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We all experienced the sales declines that characterized 2020; it was a year in which gardening tools, cooking “toys”, home gym equipment and electronics with the only categories in which there was real growth. According to Gartner, despite last year’s IT spending decline, 2021 is expected to see increases of 6 – 7% or more.
Yet, we’re all being asked to do more and more, with smaller and smaller budgets, at a time when costs are going up and up.
To make their dollars stretch further, increase product procurement flexibility and increase cash flows, IT decision-makers are exploring new options. Current trends include:
- Leveraging cloud computing
- Staggering payment schedules by adopting the “As-a-Service” model wherever possible
- Using Managed Services as a means of outsourcing and/or expanding IT capabilities
- Leasing equipment, rather than acquiring the asset out right
- Exploring Enterprise Agreements as a means of planning and controlling cash flow
The Difference Between CapEx and OpEx
Traditionally, IT expenditures, especially new equipment and some software, have been classified as capital expenditures (CapEx) because they are considered fixed assets, intended to be of service for 12 to 18 months or more. Servers, routers, Universal Power Systems and other similar items are typically purchased upfront, and depreciated over time.
For purchases such as real estate, there are significant advantages to these assets being capital expenditures. The rapid pace of progress is, however, prompting experts to rethink this approach in terms of IT expenditures.
Until now, operating expenses (the OpEx budget) have been used for items such as yearly service and maintenance contracts, licenses, insurance and the like. These expenses show up as part of your P&L statement and get deducted from your taxable income. They become part of your COGS, whereas it’s only the depreciation of capital expenditures that gets factored into tax return.
Purchasing equipment out right: Capital Expenditure. Leasing the equipment: Operating Expenditure.
Why IT Procurement Teams Are Opting for OpEx
Thanks to new cloud hosting capabilities, the increasing availability of “As-a-Service” models, and flexibility within leasing programs, it has never been easier to procure IT equipment and services using OpEx.
A couple of reasons why IT decision-makers are going this route:
- Just as CapEx and OpEx items get treated differently for tax purposes, they usually have different budgets, with different approval processes. An Accenture study suggests that approval for OpEx expenditures is easier and quicker than it is for capital expense items, which often require multiple levels of management approval.
- This approach reduces upfront costs, enabling more initiatives to be undertaken more quickly.
Why Various Forms of Leasing Have Growing Appeal
- Purchasing equipment outright requires accurate forecasting of future need; studies suggest that nearly 50% of companies “overbuy”, investing more money than they needed to.
- IT products have a limited lifetime. Compound this with rapidly changing technologies, and it’s easy to understand why organisations frequently find themselves wanting/needing to replace equipment before it is been paid in full. Unfortunately, once the asset has been paid for in full, many organisations will try to prolong its life to maximize the ROI of the initial investment. This can be a real problem in the IT world.
- At Cloud Managed Networks, we also have a program that lets you put everything – hardware, software, licenses, and all costs associated with assessments, installations, deployments, etc. – into a lease equivalent that can make 100% of your expenditure become part of your OpEx budget. This can it easier for IT departments to get the solutions they desire.
Why Enterprise Agreements Make Sense
- When you enter into an Enterprise Agreement (EA), you are securing a price for the length of the agreement, and you have the flexibility to scale as your company demands require.
- An Enterprise Agreement will cover upfront purchase fees and maintenance over a specific period, often three or five years. Licenses and features acquired have full portability.
- Many of our partners offer Enterprise Agreements, including Cisco which has revamped its program to make it easier and more attractive for customers.
Top Reasons to Adopt Software Subscriptions
In addition to being able to move costs into OpEx budgets, giving you linear predictable expenditures, this move enables you to:
- Have the latest features your fingertips.
- Ensure your network is protected with the most up-to-date technology solutions against the latest and most sophisticated security threats.
- Refresh your software independently of your hardware, increasing the longevity of owned equipment.
- Port company licenses as needed across various deployment models – cloud, on-premises or new hardware.
- It’s easily scalable, so you can shorten planning cycles and avoid long-term capacity planning errors leading to overspending.
- With some subscriptions, it is possible to scale up and down, which can be helpful if you need to make seasonality adjustments.
- It’s easier to measure ROI on a monthly amount, than it is to make the calculation against an asset that continues to age over time.
To view the infographic, please click here
How Leveraging the Cloud Helps
This discussion probably belonged earlier in this post, but there didn’t seem to be a logical place to put it – and it needed to be included, as it ties into cost savings.
In addition to the massive visibility, agility and access advantages provided by cloud, there is a cost advantage.
- When you have on-premises infrastructure, you also have the expense of supporting items such as your office data centre, related HVAC costs, UPS systems and generators, ongoing maintenance, insurance and personnel. When you move operations to the cloud, most of these expenses are replaced by a lower monthly cost.
- This move also enables you to avoid some of the ongoing system upgrade expenses, along with repair costs.
Clearly there are many options to help you acquire the hardware and software you need to achieve your desired business outcomes, in a way that works for your budget and cash low requirements. To learn about the various options that could work for you, please contact us at [email protected] or (416) 429-0796 or 1.877.238.9944 (Toll Free).