What is CapEx and OpEx?

CapEx refers to a Capital expenditure while OpEx refers to an Operational expenditure. Capital expenditure is incurred when a business acquires assets that could be beneficial beyond the current tax year. For instance, it might buy brand new equipment or buildings. Also, it could upgrade an existing asset to boost its value beyond the current tax year. CapEx is also known as a Capital expense.

Operational expenditure consists of those expenses that a business incurs to run smoothly every single day. They are the costs that a business incurs while in the process of turning its inventory into an end product. Hence, depreciation of fixed assets that are used in the production process is considered OpEx expenditure. OpEx is also known as an operating expenditure, revenue expenditure or an operating expense.

Understanding CapEx vs OpEx difference is crucial for any business struggling to optimally utilise finance by making sure that the correct mode is used for capital expenses and other types of expenses. Below you will find a complete guide to Capex vs Opex, explaining the benefits and disadvantages of both, and how to manage them effectively.

How CapEx and OpEx are Treated in Accounting

CapEx – Capital expenditures are not fully deducted in the accounting period they were incurred. In other words, they are not fully subtracted from the revenue when computing the profits or losses a business has made. However, intangible assets are amortized over their lifespan while the tangible ones are depreciated over their life cycle. All monies spent to get new inventory, including machinery or intellectual property, are grouped under CapEx spendings.

OpEx – Operating expenses are fully deducted in the accounting period they were incurred. All funds spent when converting inventory into throughput falls under OpEx. This includes employee wages, repair and maintenance of equipment, rental fees, and utility bills and so on. If a business invests in real estate, this spending is approved as CapEx budget and the expense is grouped under CapEx. However, all the costs incurred when managing such an income generating building falls under OpEx.

CapEx Summary

• Purchase of fixed assets.
• Preparation of the purchased asset so it can be appropriate for business use.
• Fixing of asset’s problems,
• Restoration of an asset’s value through upgrading
• Adapting a machine to a different use

Operating Expenditures Summary

• License fees
• Advertising costs
• Legal and attorney fees
• Telephone and power overheads
• Insurance fees
• Property management costs
• Property taxation expenses
• Vehicle fuel and repair costs
• Leasing commissions
• Salary and wages
• Raw materials and supplies
• Office overheads

IT Spending – CapEx or OpEx?

What Do Most Businesses Choose Between the Two?

Get our PDF Case Study to learn how Hertz has leveraged CMW Tracker to create a modern CapEx approval application, which replaced complex Excel files and dramatically reduced the capital expenditure approval cycle time, decreased operational expenses and minimized financial risks.

When a Business Can Opt for CapEx

CapEx and OpEx Management in Post-COVID-19 Times

The COVID-19 pandemic caught the world off guard, impacting not only how humans live, work, and communicate but also how they run their businesses and manage capital and operating expenses. But, the worst is over now, bringing in new challenges, opportunities, and post-pandemic transformations in the realm of CaPex and OpEx expense management. So, what are the emerging CapEx and OpEx trends and strategic approaches that organizations across industries are massively embracing? Let’s find out below.

Environmental, social, and governance (ESG) considerations

In the post-pandemic world, ESG considerations are critical factors, impacting operating and capital expense decisions. This indicates that when making financial management choices, businesses focus on addressing sustainability issues, adopting small business social responsibility (SBSR), and adhering to a defined set of company governance rules and practices. Among them are transparency, ethics, accountability, stakeholder engagement, and many others. Prioritizing ESG factors, organizations allocate and utilize their resources more sustainably, boost operational efficiency, and enhance their brand value in the arena of capital projects, establishing a sound reputation among prospective talent and customers.

Digital transformation 

The post-pandemic times have accelerated the process of digital transformation (DX), which has become a massive trend for capital expense and operating expense businesses. Focused on the adoption of emerging technologies, such as artificial intelligence (AI), cloud computing, and the Internet of Things (IoT), DX helps streamline a wide range of tasks and get a significant pool of benefits. By embracing digital technologies, CapEx and OpEx businesses migrate to cloud-based IT infrastructure, reduce long-term investments in on-premises hardware and software, minimize relevant maintenance costs, enhance operational efficiency, improve scalability and flexibility, and facilitate decision-making in financial planning. 

Hybrid work and remote teams

Another trend in the after-COVID-19 times is the shift toward the hybrid work model or fully remote teams. This means that CapEx and OpEx businesses are heavily adopting a wide array of digital collaboration tools and virtual communication platforms to facilitate remote work and maintain employee productivity, engagement levels, and flexibility. Transitioning to hybrid work and remote teams, businesses ensure prudent cost allocation by cutting overhead office-related costs, all while increasing efficiency levels and achieving their long-term budgeting goals.

