?
The shift of investments in assets for increasing sales to operating expenses is achieved through a change in the accounting logic.
Renting is a typical example. Instead of buying and incurring high one-off expenses, the respective assets are rented for a monthly rate. Such an asset-light approach can already be observed in many companies. As part of our customer projects, we can confirm this trend and are receiving increasing numbers of inquiries resulting from a strategic shift towards asset-light.
Flexibility & scalability of IT equipment
One area in which there has been a comprehensive shift from CapEx to OpEx in recent years concerns companies' IT equipment. The emergence of "as a service" and cloud services has led to a widespread shift from procuring strategically important assets in-house to renting them. Software licenses as well as hardware such as server capacity, network infrastructure and laptops are provided by external service providers and paid for on a monthly basis or according to the capacity used.
However, the shift from buying to renting can now be seen in almost all industries. This is because the conversion of CapEx to OpEx can offer both short- and long-term advantages in many cases.
Advantages: Minimization of the financing risk
A conversion from CapEx to OpEx leads to a reduction in investment expenditure. If there is no investment expenditure, the investment risk consequently decreases. Particularly when business development is uncertain, a shift towards operational expenditures contributes to risk minimization in the company.
Reduced capital expenditure also leads to a reduction in working capital. If no assets are held that are not required in certain phases or are not fully utilized, capital is not tied up unnecessarily. Instead, the company has more liquid funds and the free capital can be used profitably elsewhere. Last but not least, lower investment costs reduce barriers to entry. Business start-ups are simplified as high investment requirements, for example for the initial furnishing of office space, are not necessary.
Advantage: Flexibility
There is no long-term commitment beyond the contract period. Provided it is contractually agreed with the external service provider, OpEx can usually be quickly adapted to current needs and is therefore more predictable. Flexible responses to fluctuating demand, process or preference changes are possible without or with only minor additional costs. Since the external service provider is responsible for the technical equipment, you can always work with the latest technology.
Free technology upgrades when renting with Lendis
At Lendis, we also offer an automatic hardware upgrade for selected product groups – e.g. laptops, smartphones and tablets. After the initial rental period has expired, customers automatically receive the latest model for their rented devices and always work with the latest technology.
Advantage: Tax treatment
One example is cloud providers. The operator takes care of regular upgrades to the technology used, and there are no additional costs for the customer. Especially in times of ever shorter product life cycles, high costs can be saved in this way. The same applies to claims. As it is the property of the service provider, these are also regulated and borne by them.
Operational expenses are recognized in the corresponding accounting period in which they are incurred. In this period, they reduce profit in full as costs. Investments in assets (CapEx) are not costs from either a business or tax perspective. Instead, there is a balance sheet asset swap from current assets to fixed assets. Costs are only incurred through the use of the asset and the resulting loss in value. The costs can be claimed for tax purposes in the form of depreciation in the respective period and reduce the profit accordingly.
From Capital to Operational Expenditures: How Lendis can help you
Convert capex into plannable opex
With Lendis, you can convert high one-time investments (capex) into predictable operating costs (opex) – without tying up capital and with maximum flexibility. As a professional provider of office furniture and technology for offices and employees, we offer you a rental model that replaces your entire investment expenditure: whether office furniture, work laptops, or phone booths you choose from our extensive portfolio, and we deliver and install everything from a single source. This not only reduces your Capex, but also saves you the organizational effort of coordinating multiple suppliers.
Outsource internal work to a full-service partner
Our full-service approach goes beyond mere provision. We take care of the delivery, installation and professional commissioning of your equipment, including the software setup. At the end of the agreed rental period, you can easily upgrade your equipment fleet so that your team is always working with the latest technology without any additional investment.
Proven model: over 1,500 companies are already saving
More than 1,500 companies are already taking advantage of Office as a Service and Device as a Service to optimize their liquidity and budget management. With the Lendis calculator, you can determine in just a few clicks how much you could potentially save by switching from purchasing (Capex) to renting (Opex) – with no obligation and free of charge.
With Lendis, customers have already been able to save up to 38% on IT equipment and office furniture. Find out now how much you can save by renting compared to buying.