turning capex into opex

How Your IT Provider Can Help You Transform Capex into Opex

Wondering how your business can protect its bottom line during these difficult economic times? Here are 4 ways your IT provider can be a great asset in helping you transform capex into opex:

A Brief Review of Capex vs Opex

Capex, or capital expenditure, refers to any major purchases a company makes that the company will use in the foreseeable future. They are physical goods or services that a company uses for over a year. Examples of capex include fixed assets such as equipment, vehicles, and building expansions.

Opex, or operational expenditures, on the other hand, are the company’s day-to-day expenses that are needed for the company to keep business running. These include costs such as rent, salaries, and utilities.

Opex is generally preferred by companies over capex for several reasons. One well-known advantage of opex is that it is fully tax-deductible in the tax year in which it is incurred. Therefore, moving from capex to opex will reduce the income tax of the company, since income tax is levied on the company’s net income. 

1. Outsourced IT (and Cloud Computing) Saves You Money

With a reliable Managed Service Provider, your business can save money in large upfront investments that go towards procuring hardware or servers yourself. 

This is especially the case if you work with a provider who can help you take advantage of server-less solutions such as cloud computing, which saves your business money in hardware and physical equipment (capex items). You can also reduce overall energy costs with cloud solutions. 

With many outsourced IT services, you also don’t have to worry about associated considerations such as storage space, cooling systems, and more. This is a significant money-saving hack that has led several traditional IT departments to switch from capex to opex spending by outsourcing their IT.  

2. You Only Pay for What You Need

Your company will now be free to use a more efficient pay-as-you-go model. This gives your business more flexibility to control costs, especially if your business needs to scale IT infrastructure up or down over time. 

You can also select certain services to outsource, such as project management or network security, allowing you to only pay for the services you need. If you choose to invest in consulting or network assessment services, for example, your IT provider can perform evaluations to determine which of your digital assets is wasting money and help you instead only keep necessary equipment. Remember that equipment will continue to depreciate in value even when it is not being used, so this capex to opex spending strategy can greatly benefit your business. 

Another example might be a retail company that uses its maximum IT infrastructure workload only once a year during the Christmas holiday season, wasting huge amounts of money by buying maximum-output IT infrastructure. Instead, obtaining managed IT services that can ramp up output for the company’s peak season and return output to a lower level for the rest of the year would ensure that the business saves more money.

3. Your Provider Paves the Way for Valuable Company Growth

Your IT provider can also help you transform capex into opex by strategizing for long-term growth. With IT goals that align with your business goals, your company not only runs more efficiently but also finds more unique opportunities to use innovative technology to replace capex spending with opex.

This capex to opex strategy helps you transform your IT infrastructure into a profit center rather than a cost center, freeing up capital that would otherwise have been locked up in a capex investment such as unnecessary equipment. This freed capital can then be used to fund other projects and add value to your business.

Furthermore, a Managed Service Provider monitors your IT infrastructure proactively and round-the-clock. This proactive approach steers your company away from the less efficient break-fix method of IT support and instead allows you to impede inefficiencies or security risks before they cause downtime. This ultimately saves your company valuable time and money, which in turn can be funneled into company growth. 

4. IT Providers Help You Maximize Your Technology Investments

Currently, with information technology advancing rapidly, various companies are finding it more and more difficult to predict their IT infrastructure needs. This is where Managed Service Providers can be particularly valuable. 

Their years of expertise combined with a large network of vendors in hardware procurement, cybersecurity, and software allow your company to be able to afford the most updated versions of technology. Because of their long-standing partnerships, many MSPs are able to provide software and hardware at a much cheaper price than the standard going rate. They also negotiate your licenses to ensure your IT doesn’t get tied up into stringent or undesirable contracts that increase capex spending.

Shifting your IT investments from a capex to an opex model has several advantages that add quantifiable value to your business. Give your business more opportunities to grow and outrun your competition by spending less time on maintaining and fixing IT infrastructure yourself and outsourcing your IT instead. You’ll also reap the benefits of fully optimized IT systems that are tailored to suit your company’s ever-changing IT needs and future-proof your business.

To learn more about ISG Technology’s managed services for businesses and the advantages they can add to your company, contact us today.