Here’s 4 things you need to consider.
As technology budgets evolve, more and more costs are being shifted from upfront capital outlays to monthly payment subscriptions. As such, more businesses are considering pivoting away from capital expenditure for the procurement of their technology and digital assets and exploring how OPEX and finance models could benefit them.
If you’re on that journey, or starting to think about it, then you’ll benefit from reading on and considering the below:
1. Defining the Why
Understanding the key driving force behind any change helps implement the most appropriate solution, and transition from CAPEX to OPEX for your technology acquisition is no different.
Businesses embark on this transformation for variety of reasons, but it’s usually along the lines of:
Preserving capital
Budget predictability
Financing urgent IT projects that have no capital budget
Or simply want to have better discipline in their technology refresh cycle
Knowing the key driving force can help determine the best type of OPEX model for your business.
2. Identifying Technology Assets for Conversion
Many technology solution expenses are incurred monthly already, but taking a look ahead at your technology investment roadmap and earmarking those costs that require significant capital investment is the ideal place to start.
Hardware assets are the obvious choice, this can range from:
Mobile Devices (Laptops, phones, tablets)
Desktop Devices (Desktop PC, Monitors, Docks, Accessories)
Infrastructure (Servers, Storage, Networking)
Audio Visual / Video Conferencing
And the list goes on. Rental OPEX models are increasing in popularity, assets that have a defined lifecycle and are rapidly evolving are prime candidates for rentals, and aligning the rental period to the warranty coverage is a great way to keep at the forefront of technology and also de-risk your business.
But what about intangible costs, such as software and services. Digital solutions often come with hefty upfront consulting and migration costs, and some software applications require multi-year subscriptions paid upfront. Financing these costs could provide the budget predictability and capital preservation your business needs, however there are other funding models to consider that could help you realise these costs as an OPEX.
3. Choosing the Right Transition Style
Another point to consider is what style of transition is best suited to your business. Focussing on your physical technology assets, your business may consider either a gradual or accelerated CAPEX to OPEX transition.
Style: Gradual
Process: As assets reach maturity age and need to be replaced all new hardware will be procured under an OPEX finance model
Benefit: This transition ensures a steady and manageable CAPEX to OPEX technology expenditure, ultimately enhancing your budget predictability and flexibility.
Alternatively, your business may consider:
Style: Accelerated
Process: Leverage the value of your existing hardware fleet by selling owned assets to a funder, and subsequently leasing them back.
Benefit: Inject capital back into your company's budget while simultaneously allowing you to embrace the benefits of OPEX financing. This transaction is known as a Sale and Leaseback, common in real estate and for high-value assets, but advantageous in the technology space in the right scenario.
4. Internal Stakeholders & External Expertise
Successfully transitioning from CAPEX to OPEX involves aligning various internal stakeholders within your business. Key players may include:
Finance teams responsible for budgeting and financial strategy
IT departments overseeing technology acquisitions
Business decision-makers involved in the overall business strategy
Engaging these stakeholders early in the process ensures a comprehensive understanding of their needs, concerns, and objectives, facilitating a smoother transition and better integration of the new financial model into your business’s workflow.
External support is also critical for a seamless transition. Collaborating with experts who specialise in technology financing can assist in:
Evaluating your technology asset report and offer recommendations for asset lifecycles
Determining whether an Accelerated or Gradual transition is most suitable for your business
Connecting you with diverse lenders specialising in specific technology rentals and software/services funding models
Leveraging a comprehensive suite of financial products tailored to your unique needs, will unlock the ideal transitions pathway for you.
Facilitating asset buyback options for retired assets, injecting capital back into your budgets, and optimising financial outcomes
Conclusion
As businesses pivot towards monthly payment subscriptions for technology investments, a successful transition from CAPEX to OPEX hinges on strategic considerations. Defining the motive behind the change sets the groundwork and allows you to align business goals with the most suitable OPEX model. Identifying convertible assets, choosing transition styles, and engaging internal stakeholders are critical steps for flexibility and budget predictability.
For further insights and a personalised discussion on optimising your financial outcomes, book a 15-minute call with Zeal Capital. We're here to answer your questions and explore how we can enhance your transition from CAPEX to OPEX for your IT Expenditure.
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