Enhanced cybersecurity

As multiple CapEx and OpEx businesses have recently embarked on their DX journey and tapped into the power of hybrid and remote work, ensuring enhanced cybersecurity levels is becoming not merely a trend, but rather an urgent necessity. To guarantee all corporate information is securely and tightly protected against all potential cybersecurity breaches, companies implement a wide range of relevant solutions for network and endpoint security. These solutions include next-gen firewalls (NGFWs), intrusion detection systems (IDSs), intrusion prevention systems (IPSs), and more. By integrating these solutions into OpEx and CapEx processes, businesses guarantee the comprehensive protection of all their systems while ensuring the safety of all corporate assets and maintaining long-term business continuity.

Considerations of regional characteristics and specifics

Both regional characteristics and specifics are becoming a significant CapEx and OpEx trend in the post-pandemic era. This means that local legislative regulations, cultural specifics, and existing economic environments influence how OpEx and CapEx businesses manage their expenditures and fixed assets, including cash flow, tax deduction, asset acquisition and depreciation, amortization, and more. To optimize their financial strategies and ensure efficient cost control during a specific accounting period, businesses need to consider a wide range of regional factors, including the current state of the economy, regulatory compliance pertinent to a particular region, market fluctuations, and more.

Strategic planning and forecasting

Strategic planning and forecasting is another trend related to the field of efficient CaPex and OpEx management. It involves using advanced data analytics and predictive modeling tools that empower companies to strategically plan and efficiently allocate their capital and operating expenditures, including long- and short-term costs, profit and loss statements, and overall balance sheets. Adhering to the strategic planning and forecasting trend, companies align their financial strategies with desired business objectives, ensuring long-term business growth and success.

Taking Control of CapEx and OpEx

CapEx Approval and Opex Management Software by CMW Lab delivers all the necessary tools for thorough expenses management, workflow automation and improved employees collaboration. You may be interested in our other services: process automation software and business process management solution.

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Business expansion is a route to financial growth only when you are able to control each capital expenditure aimed at improving your assets. When planning to invest a part of your revenue into improving and expanding your assets, you need more than a well-thought out strategy. The return for this kind of investment will be perceived over time, so you need to see where you want to be long in advance. It is vital to align CapEx planning and execution with the business objectives and it might be a struggle to manage spending on hundreds of CapEx projects and one day you may need a comprehensive CapEx planning software. Last but not least, you need a streamlined process of CapEx tracking. Actually, CapEx approval process automation is usually the first thing CFOs do for getting CapEx approval and spending managed. And here is where an online capital expenditure approval solution can really help. They will be useful in the following cases:

• asset acquisition
• asset renovation
• asset lease

You can find a streamlined capital expenditure process and customizable capital expenditure forms in CMW Tracker Finance and Administration solution. It’s ready-to-go and pre-configured for team work, and includes an automated workflow and collaborative features.

The streamlined process has main steps for CapEx approval: request creation, rejection, clarification and verification, approvals. The advantage of the streamlined process is that the request won’t be able to proceed to a higher step before all of the review steps are completed, because the item isn’t moved manually down the workflow: CMW Tracker moves it automatically and creates a task to the appropriate assignee along with sending an email notification to them.

Note: Then it comes to expenses management, companies frequently consider streamlining both CapEx and OpEx management. Learn more about these 2 types of operating expenses in this article – “What is CapEx and OpEx”.

An automated system doesn’t mean that your work becomes automated. You can discuss, accept, decline, or reject tasks and requests submitted via capital expenditure form. The communication thread for online discussion stimulates team collaboration, at the same time helping to reduce the number of emails and meetings necessary to get more detail in order for the decision to be taken. The single place for CapEx data storage makes document tracking quick and easy deal. The additional benefits of the online process result in reduced paperwork and time saved on the process approval.

With the CMW Tracker Finance and Administration solution, you can see all of the capital expenditures in the form of configurable lists that give you an overall view of your investments, where each process has its status at the current moment. No need to make manual updates: while your team is working on the process, CMW Tracker gets information from each task owner and keeps it in a single place. All the data is available online and stored either on your corporate server (if you chose the on-premise deployment) or in the Cloud (in case of the monthly SaaS subscription).

Get our PDF Case Study to learn how Hertz has leveraged CWM Tracker to create a modern CapEx approval application, which replaced complex Excel files and dramatically reduced the expenditure approval cycle time, decreased operational expenses and minimized financial risks.

Your company has specific capital expenditure approval processes or CapEx requests that go beyond the norm – not a problem. Workflow software by CMW Lab allows non-technical users to configure customized CapEx forms and design your own workflows in drag and drop web-interface. CMW Tracker ensures that your capital expenditure requests are handled properly and minimizes risks.

Role-based access to the data makes it possible to share the information of the capital expenditure process only with those whom it might concern. In case other departments of your company use other CMW Tracker Solutions, they will only have access to the data they need for work. At the same time you can share data across the application when the need arises.

