Cash is king, so don't splurge it all on expensive purchases. Much better to dip and dip out.
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Managing expenditure is critical to the success of any business, so finding ways to cut or spread costs, without compromising productivity, is extremely valuable. For many businesses, the first step is minimising capital expenditure.
However, many essential assets require a significant outlay, and it can be difficult to reduce these costs without forgoing important resources.
Many aspiring businesses are held back by the prohibitive costs of breaking into the professional market. This is where the OPEX (operating expenses) model comes in. Capital expenses (CAPEX) tend to be large purchases which, for tax purposes, depreciate over a number of years, limiting the potential recovery of costs.
However, operational expenses refer to your ongoing business costs. Not only are these costs tax deductible within the same year, but they can often mean lower overall expenditure on essential assets. This means you can recoup more of your costs within a shorter period, freeing up funds to develop other areas of your business.
Leasing and Inventory Management
A simple way to shift some of your CAPEX to OPEX is to consider leasing hardware rather than purchasing it. Not only does this spread the cost, and avoid the issue of calculating depreciation, but it also reduces your maintenance obligations.
Meanwhile, your in-house technical staff can learn to carry out essential maintenance across the board, safe in the knowledge that advanced issues can be handled by the supplier.
This removes the need for inventory estimations, and the risk of over-ordering. Consequently, you free up space and funds that would otherwise be tied up in spare parts, depreciating in storage.
Cloud Hosting and Virtual Services
In addition to leasing equipment, you can save on overall maintenance and hardware costs by moving to a hosted system. IT hardware and infrastructure is often the source of a large portion of a business’ capital expenditure, particularly for new businesses. On top of the initial outlay, ongoing maintenance and support, often referred to as “total cost of ownership” (TCO), soon adds up. As such, this is a critical area to review when considering a switch to an OPEX model.
Hosted telephony and cloud computing have become the foundation of many modern business models, allowing for enhanced flexibility and workforce mobility, without compromising quality of service. Instead of purchasing physical hardware, you instead pay a monthly fee according to the number of licences you require for the service.
This can be increased or decreased as needed, and can be extended to include personal mobile devices, international branches, and backup facilities. This means you can scale your available resources to the needs of your workforce, rather than upgrading infrastructure beyond your regular requirements, catering for occasional high demand.
In fact, a virtual telephony system can completely remove the need for physical premises. This can significantly diminish your overall expenses, and reduces the capital outlay on typical office equipment and furniture.
Economic and Environmental Sustainability
Making the switch to a hosted system has also become an important part of future-proofing your business. With BT’s planned switch-off of ISDN by 2025, the integration of VoIP technology will soon become a necessity. Fortunately, the functionality offered by hosted systems makes this a positive investment.
Furthermore, by centralising your data, and making it accessible to all members of your team, you enable your employees to share and collaborate on documents via the hosted network. This cuts down on the need for hard copies of files, which in turn reduces printing costs, and reduces your carbon footprint.
For growing start-ups, or organisations with limited cash-flow, an added layer of security can be gained from invoice discounting. In essence, your invoices are handled by an invoice finance provider, which advances you a percentage of each invoice’s face value before collecting the balance from the debtor.
Once the invoice is paid, the balance is then transferred to you, minus the finance provider’s fee. What this means is that your business can take on more ambitious contracts, without worrying about debts going unpaid. In addition, the advancement of a portion of the funds allows your business to move directly from one project to the next, rather than being hamstrung by late payments.
Potential for Growth
Ultimately, the key to optimising your expenses management is a comprehensive understanding of your business needs. The flexibility of on Opex model enables you to budget more effectively, and fund more ambitious ventures without jeopardising your financial security.
Take advantage of the expanding array of cloud-based services and business mobility solutions, and cut back on wastage by outsourcing typical money-sinks, such as inventory and invoice management.
Whether you are just starting out, or simply exploring ways to accelerate the growth of your business, optimising your financial model will give you a solid foundation on which to build.
Over time, this model can evolve with your business, ensuring that you get the most out of your budget, while continuing to provide an up-to-date service in accordance with the growing needs of your organisation.