CapEX versus OpEX – Financing your Phone System Purchase
How to Finance your Phone System
If you’re a business considering upgrading or replacing your current technology, there are a few things you’ll need to consider. For instance, what issues will your new technology solve for your emerging business, and is it possible for the network or infrastructure that you’re currently using to support it?
Additionally, what level of downtime are you going to need to implement this new tech, and will you need to train your users? Alongside so many crucial questions, one of the biggest issues that companies face is the question of how you’re going to finance your phone system purchase.
New technology in the marketplace has designed brand new purchasing solutions beyond services like perpetual software licensing. The latest financing models used to purchase new systems often end up as a decision between OpEX and CapEX – but it can be hard to choose which is ideal for your business.
OpEX vs CapEX – What’s the Difference?
Before you can determine which financing model is best suited to you, you’ll need to understand how each impacts your company’s bottom line. Before cloud-computing became so popular, if a business wanted to obtain a new phone system, they either had to buy their PBX hardware upfront and file it as a capital expenditure (CapEX) or alternatively, source a lease finance agreement whereby the money could be paid back monthly with interest (OpEX).
CapEX investments refer to any significant cash investment, including infrastructure, property, software licenses, and equipment that show up on the balance sheet for a company alongside it’s depreciation.
Alternatively, OpEX consists of operational costs, which are on-going expenses such as utilities, rent, wages, and services. Because the costs are ongoing, OpEX is part of the profit and loss system for a business. Although CapEX was considered the norm for PBX purchases, it also created a barrier for companies with tight budgets who wanted to take advantage of new technology. However, today’s companies have a choice between hosted phone systems using OpEX, and on-premise solutions using CapEX, as well as services that offer both.
The Benefits of OpEX
OpEX is the latest solution for telephone system financing, but what are the benefits?
- Using an OpEX model enables companies to use their available cash for revenue-generating solutions like product development, lead generation, and research or development. Additionally, companies can save money on IT resources in areas like repairs, upgrades, system management, and more.
- Many CFOs today prefer OpEX for its exclusive tax benefits. An OpEX solution allows companies to write off all the monthly expenses of hosted phone systems as day-to-day operating expenses. On the other hand, with a CapEX model, companies can only write off a percentage of the cost each year, based on depreciation schedules. The OpEX solution therefore puts companies in improved circumstances when it’s time to deal with the costs of taxes, as they can remove a larger deduction based on the amount accrued in total monthly payments.
- Under OpEX, using a hosted solution allows companies to scale technology and only pay for what they use. For instance, if a company wants to add extensions or users during a busy season, they can do so through a simple phone call. Users are also added immediately, and the increased costs for each user can simply be added to the monthly bill. At the same time, if users need to be removed from the system, all that is needed is a quick call and the next bill can be lower.
A Solution for Tighter Budgets
The move into the cloud has created more of a level playing field for businesses of all sizes now that several technology purchases have been shifted from CapEX to OpEX, including business phone systems. There are considerations involved with renting and owning equipment, but the OpEX model has various unique advantages which make it the optimal choice for those with tighter budgets and a desire for growth.