From Capex to Opex: Why and How to Make the Transition?

In an Often-Turbulent Economy

It’s the responsibility of business managers and CFOs to keep a close eye on cash flow and to manage business liquidity with care in order to build a resilient model.

Among all the strategies available to decision-makers, converting certain Capex into Opex is doubtless one of the most effective. Less pressure on cash reserves, reduced opportunity costs, stronger growth...

The advantages are numerous. Read on to discover why and how you should transition from Capex to Opex in your business!

CAPEX AND OPEX: DEFINITIONS

Before we get into the details of why moving from Capex to Opex can benefit your business, let’s take a moment to review some fundamentals.

CAPEX: DEFINITION

Capex, or Capital Expenditures, refers to investment spending. These are expenses meant to improve business income over the long term: new machines, vehicles, buildings, furniture, IT equipment, and so on. Typically, these are significant outlays that can weaken your company’s cash flow until they start bringing returns.

OPEX: DEFINITION

Opex, meanwhile, stands for Operational Expenditures. In other words, operating expenses or running costs. This term covers all day-to-day expenditures necessary for the business to function properly. There are controllable Opex—such as payroll, raw materials, subcontractors, and tools—over which management has some influence, and uncontrollable Opex, which are expenses you can’t really change.

Now that these concepts are clear, we can move on to the real subject at hand: why shift from Capex to Opex?

WHY SWITCH FROM CAPEX TO OPEX?

As mentioned above, a company must remain sustainable regardless of its economic model or business plan—whether in the first year of a startup or the tenth year of a scale-up, this principle holds true.

To achieve this balance, it’s worthwhile to take a closer look at your company’s Capex/Opex split. While some costs must remain as is, you’ll see that a few adjustments can help you move forward more calmly and efficiently.

PRESERVING YOUR CASH FLOW

Investment spending is often significant and may not pay off within the first year. This can take a sizeable bite out of your cash reserves. Take the example of a fleet of 20 vehicles: is it really worth paying a large upfront amount, or should you consider a fleet leasing contract instead? Owning that many vehicles carries financial risks—be it maintenance, resale value, warranties, and so on. Paying monthly for your fleet allows you to mitigate these risks and transfer them to a trusted third party that specializes in this area.

LIMITING OPPORTUNITY COSTS AND IMPROVING FLEXIBILITY

When starting a business, purchasing office furniture or IT equipment can instantly make a large dent in your cash reserves—which, more often than not, are limited. Spreading these costs as operational expenses gives you more financial leeway and can help you seize growth opportunities that would otherwise be out of reach due to lack of funds. In other words, moving Capex to Opex can potentially accelerate your growth and give you the best possible start.

If your business faces market shifts or internal restructuring (as often happens in startups), leasing or renting solutions allow for much greater flexibility. This flexibility is harder to achieve when you own physical assets, as you then have to handle their sale, residual value, disposal delays, etc.

GREATER PREDICTABILITY

It may seem obvious, but it’s worth remembering: having a clear picture of your expenses and income makes everyday management much easier. Shifting Capex to Opex enables you to predict and control your spending and remaining capital far more accurately.

CONSTANTLY UPDATED EQUIPMENT

Whether it’s company cars, IT equipment, or office furniture (with providers like Fleet, for example), almost all leasing solutions offer to take back your asset after a certain period, allowing you to adopt the latest model. And don’t worry about environmental impact—returned equipment is usually resold or refurbished for a second life in the used-goods market.

The ability to consistently work with up-to-date equipment is positive on many fronts, starting with the image you present to clients. It also boosts employee motivation, as they feel cared for. Motivating your teams is vital to your company’s growth and stability. At a time when employer branding and employee well-being are key topics, transitioning from Capex to Opex can prove an excellent choice.

HOW TO TURN SOME CAPEX INTO OPEX?

The benefits are clear. But how do you actually make the switch? The first rule: don’t rush. While the advantages are real, you should take time to analyze your situation.

• What assets can be liquidated?
• What impact will this have on cash flow?
• How quickly can it be done?
• What about the resale process?
• Which items can be switched to operating expenses?
• Does this fit with your way of working?

Once you’ve made your decision, carefully compare the options to get the best deal. Remember: the monthly cost of leasing equipment should not be seen solely as a rental payment, but as payment for a comprehensive service. Your comparison should therefore also cover warranties, returns, flexibility, and other relevant criteria.

From our experience, leasing aligns well with the financial interests of most business models—so why not for yours? And why not with Fleet for your office furniture and IT equipment? Let’s talk!