Capital Expenditure, or CapEx as it is commonly known, refers to the money spent on assets that are intended to last for more than one year. Examples of such investments include buildings, equipment, and machinery. All costs incurred to obtain or maintain these assets over the years are included in CapEx.
Operating Expenditure (also known as OpEx) encompasses those costs that are essential in the day-to-day running of a business. This includes salaries, rent, utilities and other costs associated with regular operations. It’s basically what you spend to stay open for business.
You may be asking: why does it matter? When planning for the future of a business, it’s important to consider whether an expense will be CapEx or OpEx – each one carries a different implication in terms of how it affects cash flow. CapEx can generate long-term advantages but requires upfront payments; OpEx is often cheaper in the short-term but could lead to a decrease in profits over time. So it’s worth taking the time to decide which type of expenditure best serves your business goals.