If you are still doubtful whether the online CapEx approval workflow process is easy to work with and will give you more visibility on assets acquisition and renovation, take an online tour or use a trial version of CMW Tracker Finance and Administration Solution – that is more persuasive than any marketing can be.

The post Capital Expenditure (CapEx) Approval Process appeared first on CMW Lab Blog.

Let’s fantasize a little – the head of your marketing department, John Smith comes to your accountant, Mary Longhorn, and asks for money to buy a video camera. And Mary gladly accepts his request and grants him $5000 from the budget. Do you think it is a good, real-life example? I doubt it…

Paper Era

In real life, before Mary gets the money out of the budget, the camera purchase must be approved by one or several company employees. How does it look in real life? Let’s start from practice, which was standard about 20 years ago.

John Smith fills in a paper (with his ink pen), in which he writes the purpose for the purchase – “filming commercials for our marketing campaigns”, amount of capital expenditure ($5000) and estimated date of purchase.

After that he comes to the vice president‘s (Peter Thomas) office and waits for about 20 minutes, before the VP finishes his meeting. He says: “Peter, please approve this paper. We really need this camera next week”. But Peter cannot approve this purchase, because he knows that any spending of more than $3000 must be approved by the Chief Financial Officer – Michael Mendez.

And he sends John to the next office. John spends the whole day moving from one office to another, until he gets all the approvals required for Mary (and for the camera purchase, finally). And he will get his camera, but the whole workday is lost unless John has an assistant, Pauline, who does most of the work for him (and Pauline could have been a painter or a talented process manager instead, but unfortunately somebody has to be John’s assistant because there are so many papers and approvals).

And what if John asks his secretary to approve this paper? This paper could get lost in a folder, called “Archive documents, 1966”. Sounds depressing – doesn’t it?

Computer era

Let’s continue with 10-15 years old practices…

It was the start of the Internet era and email became the main means of business communication. So – what has changed in CapEx tracking? Instead of manually bringing his paper to Peter (or sending him a fax), John will send him an email with the same contents as on the paper. But again – why does John still send the request to Peter?

It must be sent to Michael and Peter didn’t know about this. Zero progress here then! Moreover someone receives 1-10 emails per day, but Peter (as VP) receives about 50-100 letters each day. And there is a chance that Peter’s letter will just be ignored (or moved to the ‘Spam’ folder and deleted later).

So, can we think that usage of emails improved CapEx tracking significantly? I can see the only improvement – sending an email is faster than bringing a paper physically. But, in general, everything is the same – the problem still exists…

Smart Era

Now let’s think about John, Peter, Michael and Mary in today’s environment. They work on a successful modern campaign, which is not afraid of technological innovations. And this company has bought Comindware Tracker. I am not saying that is the top of the evolution, but this is one of the most up-to-date solutions from the point of view of how it’s done, what technologies it has in it, and how it works.

Besides many other uses, our main characters use Comindware Tracker for CapEx tracking. So, John logs in to Comindware Tracker and creates a new object in the “CapEx Approvals” application. Everything is quite simple – he fills in the “Title” (video camera for commercials), “Department” (marketing department) and “Total amount” ($5000) fields and presses the “Save” button. After a final look at the request form, he delegates it to the next responsible person – in our case it is Peter. Peter is immediately notified about the new request via email (but of course, he also sees that he has a newly assigned task in the Comindware Tracker UI) and approves (or rejects) it.

You can add custom restrictions to workflow, thus not allowing Peter to approve requests that are more than $5000 in total. Or you can automatically choose the approver by analyzing the requested amount. Everything is possible with highly-customizable workflows in Comindware Tracker. OK – let’s continue with our process. So, Peter transfers the request to Michael, and he finally approves it after browsing his inbox in Comindware Tracker.

So – what are Comindware Tracker benefits in CapEx tracking? Here they are:

• You will never loose information – it is stored in a reliable database and every person, responsible for the current state of the approval process sees their tasks right after logging in to Comindware Tracker;
• The relevant people are immediately notified about all approval changes via email notifications;
• All information is highly structured – you can organize it in convenient way, using Comindware Tracker list filters, and the sorting and grouping options;
• You can organize your workflow in a way that suits your organizational needs. Comindware Workflow Editor makes it a very convenient and easy-to-learn UI.

As you can see, CapEx tracking has changed a lot. Even more, you can go ahead and also streamline operational expenditure (OpEx) using the similar workflow automation approach. Learn more about streamlining both capital and operational operational expenditure in this article – “What is CapEx and OpEx”.

You can try Comindware Tracker yourself at any time for free. And the final benefit I prepared for you is that Comindware Tracker includes several prebuilt solutions for different departments and businesses. And we have a solution for “Finance and Administration” with a well-designed “CapEx Approval” process. You can set up this solution and try this yourself. And do not hesitate to change this process to your company needs – it is very easy, as I already mentioned before. So – enjoy Comindware Tracker and our pre-designed CapEx Approval process.

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