To run a successful company, there are few financial terms you need to know. CapEx and OpEx are two such terms. Read on to learn more about them.
Capital Expenditures
Capital expenditures (CapEx) are the monies used to buy important physical assets or services that will be used for at least one year.
Capital expenditures can include things like:
- Facility equipment acquisition
- Expansion and/or improvement to a facility
- Hardware purchases
A business’s sector can change the types of capital expenditures it makes.
Operating Expenses
Operating expenses are the expenses incurred from a business’ regular day-to-day operations. These can include things like
- Rent
- Utility bills
- Salaries and pension plan contributions
- Expenditure related to sales and administrative expenses
- Research & development
- Property taxes
- Business travel
- Licensing payments
- Advertising expenses
- Legal and/or attorney fees
- Insurance costs
- Property management expenses
- Property taxation payments
- Vehicle fuel, service and repair expenses
- Leasing contract costs
- Employees’ salary and wages
- Raw materials and supplies costs
Because a company’s largest expense is usually operations, administrators usually try to find ways to cut operating expenses without producing a serious impact on a company’s overall output. Unlike capital expenses, operating expenses are entirely tax-deductible for the tax year in which they were incurred.
It’s easy to see how operational expenses and capital expenses make up a big part of a business’s annual budget. When attempting to lower expenses and boost profits, it’s a good idea to properly balance your CapEx and OpEx. When handling an enormous CapEx project while simultaneously dealing with balancing your CapEx and OpEx, it is very important to keep your company’s established expenditure approval procedures updated, clear and transparent.
Want to know more about OpEx and CapEx and how they can help your business succeed? Call MaintenX today!
