As companies prepare to roll out their budget plans for the next year and April quickly approaches, there is a lot more to think about with the changes in technology when it comes to the cloud and telephone systems.
Where to spend money is a constant tug of war but it’s not the only battle being fought. How to spend the money can be just as contentious.
Directors have to consider multiple factors to determine expenditures and every year, bring with it a host of changes and market conditions that will impact those decisions.
There’s a growing argument that operating expenses (OpEx) have distinct benefits over capital expenditures (CapEx) that have made it a favoured investment approach by finance departments.
The Growing Role of OpEx in IT Spending
When it comes to a phone system – gone are the days of replacing in-house exchanges to power the system, paying a maintenance contract and replacing hardware every five years with huge CapEx.
There are plenty of hard costs that require large, upfront investments and should be a part of the approved budget (CapEx). They are costs that can be planned for in advance, but the comfort of having spending certainty is dependent on the accuracy of the estimation of future requirements.
Today, technology options and how they’re delivered is simply incredible.
What once required dedicated real estate, skilled employees and loads of time can be fulfilled remotely via the cloud or by dedicated companies that specialise in a certain area and charge a subscription fee for its service. Organisations have more options because they can afford the latest and greatest technology without having to find a large bucket of funds upfront to pay for it.
Instead, they can focus on their core competencies and transition many of their CapEx investments to OpEx spending, freeing up cash for those investments and other projects that drive revenue and growth.
Issues with capital spending
Other inherent difficulties with capital spending on technology can include:
- Large amounts of cash required
- Error-prone guesswork to estimate future capacity needs for static hardware/software
- Lengthy and arduous processes to estimate budget and get it approved
- Once the technology is purchased, the company is stuck with it – despite technology advancements or changes in company growth
Operating expenses, on the other hand, are generally used for the day-to-day costs of running a business and often fluctuate. While some Directors are still reluctant to move much of their IT and telephony to the cloud and other providers, technology developments are occurring faster than companies can digest and are the exact reason why many Directors are shifting from a reliance on capital expenditures to operational spending. Technology as an operating expense allows a company to:
- Pay only for the capacity it needs at the moment and scale as requirements change
- Ease and speed up the budgeting process because short-term spending requirements are less
- Make multiple investments across the business since capital isn’t tied up in large upfront expenditures
- Fund expenses faster through operations rather than needing to borrow money or divert money from other projects to pay for large, upfront technology costs
- Smooth out cash flows over time instead of requiring lumpy outlays