Is OPEX your friend in IT?

 It’s funny to have the OPEX and CAPEX conversation with fellow technology geeks and sales people.  Everyone says OPEX is better, and tells the CFO and CIO that today’s solution is going to save you from CAPEX!  I think most decision makers are getting tired of hearing that.  So much –it’s almost dismissed as sales buzz words.  Probably because many consultants forget the deeper significance (AND when there are exceptions to the rule).  What happens when you ask the geek and sales guy the significance of the two?  What is the difference between CAPEX and OPEX?

Just to clarify what you should know (follow link):

CAPEX:  expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset with a useful life that extends beyond the taxable year.  In other words (Internet Protocol Journal 2009, Volume 12, Number 3): buying and installing servers, storage, networking, and related infrastructure.

For tax purposes, capital expenditures are costs that cannot be deducted in the year in which they are paid or incurred and must be capitalized. The general rule is that if the property acquired has a useful life longer than the taxable year, the cost must be capitalized. The capital expenditure costs are then amortized or depreciated over the life of the asset in question. As stated above, capital expenditures create or add basis to the asset or property, which once adjusted, will determine tax liability in the event of sale or transfer. In the US, Internal Revenue Code §§263 and 263A deal extensively with capitalization requirements and exceptions.

OPEX:  The counterpart of CAPEX.  An ongoing cost for running a product, business, or system.  Day to day expenses.  IT Departments and companies pay for the usage of technology to run their business, instead of buying the technology and keeping it in the accounting books.

SUMMARY:  This general rule applies: OPEX is important to understand, because it improves cashflow, and cash asset recognition in a given business -and when you help the boss with that, you become a hero.

* However, BEWARE: I can think of about 50 plausible scenarios when CAPEX may be better than OPEX, in various situations.  Let's hear your feedback, and see what you think?

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